Approved Company Share Option Plans

Guidance for employers

Contents

About this guidance

This guidance describes the provisions in Section 521-526 and Schedule 4 Income Tax (Earnings and Pensions) Act 2003 (ITEPA03) relating to approval of company share option plans by HM Revenue & Customs (HMRC).

References to the relevant legislation are shown at the end of each appropriate paragraph. Unless otherwise stated the statutory references in this guidance are to ITEPA03. The abbreviation Sch 4 has been used throughout.

Certain technical terms which bear a special meaning defined in the text, are linked to relevant explanations under Some terms explained. The term "employees" includes directors unless the context requires otherwise.

These notes are for guidance only and reflect the tax position at the time of writing. They have no binding force and do not affect any right of appeal.

Company Share Option Plans

Income tax relief is available for employees who participate in company share option plans approved by HMRC. The costs incurred by companies in setting up approved schemes are also allowable as a deduction in computing the company’s profits for corporation tax purposes.

Specimen rules and documents

A set of scheme rules designed to meet the requirements for approval is available. It is intended only as an illustration of the type of rules which companies might wish to adopt. Companies can design a scheme to meet their own needs and objectives within the framework of the legislation. Companies should obtain professional advice where necessary.

In addition to a set of rules, a workable scheme will include ancillary documents such as a letter of invitation, an application form, an option certificate and a notice of exercise. Examples of such documents are also available.

Costs of setting up approved schemes

The costs a company incurs in setting up a share option scheme that HMRC approves are allowable as a deduction in computing the company’s profits for corporation tax purposes.

The deduction is allowable for the period of account in which the expenditure is incurred, except where the scheme is approved more than 9 months after the end of that period. In such circumstances the deduction is allowed for the period of account in which approval is given. (Section 84A ICTA 1988).

A deduction is not available in any case where options over shares are granted before the scheme has been approved by HMRC.

Applying for approval of a scheme

Application for approval

Applications for approval of company share option schemes under Schedule 4 ITEPA 2003 and all enquiries relating to the scheme approval should be addressed to the Employee Shares and Securities Unit. See Useful Contacts.

An application for approval has to be made in writing by the company setting up the scheme. In the case of a group scheme the controlling company makes the application. A group scheme is one set up by a company which controls one or more other companies covered by the scheme. These other companies are called constituent companies. (Para 3 Sch 4).

To seek approval of a scheme, companies have to provide the following information:

  • a statement giving the name and registered office of the company setting up the scheme with details of the HMRC Offices and the reference numbers under which the company makes its corporation tax and its PAYE returns. In the case of a group scheme this information will be required for all companies to which the scheme is expressed to extend.
  • the current Memorandum and Articles of Association, with any amendments, for the company whose shares will be used in the scheme (unless these have been submitted for another approved scheme, in which case only the name and reference number of the approved scheme need be supplied)
  • a copy of the scheme rules or two copies where the company is not listed on the London or New York Stock Exchanges
  • the documents which may be issued to those participating in the scheme. These should include the option certificate, notice of exercise, an explanation of the taxation provisions of the scheme, and, if appropriate, the letter of invitation, the application form and any explanatory booklet prepared.
  • a declaration that any director’s power to veto the transfer of shares will not be used in any way to discriminate against the transfer of shares acquired under the scheme. The declaration should state that the employees participating in the scheme will be told of this declaration.
  • the resolution adopting the scheme and any resolution adopting amendments required to obtain approval. It should be certified and state the date of adoption of the scheme by the company.
  • a completed Approval Stencil

The statutory requirements which a scheme must meet for it to be approved by the HMRC are explained.

Formal approval cannot be given until the scheme has been adopted unconditionally by the company. Approval will be effective from the date that the letter of approval is sent to the company by HMRC. Options granted before the formal approval of a scheme by HMRC cannot qualify for income tax and NICs relief.

Share option schemes already in operation can be submitted for approval although they may first need to be amended to comply with the statutory requirements. Options granted under these schemes before the formal approval has been given do not qualify for income tax and NICs relief.

HMRC comments on draft documents

A company proposing to seek approval of a share option scheme may wish to obtain an informal opinion in advance of a formal application for approval. The Employee Shares and Securities Unit is prepared to comment informally on draft documents and, if necessary, to hold discussions on particular points of difficulty.

Any queries concerned with the valuation of shares in share option schemes should be made to Shares and Assets Valuation Office.

All enquires to Shares and Assets Valuation Office should quote the Company Registration Number (CRN). Further information on share valuations is available.

