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UK: Tax issues arising under certain employee share option plans

UK: Tax issues, certain employee share option plans

Enterprise management incentives—that is, tax advantaged employee share options—are used as incentives to recruit and retain employees. However, companies and their employees may discover that some (or all) of the tax advantages have been lost.


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Income tax charges (and potentially PAYE, national insurance contributions, and apprenticeship levy obligations) can arise if the share options were not “qualifying” enterprise management incentive options to begin with, or if an unexpected “disqualifying event” was overlooked. Entrepreneurs’ relief for employees may also be lost on the sale of shares acquired on exercise.

If a loss of the tax advantages is only discovered on a due diligence exercise immediately prior to a sale, listing or other option exercise trigger-event, it may be too late to correct the position and can be costly for the employer to compensate employees. Employers with these share plans need to be vigilant to deliver intended tax advantages and need to consider reviewing their plans and, if needed, make corrective actions.

Read a December 2019 report prepared by the KPMG member firm in the UK

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