What are share options?
• Right to acquire shares at a future date
(pursuant to certain conditions) at a fixed
price (value of the shares at date option is
granted, frequently set at nil)
• Provide a reward for the option holder based
on future growth in share value
Why share options?
Incentivise, align interest with owners
No initial cost to the individuals issued with
• More flexible and simpler for company than if
employees/consultants held the shares
Types of share options
• EMI and other government approved share
option schemes which have tax benefits
• Unapproved share options
Grant of options
• Option plan rules, option certificate and
• Report the grant of options to HM Revenue
and Customs by July 6 following the end of the
relevant tax year
Exercise of options
Exit event such as the company being sold or listed on a stock exchange.
National insurance contributions liability for the employee and the employer on the amount of the
Possible capital gains tax on the difference between the price received for the sale of the shares
and the market value of the shares on the date of exercise of the option. However if option is
exercised and the shares sold on the same day, there will normally be no capital gains tax to pay.
Income Tax and National Insurance contributions when you use the option to buy shares for less
than their value. Income tax is charged on the difference between the market value of the shares at
the date of the exercise and the option exercise price). For example, if a consultant is granted an
option over 5,000 shares and the option exercise price is £2 and the option is exercised when the
shares have a market value of £5, the taxable option gain will be (£5 x 5,000) - (£2 x 5,000) =
£15,000. The income tax is payable by the employee through their self assessment tax return for
the relevant tax year.
• Good and bad leaver provisions
• Options can be cancelled automatically should
the consultancy agreement be terminated by
either party before an exercise event