Company Share Options and Enterprise Management Incentives - UK

Modelling Company Share Options 

This video will show you how to model Company Share Options Company Share Options - Video UK or if you would prefer, this guide will explain how to model these also;

 To add an Employee stock option go to Dashboard > + button bottom right > select Savings & Investments > 

Select Stock Grant

There are 4 "Grant Type" options available to select. In this article we are focussing on Company Share Options, Enterprise Management Incentives or Non tax advantaged share options. Please see the Restricted Stock Units - UK guide if you would like to learn how to model these in Voyant AdviserGo. 

• Company Share Option Plan (CSOP)
  A Company Share Option Plan is a UK tax-advantaged, discretionary share scheme that grants selected employees and directors the right (but not the obligation) to buy a set number of company shares in the future at a pre-determined price (the exercise price). The difference between the price at the time of exercise and the exercise price is not subject to income tax or NICs, so long as it meets certain requirements. For example, if the option is exercised more than 10 years following the grant date, Voyant will apply income tax and National Insurance to the difference between what the shares are worth at time of purchase and the exercise price.
• Enterprise Management Incentive (EMI)
  Similar to the above, an enterprise management incentive gives employees of smaller companies the option to buy shares at a future date. 
• Non Tax Advantaged Share Option
  Non Tax Advantaged Share Options are a flexible share option scheme that is not bound by the statutory restrictions on company size, employee limits, or option value that apply to the tax-advantaged schemes (like EMI and CSOP). Voyant applies income tax and NICs to difference between the value of shares when bought and the exercise price (what was paid for those shares).

Any gains on growth are subject to Capital Gains Tax.

Basics

• Owner - select the owner who is in receipt of the share options or RSUs.
• Grant Name - Give the entry a name, which will appear under Savings & Investments in the Dashboard screen.
• Grant Date - The date the Share option plan started.
• Exercise Price - The value the shares will be bought at when exercised.
• Current Price - The current price of the shares at the start of the Voyant plan
• Expiry Period - The time after which they can no longer be exercised. 
• Linked Employment - Only relevant for Non-Tax advanced share options, or any share options that are subject to Income tax and National Insurance upon exercise. Link to the relevant employment income, so that only one set of National Insurance thresholds are applied on the employment share option plan. If unlinked Voyant will treat the share options as a separate income from their employment.
• Number of Shares Remaining - The total number of shares that can be purchased at the exercise event/s.

• Remaining Vesting Period - If the shares vest over time before being able to be purchased, you can enter the number of years in here. If all of the shares are available for purchase at the end of the term, then enter 1 year in Remaining Vesting Period; enter the relevant year in the Future Vesting section, and schedule when the shares are exercised. 

  Once the shares have vested then can then be Exercised. It follows the following flow:

  Granted -> Unvested -> Vested -> Exercised -> Held  -> Liquidated

Growth

You can enter a growth rate on the shares, so that the value of the shares grow over time. This will not change the Exercise Price, but it will change what the shares are worth before and after exercise.

Exercise

You can choose to exercise the shares when they vest or at a future event in the plan. Set this up in the Exercise tab:

You can also choose a Funding Method: 

• Purchase - buys the shares will money in the plan.
• Take out a loan to purchase the rest - takes out a loan to buy the shares. See this in the Debts tab. It is paid off once any liquidation instructions begin.
• Sell % of shares to purchase the rest - sells the value of the shares needed to meet the cost of Exercising. Keeps the profit in the share option account.

Vested/ Exercised Shares

If your client has shares that are already vested you can "Add Share Block" for those vested shares. These already vested shares will be shown in the 'Hold' section in the Year View details and will exercise based on your exercise instructions.

Note the Grant Date in the Basics screen must be before the Date Vested for previously vested shares. For example:

• The Grant date in the Basics screen could be 2023, for a 2025 Voyant plan.
• Enter previously shares vested in 2024 in 'Vested/ Exercised shares'. 
• Then new shares vest from 2025 onwards which are in the plan and so entered in 'Future Vesting'.

Future Vesting

Now go to Future Vesting and select 'Estimate Schedule'. This will divide the Number of Shares Remaining by the Remaining Vesting Period, to give the number of Shares Vested each year. You can edit this if it is different from this.

Scheduling a liquidation event

Share options will, currently, not be used in the plan, unless you instruct a liquidation. 

To schedule a withdrawal from the account, navigate to the Liquidation section and follow these steps:

1. Select Liquidation Type. Choose one of the following options:

   • Number of Shares Remaining (Recurring)

   • All Available

   • Fixed Amount (Recurring)

2. Define when the liquidations start in Liquidation Event:

   • Select an existing event on the timeline (e.g. "Retirement").

   • Or Double-click anywhere on the Timeline to create a new event.

3. Enter Withdrawal Details: Input the specific number of shares or the fixed amount you wish to liquidate each year.

If you would like to vary the withdrawal use Steps, as explained below.

Once you have returned to the Dashboard you can toggle on Year View and use the slider bar to look at the liquidation event year. You will be able to see the expected proceeds.

Future Grant

If you would like to set up a future grant with the same vesting period and Exercise price as your main entry, then you can add future grant event in this section. If this is a one-off second issue, then select the same event in the start and end event. If new options are issued each year, then select the appropriate start and end events on the Timeline.

Steps

Use the steps feature to step up or down any liquidation instructions.

Click Done to save the step and click Done again to save and go back to the Dashboard.

Checking the Plan - Year View

Once you have saved your share option, you can check that everything is set up by going to Year View - Investments - and click on the name of the account you just created. In here you will see information about it:

• Granted - this is the total number of shares granted
• Unvested - this tracks how many shares are still to vest. They will move from unvested to hold once vested.
• Hold - this is the number of shares that have vested and in the above example exercised. The clients owns these and is therefore able to liquidate if needed.
• Granted Shares - If future grants are set up you will see them here.
• Vested Shares - shows the number of shares that vest in that year and are therefore available to exercise.
• Exercised Shares - shows how many shares have been exercised (purchased) in that year. The Number of shares multiplied by the Strike Price = the cost in the plan to exercise. You will see this in Year View - Expenses tab.

• Liquidated Shares - If you scheduled the shares to liquidate in the future and be withdrawn from the account, then you will see a value in liquidated shares in the relevant year/s.
• The Strike price is how much the shares cost when exercised. So the Strike price is the Exercise price you entered in the Basics tab.

Assets chart

See the share option account in the assets chart step up over time, as the shares are exercised. In the chart below the shares vest for 5 years and then grow at the set growth rate entered until liquidated at retirement.

The expenditure will also increase in these years as it costs the client money to buy the share options. You can compare the cost to buy the share option versus the potential future value by comparing the cash flow and assets chart and looking at Year View.

Taxes chart

View the savings on Income tax and National insurance tax in the years the shares are exercised. Compare to a different scenario by creating a What If plan. Once shares are liquidated view the Capital Gains Tax projections on the Taxes chart.