CH 28 - Introduction to Share Schemes

Question 1

List 4 main types of tax-advantaged share shcemes.

which have tax and NICs advantages

Answer 1

• • Share Incentive Plans (SIPs);
• • Save As You Earn (SAYE) Share Option Schemes;(Not in the AT OMB syllabus)
• • Company Share Option Plans (CSOPs); and
• • Enterprise Management Incentives (EMIs).

It is also possible to have other schemes which do not benefit from the tax and NICs advantages.

Question 2

What is a share option?

Answer 2

A share option is the right to acquire shares (here in the employer company) in a given time window.

Question 3

List 3 reasons for setting up a scheme.

Answer 3

Share incentive and share option schemes are used to:
* * reward employees for work done;
* * incentivise employees to work hard to increase the value of the company; and
* * retain employees.

Question 4

What happens on gift shares?

Answer 4

If shares are given to an employee, this will simply be taxable employment earnings.
The award of shares is reported to HMRC online. (by 6 july following the end of tha tax year)

Question 5

What are tax implications for ‘readily convertible shares/assets’?

Answer 5

If the shares are readily convertible assets, eg listed shares, PAYE and Class 1 NICs will be due.

PAYE will be deducted from cash pay and the usual 50% restriction on the amount of PAYE collected in this way does not apply.

Question 6

What are tax implications for ‘non-readily convertible shares’?

Answer 6

• do not attract PAYE nor Class 1 or 1A NICs, but
• they will be subject to tax on the value of the shares through the self- assessment system.