Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAThe United Kingdomthe £30,000 limit. Unapproved options are taxed as described inparagraphs 5.1 and 5.2.The statutory corporation tax deduction referred to at paragraph 5.2.1 isavailable even if the employee does not in fact pay income tax on theexercise of an option because the option is granted under an approvedplan and is exercised in circumstances where the employee is notsubject to income tax on exercise.5.3.2 Sharesave plan: 12 The tax approved sharesave plan is an all-employeeshare option plan under which employees are granted options to acquireshares on condition that they agree to make savings into a specialsavings account, with the savings being used to pay the exercise priceat the end of the savings period. The most important conditions forapproval of a sharesave plan are that all UK employees and full timedirectors must be offered the opportunity to participate in the plan(although the company may impose a qualifying period of service of upto 5 years), the option exercise price must not be less than 80% of themarket value of the shares and the savings contract must last either 3 or5 years.No tax will usually be chargeable on the exercise of an option grantedunder a tax approved sharesave plan. Social security contributions are12The main features of the sharesave plan are the following:• all UK tax-ordinarily resident employees (full-time or part-time) with 5 or more years service must beinvited to take part in the plan. In practice, most companies choose a much shorter eligibility period(e.g. 6 to 12 months);• employees who wish to participate must enter into a 3 or 5 year savings contract with a bank orbuilding society. The employee must agree to save between £10 and £250 a month for 3 or 5years. After 3 or 5 years the savings contract comes to an end and the employee becomes entitledto receive his savings plus interest, where applicable (currently no interest is payable in respect of 3year contracts entered into from 14 May 2010). The amount of interest is fixed at the start of thesavings contract so the amount due at the end of the savings contract is already known;• when the savings contract is entered into, the company grants the employee an option to acquireshares. The option exercise price cannot be less than 80% of the market value of the shares at thetime the option is granted. The number of shares comprised in the option is calculated by referenceto the savings and interest due at the end of the savings contract, divided by the exercise price.When the savings contract ends, the employee will be entitled to the savings and interest which hecan use to exercise the option if he wishes. Alternatively, he may retain the savings and interest;and• there is no tax charge on the grant of the option, nor (except in limited circumstances) on itsexercise, nor is there any tax charge on the interest acquired under the savings contract. The onlytax liability arises when the employee later sells the shares.UK/1729295/03 196 September 2010