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HMRC internal manual

Shares and Assets Valuation Manual

HM Revenue & Customs
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Tax Advantaged Share Schemes: adjustments - CSOP and SAYE

Adjustments to the share capital

The relevant legislation permits schemes to provide for the option exercise price to be varied to take account of a variation in the share capital of which the scheme shares form part.

It is essential that The Employee Shares and Securities Unit (ESSU) considers all requests for agreement of adjustment of options. Your advice as to the amount of that adjustment will not be expected to take into account whether or not that particular adjustment is permitted under the scheme rules. ESSU will consult you for advice if there is any doubt about the nature of the event giving rise to the potential adjustment.

Adjustments permitted

CSOP and SAYE schemes normally reflect the variations allowed by the relevant legislation by providing that the adjustment to be made to the option exercise price is that which the auditors confirm to be fair and reasonable. This is subject to the requirement that no adjustment shall be made without the prior approval of HMRC. ESSU gives that approval based on the advice of SAV on the particular adjustments proposed.

ESSU normally approve provisions that permit adjustments to the number of shares as well as the option exercise price, provided they require the prior approval of HMRC before adjustments can be made.

In practice, adjusting only the option exercise price will usually be inadequate. It will normally be necessary, if an equitable result is to be achieved, for the number and even the description (but not the class - there is no authority for this) of shares subject to an option to be varied also. In SAYE schemes, in particular, where the aggregate exercise price must equate as nearly as possible to the expected final repayment under the savings contract, you will need to adjust the number of shares if the option exercise price is being adjusted.

You need to be aware that you cannot agree an exercise price which is less than nominal value.

Bonus issues

Adjustments to reflect bonus issues are normally straightforward and will not usually be referred to SAV.

  Additional Guidance:SVM150000