Q: What are the advantages of an Unapproved share option scheme?

Unlike an EMI scheme , an Unapproved scheme has no restrictions. There’s no limit on how many employees you have, or how much equity you give in options, and you can grant options to team members who don’t qualify for other types of options, such as EMI. For more about the advantages of Unapproved share options, read our post: What are Unapproved share options?

Q: What are the tax implications of setting up an Unapproved option scheme?

For your team: Income Tax when they’re granted options Income Tax when they exercise options Capital Gains Tax when they sell the shares There can be other Income or Capital Gains tax charges, depending on the terms of a given option. If your option holders are resident overseas, they’ll be subject to the tax laws of their own country and should get independent tax advice from a specialist. For your company: Employer’s National Insurance Contribution When there is Income Tax to pay, your company is liable for NIC if the shares the employee acquires are a Readily Convertible Asset (RCA). An RCA is a type of asset that’s treated as if it were cash for calculating Income Tax. Corporation Tax deduction If you’ve granted Unapproved options to employees on your company payroll, you can claim a Corporation Tax deduction equal to the Income Tax charge the option holder pays (depending on your situation) For more detail, read our post: Tax implications of share option schemes Before making decisions, we recommend you consult your accountant or tax advisor.

Question 1

What are the advantages of an Unapproved share option scheme?

Accepted Answer

Unlike an EMI scheme, an Unapproved scheme has no restrictions.

There’s no limit on how many employees you have, or how much equity you give in options, and you can grant options to team members who don’t qualify for other types of options, such as EMI.

For more about the advantages of Unapproved share options, read our post: What are Unapproved share options?

Question 2

Can I give share options to my overseas staff?

Accepted Answer

Yes - with an Unapproved share option scheme, you can grant options to your team overseas.

For overseas workers, the tax implications for being granted and exercising options, and for selling shares, vary depending on where they are tax resident.

For more about who you can grant Unapproved options to, read our post: What are Unapproved share options?

Question 3

Can I give share options to freelancers and contractors?

Accepted Answer

Yes - with an Unapproved share option scheme, you can grant options to non-PAYE staff including freelancers, contractors, consultants and advisors.

For more about who you can grant Unapproved options to, read our post: What are Unapproved share options?

Question 4

What is a non-EMI option scheme?

Accepted Answer

There are several ways to organise a share option scheme to share equity with your team. Any scheme which isn’t an EMI (Enterprise Management Incentive) scheme is a non-EMI option scheme.

Many UK startups set up an EMI (Enterprise Management Incentive) scheme because these come with the most tax advantages. But if a company and/or staff aren’t eligible for EMI options, then the company might set up a non-EMI scheme instead.

At SeedLegals, we offer the type of non-EMI scheme most commonly chosen by startups: Unapproved.

To find out more about different types of equity sharing plans which are approved for tax advantages by HMRC, visit the gov.uk website.

To find out more about Unapproved option schemes, read our post: What are Unapproved share options?

Question 5

What type of option scheme do I need? Unapproved or EMI?

Accepted Answer

There are two types of option schemes that are most suitable for UK startups: EMI and Unapproved. To read more about how to decide which scheme is right for your company, read our post: EMI or Unapproved Share Option Scheme?

Question 6

How do I set up an Unapproved share option scheme on SeedLegals?

Accepted Answer

It’s easy - and we’re here to help at every step.

Create your option pool
Create your option scheme
Choose vesting and exercise rules
Pass a Board Resolution to adopt the option scheme
Grant the options
Enter your team members’ details and details of the option grant
Send out the option agreements to your team for signatures

For more information, read our post: How to set up an Unapproved scheme on SeedLegals

To get started, log in or register and go to Share Options.

There’s built-in guidance but if you need any help, hit the chat button to message our experts.

Question 7

What is an Unapproved share option scheme? Does ‘unapproved’ mean it isn’t allowed?

Accepted Answer

Unapproved means that the options you grant from this scheme aren’t tax advantaged.

We also offer Enterprise Management Incentive (EMI) share option schemes, which are approved. ‘Approved’ here means that the scheme has been signed off by HMRC for a generous set of tax perks – both for the company granting the options, and the employees who receive them.

But not all companies or staff are eligible for EMI options. And that’s when you might want to offer Unapproved options.

We’ve explained more in our post: What are Unapproved share options?

Question 8

Do I need to get a company valuation to set up an Unapproved scheme?

Accepted Answer

No. Because Unapproved schemes don’t come with tax advantages, you don’t need to get your company valued to set up this type of scheme.

Question 9

What are the tax implications of setting up an Unapproved option scheme?

Accepted Answer

For your team:

Income Tax when they’re granted options
Income Tax when they exercise options
Capital Gains Tax when they sell the shares

There can be other Income or Capital Gains tax charges, depending on the terms of a given option. If your option holders are resident overseas, they’ll be subject to the tax laws of their own country and should get independent tax advice from a specialist.

For your company:

Employer’s National Insurance Contribution
When there is Income Tax to pay, your company is liable for NIC if the shares the employee acquires are a Readily Convertible Asset (RCA). An RCA is a type of asset that’s treated as if it were cash for calculating Income Tax.
Corporation Tax deduction
If you’ve granted Unapproved options to employees on your company payroll, you can claim a Corporation Tax deduction equal to the Income Tax charge the option holder pays (depending on your situation)

For more detail, read our post: Tax implications of share option schemes

Before making decisions, we recommend you consult your accountant or tax advisor.

Question 10

Do I need to be an existing SeedLegals member to set up an option scheme?

Accepted Answer

No - you can join SeedLegals anytime to set up your option scheme. To see how it works, book a demo.

To create your scheme, issue option grants and maintain your scheme going forward, you’ll need a SeedLegals Options Subscription.

Question 11

To set up an option scheme on SeedLegals, do I need a subscription?

Accepted Answer

Yes, to create your scheme, issue option grants and maintain your scheme going forward, you’ll need a SeedLegals Options Subscription

Question 12

What is the share options calculator and how does it work?

Accepted Answer

Your option holders can log into SeedLegals to see the vesting and value of their options.

When you share the Option Agreement with a team member, they get an invitation with a link to create their own SeedLegals account.

On their dashboard, the option holders can:

see the vesting status of their allocation
view their documents:
- Option Agreement
- Option Certificate
- Share Certificate (after they exercise options)
use the options calculator
The calculator helps answer two common questions: how much are their options worth based on a specified valuation (they can type in any valuation to model different scenarios), and how much it would cost to exercise a given number of their vested options.

Read more and see how the dashboard looks in our post: Track and manage your options

Question 13

Help, my question isn’t answered here!

Accepted Answer

No problem - hit the chat button (bottom right of your screen) to ask our options experts 🙂

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