Hmrc stock options tax

Company Share Option Plan: guidance notes.

Updated 10 June 2016.

© Crown copyright 2016.

This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives. gov. uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or : psinationalarchives. gsi. gov. uk.

Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.

This publication is available at gov. uk/government/publications/company-share-option-plan-end-of-year-return-template/company-share-option-plan-guidance-notes.

Guide to completing Company Share Option Plan (CSOP ) annual return attachment.

The company secretary or the person acting as the company secretary must complete an online end-of-year return on or before 6 July for each registered and self-certified Schedule 4 Company Share Option Plan (CSOP ) scheme.

The CSOP attachment only needs to be completed and then uploaded where there are outstanding qualifying options and there has been CSOP options activity in the tax year.

You will need to complete an online ‘nil’ return if you have registered the scheme online and there are no outstanding qualifying options , or there are outstanding qualifying options but there has been no CSOP options activity in the tax year.

Complete only the worksheets that are relevant but upload the whole workbook, including any blank sheets. If you change the structure or formatting of your attachment it will be rejected.

If you have created your own Comma Separated Values (CSV ) files using the HM Revenue and Customs (HMRC ) provided technical note, upload each CSV file that contains data relevant to that scheme type.

You should complete the attachment to the best of your ability taking reasonable care to provide all the relevant information.

You can use the Employment Related Securities (ERS ) checking service to check your attachment. The checking service will tell you if and where there are any formatting errors in your attachment. You can use the checking service as often as you like. Checking your attachments regularly allows you to identify and correct these errors. This makes it easier to submit your return at the end of the year. The checking service is accessed through ‘view my schemes and arrangements’ on the online ERS service.

General guidance on valuations.

All values should be entered in pounds sterling and pence and entered to four decimal places. Where necessary, round up figures ending in 5 or more and round down figures ending in 4 or less. Use any reputable currency convertor to convert to pounds sterling if the value is quoted in another currency.

There is no change in valuation practice with the introduction of the templates. It is not necessary to have formally agreed the valuation of shares and securities with HMRC . However, where shares are not listed on a recognised stock exchange, you may have asked for a valuation from HMRC . If you agreed a valuation with HMRC then provide the reference number on the attachment. If the number is prefixed with ‘Company Reference Number (CRN )’ do not enter those letters. If you didn’t get a valuation you should continue to retain records of how you reasonably established the valuation.

Actual Market Value (AMV )

AMV is the value of a share or security after taking into account any restrictions or risk of forfeiture.

Unrestricted Market Value (UMV )

UMV is the value of a share or security ignoring any restrictions or risk of forfeiture.

Recognised stock exchange.

General guidance on completing the attachment Where a question or column doesn’t apply leave the entry blank. Entering ‘N/A’ or ‘not applicable’ will result in your attachment being rejected. Where a question or column requires a yes/no entry, the following formats are acceptable:

CSOP_OptionsGranted_V3 worksheet.

Use this worksheet to tell HMRC about any CSOP options you’ve granted in the tax year.

Question 1: date of grant (yyyy-mm-dd)

Enter the date the CSOP options were granted to the employees. The date will be on the option certificate and it must be within the tax year covered by this return.

Question 2: number of employees granted options.

Enter the total number of employees granted CSOP options on this grant date.

Question 3: over how many shares in total were CSOP options granted for example 100.00.

Enter the total number of shares to 2 decimal places and NOT the value of the shares granted under CSOP options on this grant date.

Question 4: UMV of each share used to determine option exercise price for example 10.1234.

Enter the market value of a share ignoring any restrictions or the risk of forfeiture and this should be entered to 4 decimal places. How the option exercise price is to be determined will be explained in the company’s CSOP scheme rules.

Question 5: option exercise price per share for example 10.1234.

Enter the price at which the employee was granted the option. It is the price the employee will pay for each share on the exercise of the share option. This should be entered to 4 decimal places.

Since Finance Act 2013, CSOP options can be granted over certain restricted shares. In some cases it is possible to have a higher exercise price than the UMV . The exercise price cannot be lower.

Question 6: are the shares under the CSOP option listed on a recognised stock exchange? (yes/no)

If no, enter no and go to question 7.

If yes, enter yes and go to question 9.

AIM is not a recognised stock exchange.

For more information, go to what is a recognised stock exchange and a table of recognised stock exchanges.

Question 7: if no, was the market value agreed with HMRC ? (yes/no)

The market value of shares under CSOP options can be agreed with HMRC in advance of the date of grant of options.

Enter yes if the market value was agreed in advance and go to question 8.

Enter no if it was not agreed in advance and go to question 9.

Question 8: if yes, enter the HMRC reference given.

