Financial Benefits to Encourage Employee Participation

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The shares must also be fully paid up and neither redeemable nor convertible; the option must be non-assignable;²⁰¹ the terms must be agreed in writing.²⁰² however, there are no rules directing the conditions under which the share may be issued; so the shares may be non-voting or subject to preemption rights on the part of the company. This is to allow the company to protect its independence.²⁰³

16A.9.2    Tax Treatment

If the option is granted at current market value there is no income tax liability on either the grant²⁰⁴ or the exercise of the option.²⁰⁵ However, if the option price is below market value there will be a Schedule E charge on the value of the discount.²⁰⁶ The option may be at a nil cost; in this case a charge arises under TA 1988, section 135 by reference to the value when the option is granted or, if lower, when it is exercised. The company may grant options at a price above market value if it wishes.

16A.9.2.1    Disqualifying Events²⁰⁷

The precise effect of such an event depends on its nature. The events are

1. loss of independence, ie becoming a 51% subsidiary of another company or otherwise coming under the control of another company;
2. ceasing to meet the correct trading activities requirements;
ceasing to meet the eligible employee requirements, eg the 75% working time conditions;²⁰⁸

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