Unapproved Share Option Schemes Returns & Assessments

Introduction

This article outlines:

• The employer return requirements in relation to the provision of unapproved share options and other rights to directors and employees (Section 128 TCA 1997)
  and
• The assessment procedures which apply where employees have only occasional taxable income under share option schemes.

Employer Return Requirements

The legislation requires that employers must provide information to Revenue about the grant, assignment or release of rights or the allotment of shares or the transfer of any asset under a right granted. Self assessment principles apply to the making of a return. Employers must therefore make such a return within 30 days of the end of the year of assessment.

For the tax year 1998/99 the main development to note is the availability of Form SO2, for return filing purposes. The Form SO2 was designed in response to requests from practitioners for a return form to facilitate the filing of particulars required under Section 128. Copies of the form are available on request from local tax offices - remember to mention whether the IR₤ or euro version is required.

The normal return filing date is 30 days from the end of the tax year. However, as this is the first occasion that the Form SO2 is being used it has been decided that filing of the return by 30 September 1999 will be regarded as satisfying the return filing requirements in respect of the tax year 1998/99.

The intention is to issue Forms SO2 to about 1,000 companies in June 1999 for completion. If a company has already returned the share options particulars the form may simply be returned with a note to that effect.

Notwithstanding that an employer may not receive a Form SO2 for completion the return of particulars must be made in all cases where share options or other rights are granted, assigned etc.

Assessment Procedures for Employees with occasional taxable income under share option schemes

Where a director or employee, by reason of his/her office or employment, obtains a right to acquire shares (“share option”) in any company or any other asset(s) Section 128 provides for income tax and capital gains tax consequences.

The charge to income tax arises for the tax year in which the share option or other right is exercised, assigned or released. In the case of “seven year options or rights”, the charge may also arise for the tax year in which the option or other right is granted. The shares or other assets acquired by the exercise of a share option or other right are chargeable to capital gains tax on the subsequent disposal of those shares or assets. Further details on the taxation treatment of gains arising on the exercise etc. of share options are set out in Tax Briefing, Issues 31 and 35.

An employee in receipt of non-PAYE income which, on occasion, is too large to code in under the PAYE system is a “chargeable person” by definition and subject to the self assessment provisions. [Coding is a process by which TFA is reduced by the amount of non-PAYE income to effectively collect tax on that income.] The normal rules as regards payment of preliminary tax and return filing obligations apply. However, such PAYE cases with only occasional income (i.e. a share option gain taxable under Schedule E) subject to self assessment procedures would continue to have their tax affairs dealt with in their normal PAYE District. Returns should be made to the PAYE District which will arrange for any assessment to be made.

Equally, any capital gains arising on the subsequent disposal of shares or other assets acquired by the exercise of a share option or other right are subject to the self assessment rules as regards payment of preliminary tax and filing of a tax return. The CGT return should similarly be made to the PAYE District and any CGT assessment will be made by that district.