The HMRC reference will be on the valuation letter sent to you from the Shares and Assets Valuation office. The reference given will normally be your CRN . Enter the numbers only from this reference ignoring any letters.

Question 9: using UMV at the time of each relevant grant, does any employee hold unexercised CSOP options over shares totalling more than £30,000 including this grant?(yes/no)

Enter ‘yes’ if an individual holds over the £30,000 limit. Then register a separate non-tax advantaged scheme or arrangement and report the grants over the individual CSOP limit on the ‘other’ attachment.

CSOP_OptionsRCL_V3 worksheet.

Use this worksheet to tell HMRC about options released (including exchanges), cancelled or lapsed in the tax year. Where an option is released, exchanged, cancelled or lapsed and no consideration was received don’t complete this sheet. No information is needed for this event.

Question 1: date of event (yyyy-mm-dd)

Enter the date the option is released (including exchanges), cancelled or lapsed for a consideration.

Question 2: was money or value received by the option holder or anyone else when the option was released, exchanged, cancelled or lapsed? (yes/no)

You should only complete this worksheet if the individual employee or anyone else received money or money’s worth when the CSOP options were released (including exchanges), cancelled or lapsed.

‘Money’s worth’ means something that is:

of direct monetary value to the individual employee or someone else, or capable of being converted into money or something of direct monetary value to the individual employee or someone else.

Question 3: if yes, amount or value for example 10.1234.

The amount or value should be to 4 decimal places.

Question 4: employee first name.

This is the employee’s first name.

Question 5: employee second name (if applicable)

If the employee’s second name is not available or they have no second name, leave blank.

Question 6: employee last name.

This is the employee’s last name.

Question 7: National Insurance Number (if applicable)

If the employee does not have a National Insurance number then leave blank.

Question 8: PAYE reference of employing company.

Enter the PAYE reference number of the employee’s employing company.

Question 9: Was PAYE operated? (yes/no)

Income tax and National Insurance Contributions (NICs ) will be payable on the amount of money or money’s worth received. The income tax and NICs is payable through PAYE.

CSOP_OptionsExercised_V3 worksheet.

Use this to tell HMRC about options exercised in the tax year.

Question 1: date of event (yyyy-mm-dd)

Enter the date option was exercised by the employee.

Question 2: employee first name.

This is the employee’s first name.

Question 3: employee second name (if applicable)

If the employee’s second name is not available, or they have no second name, leave blank.

Question 4: employee last name.

This is the employee’s last name.

Question 5: National Insurance Number (if applicable)

If the employee does not have a National Insurance number then leave blank.

Question 6: PAYE reference of employing company.

Enter the PAYE reference number of the employee’s employing company.

Question 7: date of grant (yyyy-mm-dd)

Enter the date CSOP options were granted to the employees. The date will be on the option certificate.

Question 8: total number of shares employee entitled to on exercise of the option before any cashless exercise or other adjustment for example 100.00.

Enter the number of securities to 2 decimal places the employee is entitled to acquire from this exercise. This is the gross number of shares ignoring shares withheld to pay for tax and National Insurance Contribution (NIC ) or the exercise price.

For example, an employee has options over 200 shares and chooses to exercise the option to acquire 100 shares. Forty of those shares are withheld to pay for the employee’s income tax and NIC liability. You enter 100 in this field.

Question 9: are these shares part of the largest class of shares in that company? (yes/no)

Some companies create different classes of ordinary share, for example ’A’ and ‘B’ ordinary shares. The largest class of share is the class of shares with entitlement to the largest proportion of value (£) on a winding-up.

If you only have one class of share, enter ‘yes’. If you have more than one class of shares and they are equal in value enter ‘yes’.

Question 10: are the shares subject to the option listed on recognised stock exchange? (yes/no)

AIM is not a recognised stock exchange.

For more information, go to what is a recognised stock exchange and a table of recognised stock exchanges.

Question 11: AMV of a share on the date of exercise for example 10.1234.

AMV is the value of a share or security after taking into account any restrictions or risk of forfeiture and should be entered to 4 decimal places.

Question 12: exercise price per share for example 10.1234.

Enter the price at which the employee was granted the option. It is the price the employee will pay for each share on the exercise of the share option. This should be entered to 4 decimal places.

Question 13: UMV of a share on the date of exercise for example 10.1234.

Enter the market value of a share ignoring any restrictions or the risk of forfeiture to 4 decimal places.

Question 14: if the answer to question 10 is no, was the market value agreed with HMRC ? (yes/no)

If yes go to question 15.

If no go to question 16.

Question 15: if yes enter the HMRC reference given.

