unapproved share option scheme

A share option scheme that is not Inland Revenue approved. One of the major reasons for using an unapproved scheme is to enable the company to grant an option at a subscription price below the market value of the shares and to avoid the ₤30,000 per capita limit. The company also has full flexibility as to who may participate and upon what terms. To avoid an income tax charge at the date of the grant of an option, unapproved options are not usually exercisable more than ten years following that date. Otherwise it is up to the company whether the options are to be subject to restrictions on exercise or any other performance requirements, making such schemes the most flexible in this sense. Income tax is charged when the option is excercised on the difference between the value of the shares acquired and the option price. CGT is then charged on the gain on a disposal measured against the market value when excercised. NICs are payable on the exercise of the options after 5th April 1999 where the shares concerned are readily convertible assets: PAYE and NIC may be applied to payments made to employees in the form of options and other incentives under unapproved schemes where the shares are quoted or trading arrangements exist.