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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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HM Revenue & Customs
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Schedule 3 SAYE option schemes: Requirements relating to share options – The exercise price: Date for which MV determined

Paragraph 28(2) gives Revenue & Customs discretion, for the purpose of fixing the option acquisition price, to agree to the market value of the shares being determined on a date earlier than the date the options are obtained. The legislation requires the agreement of an officer of Revenue & Customs in writing. However, HMRC will accept MV determined in accordance with the following without requiring individual companies to obtain specific written agreement:

  1. Averaging - averaging values of listed shares over consecutive dealing days is acceptable. In some cases deals done on one particular day may not provide a true reflection of the value of certain listed shares at that time. Averaging over three consecutive dealing days is the most common period, but up to five days is acceptable.
  2. Invitation and application - if a scheme operates by invitation and application, and the company wishes to be able to advise the actual option acquisition price when inviting applications, it is acceptable in principle to take the market value for the dealing day immediately preceding the date of invitation (or averaged over consecutive dealing days ending on that day), provided the guidelines below are adhered to.

Where the scheme rules are to provide for an invitation and application procedure scheme organisers should adhere to the following:

  • The period between the date of valuation and the date of grant should not be longer than is necessary for the company’s reasonable administrative needs. In practice 30 days is accepted as reasonable unless scaling down procedures are required when 42 days is seen as reasonable.
  • The date of valuation should not therefore be earlier than 30 days before the date of grant.
  • If averaging is being used to determine the value of listed shares, the earliest day used in the averaging must fall within the 30 day period.
  • There should be no expectation of significant movement in the value of the company’s shares between the valuation date and the date of grant, other than as a result of fluctuations in the market generally.
  • The same basis should be applied consistently to all grants of options.
  • It is not acceptable to await the date of grant and then choose a valuation date within the preceding 30 days (i.e. the date on which share values were lowest). The valuation date must be determined in advance so that potential applicants can be advised of the intended exercise price.

The “30 day rule” is normally most usefully expressed in cases involving invitations and applications by stating that options must be granted within 30 days following the valuation date (or the earliest date where averaging is used) rather than vice versa.

The valuation date must be a date on which options could have been granted. For example, companies will often have windows following the announcement of yearly or half-yearly results, outside which options cannot be granted.