Employee Company Share Option Plan

Published / Last Updated on 06/06/2022

Fixed and discounted price company share option plans are permitted by HMRC when offered to you by your employer, giving you the option to buy up to £30,000 worth of shares at a fixed and usually discounted price compared to the market.  You do not pay Income Tax or National Insurance contributions on the difference between what you pay for the shares and what they’re worth.

Buy £30,000

For example, shares in the company are valued on the open market or a listed stock exchange at a current price of £2.   You are given a fixed price option of £1.

Therefore, you pay £15,000 to buy £30,000 worth of shares.

You do not pay income tax or national insurance on the difference in value, in the above example £15,000.

Buy £50,000 i.e., an extra £20,000

If you bought £50,000 of shares at a cost of £25,000 then the first £30,000 of shares (costing you £15,000) are not subject to income tax and national insurance but the remaining £20,000 of shares (cost £10,000) has a difference in their value and the price paid of £10,000.  This is treated as a ‘benefit on kind’ and you will be subject to national insurance contributions and income tax at your higher rate. 

Even if you earn over the Upper Earnings Limited (£967 per week) additional national payable by you (employee) is 3.25% plus income tax at say 40%, means you have acquired additional shares at a cost of £10,000 + 43.25% (tax and national insurance) £4,325.  You will have bought the additional £20,000 in shares at a cost of £14,325.  It is therefore still an attractive investment.

Capital Gains Tax

When you come to dispose of the shares by sale or gift, gains are subject to Capital Gains Tax.

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