Approval refused

If a company’s application for approval is refused, there is a right of appeal to the Special Commissioners within 30 days of the date of the refusal. (Para 29 Sch 4)

Alterations to a scheme

If a scheme is amended after it has received formal approval, the amendment does not have to be approved by HMRC unless the amendment is to a key feature of the plan.

Key features are those that are necessary to meet the statutory requirements for approval in Schedule 4 ITEPA 2003. Where an alteration to a key feature is made, it does not take effect until it has been approved by HMRC. If an alteration is made to a key feature in an approved scheme without prior approval by HMRC, the scheme may lose its approval.

Changes to parts of the scheme that are not key features, for example, a change to the name of the company, do not require prior approval. However, the company will need to supply a copy of the amended rules to HMRC after the change has been made

HMRC can be consulted in advance on proposed changes. If the change is not capable of approval, the Employee Shares & Securities Unit will explain why to the company. (Para 31 Sch 4).

If HMRC refuses to approve an alteration to a scheme, the company has the right to appeal to the Special Commissioners within 30 days of the date of the refusal. (Para 32 Sch 4).

Annual returns of information

HMRC has the power to call for information necessary for the administration of the approved share option legislation, including that necessary to determine any individual’s tax liability. (Para 33 Sch 4).

The annual return may ask for information such as

  • the names of participants
  • details to enable verification of the correct operation of the scheme
  • details of options granted in the year
  • details of subsisting options
  • details of options exercised

as well as other information which may be required from time to time.

However, it still remains the responsibility of participants to include in their own tax returns details of share acquisitions, capital gains and amounts liable to income tax where this information is required.

Companies operating approved schemes will be required to make an annual return to the Employee Shares & Securities Unit.

A copy of the annual return Form 35 is available.

The Employee Shares & Securities Unit may also, at intervals, ask for further information about the operation of the scheme - for example, evidence that the shares under option continue to satisfy the requirements of Paragraphs 15-20 Schedule 4.

Approval withdrawn

Approval may be withdrawn from a scheme at any time if a disqualifying event occurs (Para 30 Sch 4), for example if:

  • any of the conditions necessary for approval cease to be satisfied, or
  • there is an alteration to a key feature without prior approval from HMRC, or
  • the company which has established the scheme fails to provide the information requested by HMRC as set out above.

The withdrawal can be effective from the time the conditions necessary for approval cease to be satisfied, or from a later specified date. (Para 30(1) Sch 4)

There is a right of appeal to the Special Commissioners against withdrawal of approval. (Para 32 Sch 4)

Share Valuations

The market value of shares has the same meaning as in Part V111 of the Taxation of Chargeable Gains Act 1992. (Para 26 Sch 4)

For quoted shares (that is, those which are fully listed on the London or New York Stock Exchanges) the scheme rules will define the market value by reference to the quotations derived from the Daily Official List.

The market value of unquoted shares (that is, shares not fully listed on the London or the New York Stock Exchanges) will normally be negotiated between the company whose shares are used in the scheme and HMRC Shares and Assets Valuation on each occasion before the relevant options are granted.

Unquoted shares include shares dealt in on the Unlisted Securities Market (USM), the Alternative Investment Market (AIM), or on the US over-the-counter Market (NASDAQ). The scheme rules may allow for the market value of unquoted shares to be determined by reference to published prices on a Recognised Investment Exchange, subject to agreement of this basis with Shares and Assets Valuation.

The information required by Shares and Assets Valuation to enable a value to be negotiated includes

  • a copy of the company’s accounts for the last 3 financial years ending before the date on which the value is required (unless these have already been sent to Shares and Assets Valuation) and any subsequent interim statement or declaration of interim dividend for the company’s current financial year
  • a copy of the Scheme Rules
  • an estimate of the value placed on the shares with a brief explanation of how it was arrived at, and
  • details of any recent arm’s length transactions in the shares (including the date on which each occurred, the number of shares sold and the price paid for each share).

The address and telephone number of Shares and Assets Valuation is available.

Requirements for approval

General

The scheme must allow employees to obtain rights to acquire shares which meet the legislative requirements. (Paras 15 – 20 Sch 4).

The rights obtained under the scheme must not be transferable, except that if a participant dies, the options may pass into the estate. (Para 23 Sch 4).

The scheme must not contain features which are neither essential nor reasonably incidental to the purpose of providing for employees benefits in the nature of rights to acquire shares. For example, a provision allowing the payment of cash instead of the issue of shares following option exercise would not satisfy this condition. (Para 5 Sch 4).

