Stock Option Plan / United Kingdom

Following the end of each tax year (5th April), and by 6th July, a return must be filed with HMRC in respect of share plans operated in respect of UK Participants during that tax year. Failure to file a return may result in a penalty. Find the registration details and forms on the HMRC website.

There is an uncapped employer social security liability in connection with Awards. 

On the acquisition of shares from Awards, it is recommended that the Company and Participant consider entering into a joint election (known as a 'section 431 election') within 14 days of the acquisition of shares to ensure there is no risk of an income tax liability arising in connection with the shares in the future when the shares cease being subject to restrictions (such as on a future sale of shares). 

If participation in the Plan potentially extends to individuals who are not employees of the Company's group (for example, non-executive directors, consultants and/or individuals engaged via a Professional Employer Organisation), the Company should consider a separate arrangement (or a sub-plan) for UK-based employees.  This is because the Plan is unlikely to be an "employee share scheme" for UK legal purposes and will miss out on certain regulatory exemptions (including a helpful exemption from the "financial promotion" regulations). 

It is recommended that the following is included in the Award documents:

1. wording to state that the Award is separate from and does not form part of the Participant’s employment benefits to exclude any liability on the part of the Company or Local Company for the loss of an Award as a result of the Participant’s termination of employment;
2. a full indemnity in respect of income tax and National Insurance contributions. If payment of the employer’s National Insurance contributions is to be made by the Participant, this should also be stated in the Award documentation;
3. language to confirm that the Local Company is operating the Plan in accordance with the applicable data privacy notice; and
4. where deductions are to be made to Participants' salaries in connection with the Plan, that Participants agree to such deductions being made.

If a Participant is engaged via a Professional Employer Organisation (PEO) or other Employer of Record (EoR) they may not be regarded as an employee of the Company’s group.  As a result:

1. The obligation to file the ERS Annual Return may fall on the PEO or EoR (although it is likely that the Company will need to assist with the preparation of this).
2. Any indemnity in the Award documentation against income tax and National Insurance contributions should be extended to the PEO or EoR.
3. Further advice should be sought when communicating with the Participants in relation to their Awards as any communication could constitute a "financial promotion", which is a regulated activity (this concern does not generally apply to communications made in connection with an "employee share scheme"). 

Participants who are not employees of the Company's group (which would include those engaged via a PEO or EoR) should not participate under the same Plan as employees: a separate plan or a sub-plan should be established.  The Company should also consider whether the engagement with the PEO or EoR adequately deals with the practical operation of the Plan (taking into account the points highlighted above).

If a Participant is engaged as a consultant or contractor they will not be regarded as an employee of the Company’s group.  As a result, further advice should be sought when communicating with the Participants in relation to their Awards as any communication could constitute a "financial promotion", which is a regulated activity (this concern does not generally apply to communications made in connection with an "employee share scheme"). Participants who are not employees of the Company's group should not participate under the same Plan as employees: a separate plan or a sub-plan should be established. Care should also be taken that Participants in this category are genuine consultants or contractors and not viewed as an employee under local laws.