With an unapproved share option scheme, employees are given options to acquire a number of shares at a future date at any price specified by the company.
Such schemes do not require HM Revenue & Customs (HMRC) approval, and the ability to exercise the options may be governed by performance targets.
There is no requirement for all employees to be granted options and the scheme can be set up on a selective basis for certain individuals only.
As long as the option has to be exercised within 10 years of its grant, there will be no tax or national insurance charge when the option is granted.
On the exercise of the option there will be an income tax liability on the difference between the market value of the shares at that date, and the price paid for them.
On the disposal of the shares, the capital gain is calculated by comparing the disposal proceeds to the market value of the shares when the options were exercised.
There will be no national insurance charge on the grant or exercise of an option as long as the shares over which the options are granted, are not readily convertible into cash, which means there are no arrangements by which the shares’ value can be realised with certainty.
On exercise, the company will obtain a corporation tax deduction for the difference between the market value of the shares at that time less any amount paid by the employee for the shares.