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Oury Clark will provide a free consultation and advice on this matter by phone or at our offices at your convenience. Should you wish to request one please complete the form and we will be in tax on exercised share options to arrange shortly. To avoid this exposure, it is vital to take professional advice and to consider adopting one of H.
At this time, the employer will also need to make an NI contribution. In order to mitigate such charges, HMRC has approved a number of schemes to reduce the tax liability attributable to awarding share options. Approved share option schemes. The first two of these, SIP and SAYE, are relatively low value schemes which are usually only used by very large organisations to incentivize a sizeable workforce. Where adopted, these schemes must be made available to all employees, including part-time employees who should be treated in the same way as full-time employees on a pro-rata basis.
The CSOP and EMI schemes are discretionary schemes allowing a significant award of share options with more favourable tax treatment than unapproved schemes. If a company decides to set up a SIP, it can choose to offer one of four types of SIP shares to its employees or a combination of these. The four types of SIP shares are: Please note that in each instance it is actual shares being provided as opposed to options over shares.
There is no Income Tax charged on the dividends that are paid out. All shares held under the scheme must be ordinary, non-redeemable and fully paid-up, but they can be subject to voting and disposal restrictions, and will also need to be held for at least five years before being sold. The company will need to tax on exercised share options up a trust to hold the shares, for a holding period between three and five years. However, Corporation Tax Relief can be obtained by the company for the cost of setting up and administering the scheme.
The SAYE scheme again has to be made available to all employees. However, the company can specify a qualifying period of employment of upto five years. Provided that the minimum option period tax on exercised share options three years is observed, there is no Income Tax charge on the grant or exercise of the option. Companies will receive Corporation Tax Relief on the cost of establishing and administering the scheme, and at the date on which shares are issued.
The option period must be between 3 and 10 years. Income Tax and NI are not due when the option is granted or exercised, making this scheme very tax efficient, however, a potential barrier to its use lies in the fact that any options issued must tax on exercised share options in the ultimate parent company of a group, and must be of the same class as those held by the group controllers, and will not be subject to any restrictions in terms of voting rights, etc.
The tax on exercised share options benefit of using an EMI Scheme is that no Income Tax or NI contributions are charged on the grant of EMI options, and, provided that i the exercise price is at least equal to the market value at the date of grant, and ii the options continue to qualify until the date of exercise which must be within ten years from the date of grantthen there will also be no Income Tax or NI charge at the point of exercise.
Any cash cancellation payment paid in lieu tax on exercised share options exercising the options will not enjoy the same tax treatment and will be subject to Income Tax and NI. Further, if options are granted at a discount on the market value, then there will be an Income Tax charge on the difference between the actual price paid at the time of exercise and the market value at the date of grant, together with a likely NI charge. As with the CSOP, the EMI scheme is discretionary, and the options have to be for ordinary, irredeemable and fully paid-up shares in the ultimate group parent company.
Unlike the CSOP, there are various eligibility criteria that must be met by both the company and its employees in order to qualify for the EMI scheme.
Other restrictions also apply depending upon the activities of the business. For more information on this topic please see our separate Tax on exercised share options Guide found here. Please note that where such an election is not made, the employer will have an unknown liability to consider and disclose in its annual accounts, which can create problems for accounting purposes.
When considering issuing share options to employees, it is imperative that careful consideration is given to the various schemes available to ensure that the most tax efficient method and commercially suitable plan is chosen.
Oury Clark would be happy to assist and advise you in this process, so if this is an area which you would like to receive further information, then please contact us to arrange a meeting. This note does not contain a full statement of the law and it does not constitute legal advice. Please seek legal advice if you have any questions about the information set out above.
Tax on exercised share options us on Twitter Join us on Linked in Search. Further information When considering issuing share options to employees, it is imperative that careful consideration is given to the various schemes available to ensure that the most tax efficient method and commercially suitable plan is chosen. Overview of UK Share option Schemes.