Joining a established Ltd, questions

[ft101]

Hello

Just pondering the following, and would appreciate the input of the collective and considerable knowledge on this board pls

I've been offered a perm role in a established Ltd, so would be an employee. Salary is lower than I would expect ordinarily, and I also like the contracting lifestyle so would miss it. Why am I considering it then you may ask, well the Ltd is aggressively growing organisation and I am being offered share options, from which there could be large financial gains in a few years time. Risky, but the gains would be far higher than contracting alone, over three or four years.

Does anyone know what the tax implications, and any other 'gotchas' might be in joining a established Ltd as a perm employee, then cashing stock options a few years down the road?

thanks
Me

[VectraMan]

an

Be careful of share options. I've known several people who've been offered share options as part of a deal, and they've turned out to be a worthless different class of share, or somehow not exactly what they were expecting. It's one of those things companies do to try to get you to work for less.

You'll have to pay CGT if you cash in the shares, and you'll have to pay income tax on any dividends if you're above the upper rate.

[b0redom]

When you get options, they are to buy shares at a strike price. Usually the price of the day you start.

So say on day 1, they're 10p and you get 10,000 over 4 years.

Usually you aren't able to access the options for 12 months, so on month 12 you get the first 2500, then month 13 you get an additional 208 then month 14, an additional 208 etc etc

What usually happens is that you buy and sell at the same time, so you exercise your option to buy at 10p and sell them at the market rate, let's say 20p and pocket the difference eg on month 12:

2500 * (20p-10p) = £250

Whenever I've worked for a company offering options they've just added that at source to PAYE and you're taxed at 40% + ~ 12% NI.

Theoretically if they make buckets of money, and the share price rockets, you're quids in, but don't take a job based solely on them - they're only worth money if the stock price hurtles upwards.

I know people at AOL, Sun, and Yahoo who all have options which are worthless as the strike price is higher than the current market value.

[b0redom]

Oh, and AFAIK there's no tax relief on options either, so if you save up all your options for 4 years and exercise them all at once, you get hit with a massive tax bill.

[ft101]

Interesting replies folks, thanks. Looking forward to more opinions too.

Just to be clearer on my original post, the company has not yet floated and is privately held. The big idea is eventually to float or be bought out. Buying equity was presented as an option but is not something I am willing to consider.

[Manic]

Not long left a company who offered similar setup. Looks like my shares are worthless as said company retracts just as aggressivly as it expanded with lots of debts.

[ft101]

Not long left a company who offered similar setup. Looks like my shares are worthless as said company retracts just as aggressivly as it expanded with lots of debts.

And of the debts, are you liable at all?

[THEPUMA]

ft101, it is likely that the best way to achieve this would be via an EMI scheme. If you want to PM me your phone number I can call you and explain the tax implications as it would be quite time-consuming to type it all out on here.

[Manic]

And of the debts, are you liable at all?

Just a shareholder and ex employee. My shares were a different category to the Directors, i.e. no voting rights.

[VectraMan]

Whenever I've worked for a company offering options they've just added that at source to PAYE and you're taxed at 40% + ~ 12% NI.

Do you mean you're taxed on the value of the options even if you don't take them, or you're taxed when you take them and make some money?