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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 4 Company Share Option Plan (CSOP): Requirements relating to options: MV to be agreed in advance of grant

Although it is not a statutory requirement, it is recommended that scheme rules relating to shares not included in The London Stock Exchange Daily Official List or some other RSE, should require market value to be agreed with SAV in advance of the date of grant of options, or such earlier time or times agreed with HM Revenue & Customs. This includes AIM shares.

In practice SAV may be prepared to agree a market value on a particular day and accept that, subject to certain conditions, it can stand as the market value for a specified period (usually the following 30 days). This gives protection against the risk that options may be granted at a price which SAV considers to be less than market value, and so in breach of the scheme rules and the statutory requirements.

In practice SAV may advise AIM companies who contact them that it will accept the price quoted in the Financial Times on the relevant valuation date for any further options granted in the future. Such an agreement is usually expressed to continue while the company is listed on the USM or AIM and means that no prior reference to SAV is then needed before further grants of options. It is accepted that such an agreement is consistent with scheme rules which require advance agreement of market value with SAV. But it is not authority for changing the definition of “market value” in the scheme rules.

If options are granted at what transpires to be less than market value, whether or not the scheme requires advance agreement of market value with SAV, the options will not have been granted in accordance with the provisions of Schedule 4, and the favourable taxation consequences in Section 524 ITEPA will not apply to them.