Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USAThe United Kingdomnot payable in any circumstances in connection with the grant orexercise of an approved sharesave option.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 exercised in circumstanceswhere the employee is not subject to income tax on exercise of theoption.5.3.3 EMI plan: 13 The enterprise management incentive plan (EMI) is anoption arrangement which allows a company to grant options over up to£3 million worth of shares to employees. It is designed for smallercompanies, particularly those in the high technology sector.Options will only qualify for EMI treatment if a number of conditions aremet, the most important of which are that only companies which areindependent (i.e. not controlled by another company), have gross assetsof no more than £30 million and operate in certain business sectors cangrant EMI options. In addition, from 21 July 2008 14 EMI is only availableto a company which (together with any subsidiaries) has fewer than 250employees in aggregate.1314Under the EMI plan, options over up to £3 million worth of shares may be granted to employeesalthough no individual employee may be granted more than £120,000 (increased from £100,000 from 6April 2008) worth of shares (by reference to market value at the time of grant). No income tax or socialsecurity contributions are chargeable on either the grant or exercise of EMI options provided theexercise takes place within 10 years of grant and the exercise price is not less than the market value ofthe shares at the date the options were granted. To be eligible to operate an EMI, a company must beindependent (i.e. not under the control of another company) and its gross assets must not exceed £30million. Therefore, it would not be possible for a UK subsidiary of a foreign parent company to operatean EMI as it would not be "independent". In addition, from 21 July 2008, EMI is only available tocompanies which (together with its subsidiaries) has fewer than 250 employees in aggregate.Previously, there was no limit on the number of employees which a company may have in order toqualify.Companies established outside the UK can establish EMI for their UK employees, so long as thosecompanies are carrying on a "qualifying trade" in the UK and they can generally meet the EMIrequirements. Currently, a "qualifying trade" is one which is, amongst other things, carried on "whollyor mainly" in the UK. During 2010, in order to comply with EU state aid guidelines, legislation is to beintroduced to relax this requirement so that the company need only have a "permanent establishment"in the UK. The revised requirements are expected to apply to options granted on or after the relevantlegislation is given Royal Assent.Part-time employees count towards the 249 limit on the basis of "a just and reasonable fraction foreach part-time employee". This change does not affect EMI options granted by companies prior to 21July 2008 that have more than 249 employees.The date on which the UK's Finance Act 2008 was enacted.UK/1729295/03 197 September 2010
Employee Share Plans in Europe and the USAThe United Kingdom5.4 Tax withholdingAlthough options are usually granted under plan rules, the rules do notneed to be approved by HM Revenue & Customs. The option grantmust be structured as an agreement between the grantor company andthe employee. The employer must notify HM Revenue & Customs aftera grant has been made.No income tax or social security contributions will usually be chargeableon the grant or exercise of an EMI option provided that the exercisetakes place within 10 years of grant and the option was granted at noless than market value at the date the options were granted. Thedisposal of shares is subject to capital gains tax. The tax advantages ofEMI will be lost if an employee holds unexercised options under a CSOPand unexercised EMI options which together have an aggregate marketvalue at the date of grant of the relevant options of more than £120,000.The employer must withhold within strict time limits any income tax and socialsecurity contributions due if the shares are RCAs.6. Taxation of share disposals6.1 On the sale of shares acquired free or at a discount to their market value, or onthe exercise of an option which gives rise to an income tax charge on exercise,the employee will be subject to capital gains tax, based on the sale proceedsless the market value of the shares at the date they were acquired.6.2 Where the employee was not subject to income tax on exercise of an optionunder the tax approved CSOP, sharesave plan or EMI, the employee will besubject to capital gains tax on the sale proceeds less the price paid for theshares under the option. 15 Special rules apply to shares acquired under anapproved SIP (see paragraph 4.3).15For capital gains tax purposes all of the employee's shares which are of the same class in the samecompany, are "pooled" together and special "identification" rules apply which determine which sharesthe employee is deemed to be selling and therefore what price paid is to be used in calculating theliability to capital gains tax.UK/1729295/03 198 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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