Chapter 34 Company Share Option Plans Flashcards
Company share option plans
Under this scheme the employer grants an option to an employee giving them the right to buy shares at a fixed price within a specified period of time. The price at which they can buy the shares must not be less than the market value of those shares at the time the option was granted.
Conditions – the company must be registered with HMRC, the shares being acquired must be ordinary shares. The employer can invite selected full time directors (more than 25 hours a week) or full or part time employees to participate. Individuals with a material interest (more than 30% of shares) are not allowed to participate. The maximum value of shares which an employee can hold options cannot exceed £30,000.
Tax Implications – there is no income tax or NICs when an option is exercised between 3 and 10 years from the date the option is granted. There is also no charge when the option is exercised within 3 years if the individual ceases to be a full time director or qualifying employee due to injury, disability, redundancy or retirement, the it must be exercised within 6 months of such cessation. Otherwise if the option is exercised before 3 years or after 10 years, they are subject to income tax. The market value of the shares at exercise less the amount paid for the shares are subject to income tax. If the individual was not subject to income tax, the only tax payable would be capital gains tax. This is the sale proceeds less purchase cost, to find the taxable gain.