The scheme may provide arrangements (often known as “cashless exercise”) for the funding of the exercise price of CSOP options. As long as these arrangements are made solely to facilitate the exercise of options and, for example, do not give a right to acquire cash they will be accepted as relevant features of approved schemes as they facilitate the operation of the scheme.

However any such “cashless exercise” facility must not impose an obligation on the option holder to sell shares, as such an obligation would be a restriction on the shares. To be acceptable the “cashless exercise” facility must be optional and should allow the option holder the choice of whether to sell the shares or settle the liability in some other way.

The rights to acquire shares may be made dependent on additional conditions (for example, performance targets) being satisfied.

Eligibility to participate

The scheme must not permit any person to be granted options under it unless he or she is at that time a

of the company which has established the scheme or, in the case of a group scheme, of a constituent company. (Para 8 Sch 4).

An individual will be treated as a full-time director if he normally devotes at least 25 hours per week (excluding meal breaks) to the duties of the office. For the purpose of this test a director may aggregate the hours he works for all constituent companies in a group scheme.

A qualifying employee is an employee of the company who is not also a director of the company or of a constituent company. (Para 8(2) Sch 4).

The requirements of this paragraph need not apply at the time the option is exercised and the scheme may allow a person who has been granted options under it to exercise them despite having ceased to be an employee. It may also provide that, if such a person dies leaving any options unexercised, they may be exercised within one year of death, so long as such exercise is not prohibited by paragraph 9 of Schedule 4 (material interest).

A person must not be allowed to obtain or exercise options under the scheme at any time if he has, or has within the preceding 12 months had, a material interest in a close company

  • whose shares may be acquired on the exercise of options granted under the scheme, or
  • which has control of such a company or is a member of a consortium which owns such a company.

Notes

  • Material interest is defined in Paragraph 10 of Schedule 4.
  • In deciding whether or not a person has such a material interest, the definition of associate in Section 417(3) ICTA 1988 is modified where the scheme is a group scheme.
  • The definition of close company in Section 414 and 415 ICTA 1988 is widened. (Para 9(4) Sch 4)
  • Control is defined in Section 840 ICTA 1988. (S719)
  • The meaning of member of a consortium is set out in Paragraph 36(2) Schedule 4.
  • The shares which an individual (or an associate) may acquire on the exercise of a share option are counted in calculating whether or not he or she has a material interest. (Para 9 Sch 4)

Example

An individual already holds 200 out of a company’s 1000 issued shares and is granted an option over 55 further shares. If, when the option is exercised, it must be met by the issue of new shares, then the individual’s interest becomes 255 out of 1055 which is less than 25% and does not constitute a material interest.

If, however, the exercise of the option could be met by the transfer of existing shares, the interest is 255 out of 1000 which exceeds 25% and constitutes a material interest. In this case the option cannot be exercised unless the employee sells 5 of the shares (or 20 new shares are issued to other persons) and waits 12 months.

Shares which would be issued on the exercise of options held by anyone other than the option holder whose interest is being calculated (or an associate) are not added to the shares in which the interest must not exceed 25%.

Subject to the above, the scheme may allow the company complete discretion as to which employees are invited to participate.

Individual limit

The scheme must provide that an individual may not be granted share options under it which would, at the time they are granted, cause the aggregate market value of the shares which he may acquire by exercising share options granted under this and certain other approved schemes to exceed, or further to exceed, the maximum option value.

The options taken into account are those which were granted under the scheme in question or under any approved company share option plan established by the same company or by any of its associated companies, and which have neither been exercised nor have lapsed.

Associated company is defined in Section 416 ICTA 1988 and can include a company with which connection was severed up to 12 months previously. (Para 35(2) Sch 4).

The maximum option value is currently £30,000.

When aggregating market values, the value of any shares is taken as at the time when the option over those shares was granted. If an agreement is made between the company and HMRC that the market value of the shares is taken as at an earlier time, the value at that earlier time is used. (Para 6 Sch 4)

Once a value has been determined for the grant of a share option, that same amount is always to be used in working out the “aggregate market value” for as long as that option exists, irrespective of any changes in the share value during the life of the option.

Example

The appropriate limit is £30,000 throughout and options have been granted giving the following rights

 
Date options granted Market Value Number of
shares		 Aggregate Market Value
1/9/02 £2 5,000 £10,000

1/4/05 		£4 5,000 £20,000
      £30,000

No further options can be granted until some of these options have been exercised (or have lapsed). This will be true even if the current market value of the shares concerned fell to, for example, £1.50.

