CH 31 - Non-Tax Advantaged Share Option Schemes

Question 1

What tax applies to non-tax advantaged share option scheme?

Answer 1

• always an income tax charge at exercise, as follow
• • MV at exercise
• -(Less) amount paid for shares
• • = Amount charged to income tax
• The exercise must be reported to HMRC
• if shares are readily convertible assets, then they are subject to PAYE/NICs

CGT applies if the shares are sold for proceeds in excess of MV
as follow;
Sales proceeds
Less: Amount paid for shares
Less: Amount charged to income tax on exercise (before relief for any employer’s NIC)
= GAIN

If the employee pays the employer’s NICs liability, the amount paid reduces the amount charged to income tax.

Question 2

What happens should in the agreement state that employee pays the Employer’s NICs liablity in connection with non-tax advantaged share option scheme?

Answer 2

he amount paid reduces the amount charged to income tax

Question 3

Which case established , where employees are awarded shares in thier employer’s company, the MV of shares less what employee pays is immediately taxable as earnings?

Answer 3

Weight v Salmon (1935)

Question 4

for EMIs

Define Trading requirement & qualifying status of options

5 items

Answer 4

The company must;
- exist wholly for the purposes of carying on a ‘Qualifying trade’
- have permanent establishment in UK
- carrying on trade or preparing to do so
- the trade must be conducted on commercial basis
- must not to any substantial extent, include the carying on of excluded activities