Employees face bills despite loss

Workers are facing a tax bill despite nursing losses on stocks they bought under share option schemes.

Plunging equity markets have left workers with an income tax charge, even though the shares are now worth less than they originally paid for them.

Accountancy group UHY Hacker Young warns that under "unapproved" schemes, workers must pay income tax on the difference in the value of the shares on the day they exercised their rights and the sum they had to pay under the option scheme. This is because the profits earned through many employee share option schemes is subject to income tax rather than capital gains tax, so must be paid even if the employees are now looking at losses.

While schemes with the backing of HM Revenue & Customs give tax benefits, businesses choose "unapproved" schemes because they offer a greater degree of flexibility.

Share option schemes are intended to boost growing companies, enabling them to keep hold of top staff through rewarding loyalty with shares in the company.