An “approved” option cannot be granted in excess of the maximum option value. Where the £30,000 limit is exceeded the whole option becomes unapproved, and an exercise of such an option (whether in whole or in part) would not qualify for relief from income tax.

Schemes may include a rule to ensure that the maximum option value is not exceeded. Often known as the "limiting and take effect” rule, an example is to be found at Rule 5.2 in the specimen scheme rules here.

The £30,000 is not an annual limit but applies to the total value of all options held by an individual under approved company share option schemes.

Price at which shares may be acquired

The price at which shares may be acquired on the exercise of an option (the exercise price) must be stated at the time the option is granted. (Para 22(1) Sch 4).

The price at which shares may be acquired must not be less than the market value of shares of the same class at the material time. This is the time the option is granted or an earlier time or times agreed in writing between the Employee Shares & Securities Unit and the company which established the scheme (Para 22(2) Sch 4).

The scheme may provide for adjustments to the

to take account of any variation in the share capital of which the scheme shares form part.

Such a rule must state that HMRC must give its approval before the adjustment is made. (Para 22(4) Sch 4).

HMRC will not normally agree to a material time for a valuation which falls more than 30 days before the date the option is granted. If the average market value over a period is taken, that period must commence no more than 30 days before the date of grant.

Notes

  • If the company whose shares are used is being floated between the material time for valuation and the date the rights to acquire shares are obtained, special considerations may apply. The Employee Shares & Securities Unit should be consulted if this is to occur.
  • If an accidental error occurs in valuing the shares (within the normal tolerances for such valuations) the price at which the shares may be acquired may be less than the market value of the shares on the agreed valuation date. The Employee Shares & Securities Unit should be consulted if this has happened. Since Shares and Assets Valuation Office negotiate valuations of unquoted shares such errors rarely arise in practice.
  • If the price at which the shares may be acquired on the exercise of the option has not been determined exactly in accordance with the rules of the approved scheme, that option will not qualify for relief from income tax. (S521(1))

The taxation consequences for options granted in accordance with the rules of the approved scheme, but at less than market value are explained at [link]. (S526)

Scheme shares

Share option schemes approved under Schedule 4 ITEPA 2003 must only allow the acquisition of shares which satisfy the conditions set out below. (Para 15 Sch 4)

Each reference to “shares” includes a reference to stock.

The shares must form part of the ordinary share capital of

  • the company which has established the scheme, or
  • a company which has control of that company, or
  • a company which either is, or has control of, a company which is a member of a consortium owning either the company which has established the scheme or a company having control of that company. (Para 16 Sch 4)

Ordinary share capital is defined in Section 832(1) ICTA 1988.

The scheme shares must be

  • shares of a class quoted on a recognised stock exchange, or
  • shares in a company which is not under the control of another company, or
  • shares in a company which is under the control of a company whose shares are quoted on a recognised stock exchange (other than a company which is, or would if resident in the United Kingdom be, a close company within the meaning of Section 414 ICTA 1988). (Para 17 Sch 4)

Recognised stock exchange is defined in Section 841 ICTA 1988. Shares dealt on the Unlisted Securities Market, the Alternative Investment Market or an ‘over the counter ‘ market, will not qualify as quoted on a recognised stock exchange.

The scheme shares must be

  • fully paid up
  • not redeemable, and
  • not subject to any restrictions other than restrictions which apply to all shares of the same class. (Para 19 Sch 4).

The only exception is that shares may be subject to a restriction which is imposed by the company’s articles and which requires all shares held by directors and employees to be disposed of when they leave the company, or subsequently if shares are acquired as a result of options exercised after they have left the company or by personal representatives. The disposal must be by way of sale for money on the same terms laid down by the articles for the disposal of all shares of the same class. (Para 19(2) & (3) Sch 4).

In deciding if scheme shares which are acquired by any participant are subject to any restriction, any contract, agreement, arrangement or condition shall be regarded as a restriction, if it

  • restricts freedom to dispose of
    • the shares, or
    • any interest in the shares, or
    • the proceeds from the sale of the shares
  • restricts freedom to exercise any right conferred by the shares
  • would cause any disadvantage to the participant, or any connected person, if shares were disposed of or any right conferred by them was exercised. (Para 19(4) Sch 4)

Notes

  • Section 839 ICTA 1988 defines when two persons are connected.
  • Shares will not be treated as restricted shares as a result of an arrangement where they are
    • pledged as security for a loan, or
    • used to repay a loan. (Para 19(6) Sch 4)
  • Any provision similar in purpose and effect to the Model Code set out in the Listing Rules published by the London Stock Exchange will not be a restriction for the purpose of this paragraph. (Para 19(5) Sch 4)
  • The period between option exercise and allotment of shares must not exceed 30 days. Any longer period will be regarded as imposing a restriction on the shares.

