Why issue Unapproved Options
Unapproved options or “non-tax advantaged” options are those made outside of an approved scheme. Although approved schemes offer tax reliefs to encourage take up, in some cases unapproved options need to be made, as the company being ineligible for the scheme or the intended participants being ineligible. For instance, a company may wish to make awards to a non-employee such as a Non-Executive Director or a consultant.
The tax treatment
The tax treatment for unapproved options is similar to that of a cash bonus.
The award of the options is not a taxable event for the Company, unless the underlying share is deemed to be a Readily Convertible Asset (“RCA”), in which case Employers’ NIC will be due.
For the employee, tax will only become due on the date of exercise on the difference between the exercise price and the market value of the share on that date. If the underlying share is an RCA, Employee NICs will be due at that date. Both the income tax and NICs will be paid by the company and the participant will need to refund the company this amount within 90 days.
How Pett Franklin can help
With an unapproved option scheme, we can help with:
- Plan design;
- Share valuation;
- Tax advice;
- Preparation of plan documentation;
- Plan communication;
- Accounting; and
- Reporting requirements.
Contact us below to find out more and discuss how such a scheme could help you or your client.