Historically, HMRC has generally accepted that either method of collecting the tax charge is valid, as long as it is followed consistently. Follow Please login to follow content. A corporate pension plan is a formal arrangement between a company Skip to main content. This change should help companies with very volatile share prices that offer their employees substantial share options as part of their remuneration package. Additionally, employers may also make elections covering options granted to their employees where the share option gain is made after 19 May but before the election is made provided that the election is made by the 27 October Under a typical Share Option Plan, an employee is granted an option to acquire a specified number of shares, say, three years later at the share price at the date of grant.
Generally, income tax and primary (employee’s) national insurance contributions (primary NICs) are payable by an employee on the exercise of an unapproved share option. In certain circumstances.
Any increase in the share price after the grant date is exempt from income tax and NICs. It cannot be used by companies in certain sectors, such as land dealing, farming, leasing, banking, ship building and coal and steel production. Nil-Cost and Nominal-Cost Options. While traditionally the exercise price of an option has been the same as the share price at the grant date, some companies have granted Nil-Cost Options with a zero exercise price or Nominal-Cost Options with the exercise price equal to the par value of a share as an alternative to Performance Share awards.
These can give employees more choice about the time when the option is exercised and, therefore, when the income tax charge is triggered. However, on exercise the employee does not pay any exercise price but receives an amount equivalent to the gain, either in shares or in cash.
This should be evidenced in writing. Under the joint election route, the employee and employer must enter into a joint election prior to the secondary NICs liability arising.
The form of the joint election requires prior approval by HMRC. The approval process takes ten working days fast track or four weeks standard timescale. Employers may use one of the two templates set out on the HMRC web site or prepare their own draft.
Amongst other things, HMRC will want to be satisfied that there are appropriate arrangements in place to ensure that the secondary NICs are paid generally by the employee authorising the sale of sufficient shares. The joint election allows the liability for the secondary NICs to be transferred to the employee so that HMRC will not pursue the employer if it is not paid.
If in the course of an enquiry it becomes apparent that the form of election used has not been HMRC-approved, it may invalidate the election although this will depend on the facts of the case. Irrespective of which route is followed, the employee will be entitled to income tax relief on the amount of the secondary NICs payable. Following the relief, a higher rate taxpayer will have a combined NICs and income tax liability of Both routes are popular with companies wishing to reduce employment costs and plan for future NICs liabilities.
From a practical perspective:. If you have a direct financial interest in your employer that goes beyond a smile salary, you will be more incentivised to make the business a success.
Larger companies can utilise the various schemes to attract high-quality staff, and for smaller employers or start-ups, they are a useful and potentially more rewarding financial recompense than unaffordable fixed salaries. Some share schemes can also be more focused by being linked to individual or company-wide performance.
Employees under these schemes will usually be taxed, and pay National Insurance Contributions NIC on the market value of any shares given to them by their employer, as if it was part of their earnings. Participants are awarded shares now rather than being granted options that would entitle them to acquire shares in the future.
Any dividends payable on the shares in the SIP can also be reinvested in further shares, known as dividend shares. These schemes are designed to help small, higher risk companies recruit and retain employees by offering them tax-beneficial share options. Each option entitles the employee to acquire shares at a future date, at an agreed price at the date of the grant.
If the value of the shares rises between the option and exercise dates, then you will clearly benefit.
Employment law- Share and stock options
As an employer, you can legally agree with employees to transfer your National Insurance contributions liability to them on certain shares and share options. This is known as a joint National. Cookies on Pinsent Masons website. which transfers the liability for employer's National Insurance contributions (NICs) from the employer to the employee. employers may also make elections covering options granted to their employees where the share option gain is made after 19 May but before the election is made provided . Unapproved share options are subject to income tax and (usually) national insurance contributions (NICs) on the gain at the exercise date. Company Share Option Plans (CSOPs) are tax-efficient share option schemes, which allow for share options to be granted over shares worth up to £30, to each individual.