The HMRC reference will be on the valuation letter sent to you from the Shares and Assets Valuation office. The reference given will normally be your CRN . Enter the numbers only from this reference ignoring any letters.

Question 16: does the exercise qualify for tax relief? (yes/no)

The answer will be yes if the option is exercised:

between the third and tenth anniversary of the date of grant by a good leaver, subject to the scheme rules, before the third anniversary of the date of grant.

Question 17: was PAYE operated? (yes/no)

PAYE should have been operated if the shares are readily convertible into cash. There are exceptions for example where the employee left employment because of injury, disability or redundancy.

If no, go to question 20.

Question 18: if yes deductible amount for example 10.1234.

Enter the total amount of:

any amount paid for the grant of the option any expenses incurred for the acquisition of the securities.

exercise price also often referred to as grant or strike price any expenses in connection with the sale or disposal of the securities any Employers NIC the employee may have agreed to pay under a joint NIC Agreement or Election Income Tax.

Question 19: has a NICs election or agreement been operated? (yes/no)

This is when the employer and the employee agree or jointly elect for the employee to meet the employer’s liability to pay secondary NICs on certain types of share awards and share options gains. The employee can then get a deduction equal to the amount of secondary or employers’ NICs transferred when working out the amount chargeable to income tax.

Question 20: were all shares resulting from the exercise sold? (yes/no)

Enter ‘yes’ if shares were immediately sold on exercise or instructions were given to sell on exercise. The application of a price limit should be disregarded.

Enter ‘no’ if any shares were retained or at a later point the employee decides they now want to sell the shares.

Help us improve GOV. UK.

Services and information.

Departments and policy.

Support links.

Help Cookies Contact Terms and conditions Rhestr o Wasanaethau Cymraeg Built by the Government Digital Service.

All content is available under the Open Government Licence v3.0, except where otherwise stated.

Global Tax Guide.

For Individuals With Stock Compensation.

This guide explains the taxation of stock compensation in 40 countries , including the rules on income tax, social taxes, capital gains tax, income-sourcing, tax residence, exit tax, and asset reporting.

Coming soon! Guides for Austria and Portugal are in development and will be published during the 4th quarter of 2017.

To provide further resources, each country's guide links to the website of the national tax agency and, when applicable, to the country's tax treaty with the United States. The country profiles are routinely reviewed and updated as needed. At the end of each, the month of the most recently required update is given. It is not uncommon for a country's tax rules on stock compensation to be unchanged for several years, so in some country guides no updates are needed for long periods.

In addition to the country-specific coverage in this guide, see also a related article series and an FAQ about international taxation in general for mobile employees. Another FAQ presents survey data on stock plans outside the United States. A different FAQ explains the tax-equalization programs through which some companies pay the foreign tax of employees on international assignments.

Law Department, Entegris.

The taxation of stock compensation for mobile employees can be especially complex, especially when they work in two or more countries during the vesting period of equity awards. In a survey of multinational companies, 67% of the respondents reported that employees do not have a good understanding of how to benefit from equity compensation outside the United States ( 2015 Global Equity Incentives Survey by PricewaterhouseCoopers and the NASPP). Our Global Tax Guide is a valuable starting point for both stock plan participants and stock plan professionals who need to know about the taxation of stock compensation in the covered countries.

Seek Professional Advice On Specific Situations.

This guide can be a useful starting point and research tool, providing a general frame of reference on tax laws in each covered country. However, you should contact accountants, tax professionals, attorneys, and/or human-resources departments for advice on specific situations.

The contents of the Global Tax Guide should not be construed as legal, tax, or financial-planning advice on any specific facts or circumstances.

Share Options.

UK Unapproved Share Options.

An unapproved option is an option which does not have tax favoured status under an approved executive option plan, an approved savings option plan or under an enterprise management incentive option plan but they are very flexible and simple to administer.

However, if your company can come within the Enterprise Management Incentive rules so that it could grant EMI options (which may be the case if the group as a whole must have fewer than 250 employees and ВЈ30m gross assets), we would direct you to also read our EMI note and recommend that you consider an EMI option plan.

Note also that the tax treatment of non-employees & non-directors (e. g. consultants) differs from that set out below.

Grant of Unapproved Options.

There is no income (or other) tax charge on grant of an unapproved option.

There is an obligation for the issuing company and the UK subsidiary to report the grant of options to HM Revenue and Customs (“HMRC”) by July 6 following the end of the relevant tax year by filing an annual return on the HMRC website.

Exercise of Option.

On exercise of the option, income tax will be charged on the difference between the market value of the shares at the date of exercise of the option and the option exercise price.