Except where the scheme shares are in a company whose ordinary share capital consists of shares of one class only, the majority of the issued shares of the same class must either be employee-control shares or open market shares

Open market shares are those not held by:

  • people who acquired their shares as a result of a right conferred on them or an opportunity given to them as directors or employees of the company which has established the scheme or of any other company and not as a result of an offer to the public
  • trustees holding shares on behalf of people who acquired their beneficial interest in the shares mentioned above, and
  • companies which have control of the company whose shares are in question or of which that company is an associated company, in a case where shares are not quoted on a recognised stock exchange but are shares in a company which is under the control of another company whose shares are quoted. (Para 20(3) Sch 4)

Shares in a company are employee-control shares if the persons holding those shares are, as a result of holding those shares, together able to control the company and those persons are or have been employees or directors of the company or of a company under its control. (Para 20(2) Sch 4)

Other conditions in approved schemes

Takeovers and mergers

Approved schemes may contain provisions to permit an Option Holder to exchange (“rollover”) approved options in certain circumstances, if another company obtains control of the company whose shares are being used in the approved scheme, or becomes bound or entitled under Sections 428-430 Companies Act 1985 to acquire such shares. (Para 20 Sch 4)

The new options, relating to shares in the new controlling company which satisfy the requirements of paragraphs 15-20 Schedule 4, must be exercisable in the same manner as the old options. The value and aggregate exercise price of the new options on acquisition must be exactly the same as the value and aggregate exercise price of the old option on disposal. (Para 27(4) Sch 4)

Performance targets

Approved schemes may include provisions which require additional conditions to be satisfied before an option can be exercised. For example, the scheme may provide that options cannot be exercised unless the company whose shares are used in the scheme is floated.

Any additional conditions will be terms of the options granted under the approved scheme. They must therefore either be clearly specified in the approved scheme, or the rules of the scheme must contain clear objective guidelines by which those terms will be determined. For example, the guidelines might provide that the only additional conditions which may be set are the attainment of targets by the option-holder which might reasonably be considered to be a fair measure of the performance of the option-holder’s job.

A provision in a scheme to permit such conditions or targets to be varied or waived after they have been set is acceptable only if it is clearly specified in the scheme (and therefore in the terms of the option itself) when and to what extent they may be varied. Performance conditions or targets can only be varied if events happen which cause the directors to consider that a different condition would be a fairer measure of performance. The variation should result in conditions which the directors reasonably consider would be no more difficult to satisfy than the original conditions were when first set.

General

It is ultimately a matter for the shareholders of the companies concerned whether they wish to have provisions in a scheme other than those necessary to satisfy the statutory requirements. This may be particularly relevant for companies with institutional investors.

Income tax and NICs treatment

Option grant

There is normally no income tax or NICs charge on the grant of an option to acquire shares under a scheme approved by HMRC. (S523)

Option exercise

No income tax or NICs charge will arise on the exercise of an option obtained under a discretionary scheme approved by HMRC provided that:

  • the option is exercised in accordance with the scheme which is still approved at that time, and
  • the option is exercised at least 3 and no more than 10 years after the employee obtained it

If a person who has been granted an option ceases to be a director or employee of the company (or in the case of a group scheme, a constituent company) the scheme may provide for the option to be exercisable within the six months of cessation, if it is due to

  • injury
  • disability
  • redundancy (within the meaning of the Employment Rights Act 1996)
  • retirement on or after reaching a particular age which has been specified in the rules of the approved scheme. (Para 24 Sch 4, S524(2)).

Options exercised within 6 months under such a provision in the scheme will also attract income tax relief.

If a person who has been granted an option dies before the exercise date, the scheme may provide for the option to be exercised by the earlier of

  • 12 months following the date of death
  • 10 years from date of grant

Options exercised under such a provision in the scheme will attract income tax relief. (Para 25 Sch 4)

If the scheme allows, a person who has been granted an option under it but who does not satisfy the conditions in the preceding paragraphs may exercise it within three years of acquisition, or more than 10 years after the option is acquired. This will not affect approval of the scheme but the exercise by the individual will then not qualify for the income tax relief.