For example, if an employee is granted an option over 5,000 shares and the option exercise price is ВЈ2 and the option is exercised when the shares have a market value of ВЈ5, the taxable option gain will be (ВЈ5 x 5,000) - (ВЈ2 x 5,000) = ВЈ15,000.

Unless withholding obligations apply, (see below), the income tax is payable by the employee through their self assessment tax return for the relevant tax year.

Withholding obligations (PAYE)

Broadly, there are withholding obligations for the employing company if at exercise the shares under option are in a listed company, a company which is controlled by a privately held company, or if there are arrangements for that company to be sold or for its income to be listed. The shares are regarded as "readily convertible assets" ("RCAs"). If the shares are in a privately owned company and there are no arrangements for it to be sold, then there is no withholding obligation.

Withholding takes place by the employing company under the PAYE system, and if the option holder does not ensure that the employing company is funded for the income tax within 90 days of the end of the relevant tax year the employee can have a tax on tax charge through the employee's tax return. It is usual to provide a mechanism for withholding in the option documentation.

The exercise of options must be reported by July 6 following the end of the relevant tax year by filing an annual return on the HMRC website.

Exercise of option - national insurance contributions.

There will also be national insurance contributions ("NICs") liability for the employee and the employer on the amount of the option gain if the shares are RCAs.

The rate of employee’s NIC is also graduated and above £42,385 it is 2% and below that limit (with an exemption for lower earnings) it is currently 12%.

The rate of employer's NICs is currently 13.8% on the amount of the option gain. It is possible for the employer's NIC liability to be transferred or reimbursed by the employee. This will increase the overall tax liability for the employee on the exercise of the option but an income tax deduction is available in respect of the amount of the gain on which the employee pays the employer's NICs.

Where an employee pays the employer’s NICs, and is a 40% taxpayer this means that the effective rate of income tax and NICs is 50.28% after the relief. The effective rate of tax and NICs is 54.59% for individuals paying the 45% rate.

Sale of Shares.

On the sale of shares there will be a charge to capital gains tax ("CGT") (for individuals who are resident in the tax year of disposal) on the difference between the price received for the sale of the shares and the aggregate of the market value on the date of exercise of the option.

If an unapproved option is exercised and the shares sold on the same day, there will normally be no capital gains tax to pay.

The employee can use their CGT annual allowance (ВЈ11,100 for the tax year 2015/16) so that only gains in excess of this amount will then be subject to CGT. Gains are taxed at 28% to the extent the individual's total taxable income and gains exceed the income tax basic rate band of ВЈ31,785. Gains below that threshold (but above the annual allowance) are taxed at 18%.

If an employee has at least 5% of the voting rights and 5% of the ordinary share capital of the company and holds the shares for at least one year then the employee might be eligible for entrepreneurs' relief which allows an effective rate of 10% for gains up to a lifetime limit of ВЈ10 million. In reality this relief may be of limited use for employee option holders.

Corporation Tax Deduction.

The employing company may be able to claim a corporation tax deduction for the amount of the option gain in certain circumstances.

Share Options content.

Related content.

"Although tax inefficient, Unapproved Options are a flexible and straightforward way of incentivising employees."

What Is the Tax Rate on Exercising Stock Options?

Understand the complex tax rules that cover employee stock options.

Most workers receive only a salary for their work, but some are fortunate enough to receive stock options as well. Employee stock options can dramatically increase your total compensation from your employer, but they also have tax consequences that can complicate your return. What tax rate you pay when you exercise stock options depends on what kind of options you receive.

Incentive stock options vs. nonqualified stock options.

The reward for incentive stock options is that you don't have to pay any tax on the difference between the exercise price and the fair market value of the stock you receive at the time you exercise the option. In addition, if you hold the stock for a year after you exercise -- and at least two years after the date you received the option -- then any profit is treated as long-term capital gains and taxed at a lower rate.

Why nonqualified stock options aren't as good as incentive stock options.

If the option doesn't meet the requirements of an incentive stock option, then it's taxed as a nonqualified stock option. In that case, you have to pay income tax at your ordinary income tax rate on the difference between the exercise price and the fair market value of the stock you receive at the time you exercise the option. That paper profit is added to your taxable income even if you don't sell the shares you get when exercising the option.

When you later sell your shares, the tax rate you pay depends on how long you hold the shares. If you sell the shares within a year of when you exercised the option, then you'll pay your full ordinary income tax rate on short-term capital gains. If you hold them longer than a year after exercise, then lower long-term capital gains rates will apply.

The key in stock option tax treatment is which of these two categories includes what you got from your employer. Talk with your HR department to make sure you know which one you have so you can handle it correctly.

This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! us at knowledgecenterfool . Thanks -- and Fool on!

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.