PAYE and NICs

Where an income tax liability arises on the exercise of options within 3 years or after 10 years of the option being granted, and the shares acquired are Readily Convertible Assets (RCAs) the employee is regarded as having received non-cash earnings. Income tax is due under PAYE, and there will also be a NICs liability (S701(2)(c)).

Readily Convertible Assets are, broadly speaking, shares that can be sold on a recognised investment exchange or for which trading arrangements are in place or are likely to come into place.

The amount to be included in an employee’s earnings for NICs purposes will be the same value that is subject to income tax

The employee has 90 days in which to repay the PAYE and NICs amount paid on his behalf by their employer, from the date on which the employee acquires shares on the exercise of an option.

If this amount is not reimbursed within 90 days, the PAYE and NICs paid on the employee’s behalf is regarded as additional earnings from the employment and should be added to any other earnings paid to or for the benefit of the employee in the same earnings period. Income tax and NICs will be payable on the amount not reimbursed.

The scheme may include arrangements to enable the employer to collect the appropriate level of income tax and National Insurance Contributions from the employee, for example from the sale of shares acquired on the exercise of the option.

Useful contacts

Some terms explained

Associate

For the purposes of the material interest tests, associate means

  • the relative (husband, wife, parent or remoter forbear, child or remoter issue, brother or sister) or partner of an individual
  • the trustees of any settlement in relation to which the individual or any relative is or was a settlor, and
  • where the individual has an interest in any shares held in a settlement, the trustees of that settlement (Para 12 Sch 4)

Settlement here means a trust. Settlor means the person who provided funds for the trust.(Section 417 ICTA 1988.)

Associated company

An associated company is defined in Section 416 ICTA 1988 and can include a company with which connection was severed up to 12 months previously.

Close company

A close company is one controlled by five or fewer participators, or by participators who are directors (S414 ICTA 1988)

Company share option plan

A company share option plan (CSOP) is a scheme which is established by a company, which provides for share options to be granted to employees and directors.

Connected persons

Connected persons are defined in Section 839 ICTA 1988.

Constituent Company

Companies controlled by another company, and participating in a group scheme set up by that company are known as constituent companies.

Control

Control is defined in Section 840 ICTA 1988

Discretionary share option schemes

Discretionary schemes include:

  • company share option plans (or schemes) approved after May 1996, and
  • all discretionary share option schemes approved before that date which became company share option plans from May 1996, unless the company which set up the scheme notified the Inland Revenue before 31 December 1996 that it no longer wanted its scheme to be approved.

Employee-control shares

Shares in a company are employee-control shares if the persons holding those shares are, as a result of holding those shares, together able to control the company and those persons are or have been employees or directors of the company or of a company under its control.

Executive schemes

See under discretionary share option schemes

Exercise price

The price at which shares may be acquired on the exercise of option rights.

Full-time director

An individual will be treated as a full-time director if he or she normally devotes at least 25 hours per week (excluding meal breaks) to the duties of the office. For the purpose of this test a director may aggregate the hours he or she works for all constituent companies in a group scheme.

Group scheme

A group scheme is one set up by a company which controls one or more other companies covered by the scheme. These other companies are called constituent companies.

Market value

Market value of shares has the same meaning as in Part Vlll of the Taxation of Chargeable Gains Act 1992.

Material interest

Material interest in the share capital means the beneficial ownership of, or the ability to control, directly or directly, more than 25% of the ordinary share capital of the company.

Material interest in the assets of a company means possession of, or an entitlement to acquire such rights as would in the event of the winding up of the company give an entitlement to receive, more than 25% of assets available for distribution.

Material time

This is the time the rights to acquire shares are obtained, or an earlier time or times agreed in writing between the company and HMRC.

Maximum Option limit

The scheme must provide that options acquired under it, and certain other approved schemes, do not exceed the statutory limit. This is currently £30,000.

Member of a consortium

A company is a member of a consortium owning another company if it is one of a number of companies which between them beneficially own not less than 75% of the other company’s ordinary share capital, and each individually beneficially owns not less than 5% of that share capital.

Ordinary share capital

Ordinary share capital is defined in Section 832(1) ICTS 1988

Qualifying employee

A qualifying employee is an employee of the company who is not a director of the company or of a constituent company.

Recognised stock exchange

Recognised stock exchange is defined in Section 841 ICTA 1988. The Unlisted Securities Market, the Alternative Investment Market and “over the counter” markets are not Recognised Stock Exchanges.