By David Cammack, Managing Director, Forward Law. Last updated 19 October 2026.
Forward Law’s unapproved share options lawyers help growing businesses set up schemes for employees, consultants, advisers and non-executive directors.
Unapproved share options give you flexibility over who participates, the size of each award and how the options work. They can be useful where EMI or CSOP is unavailable, or where you want to reward someone who is not an employee.
They do not carry the same tax advantages, so the choice needs to take account of what participants will receive after tax as well as the commercial terms.
We help you decide whether an unapproved share option scheme is suitable, agree its structure and prepare the documents. Our fee is fixed before work begins.
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Watch: David Cammack explains what unapproved share options are, who they suit, how they are taxed and how we set a scheme up (55 seconds).
Unapproved share options at a glance
- Tax: For employees and directors, there is generally no tax on grant. Income tax usually arises on the gain at exercise, with National Insurance also payable in some circumstances. Further growth after exercise is generally subject to capital gains tax when the shares are sold.
- Companies: No scheme-specific limits on company size or qualifying trades, although company law and the existing ownership arrangements still need to be considered.
- Participants: Options can be granted to employees, directors, consultants, advisers and overseas team members.
- Award size: No equivalent to the statutory individual limits under EMI or CSOP.
- HMRC: No advance scheme approval is required. Employment-related awards generally fall within HMRC’s registration and annual reporting requirements.
- Our fee: £1,350 to £2,000. If a valuation is needed, your accountant can provide it or our valuation partner can prepare one for a separate fee of £1,500.
What are unapproved share options?
An unapproved share option gives someone the right to acquire a specified number of shares at an agreed price, either at a future date or when certain conditions are met.
“Unapproved” means that the option falls outside the statutory tax-advantaged schemes, such as EMI and CSOP. It does not mean that HMRC has rejected the arrangement. These are also called non-tax-advantaged share options.
You have considerable flexibility over the terms. You can decide who receives options, how they earn their entitlement and when they can exercise. The documents can also provide for what happens if someone leaves or the company is sold.
The participant does not become a shareholder simply by receiving an option. They acquire shares when they exercise it, subject to the agreed conditions.
The main trade-off is tax. For employees and directors, the gain on exercise is normally taxed as employment income. That makes it worth checking whether a tax-advantaged scheme is available before choosing unapproved options.
When an unapproved share option scheme may be suitable
Unapproved options can help where you want to reward someone through equity but a tax-advantaged scheme does not meet your needs.
Common situations include:
- Awards to consultants, advisers or non-executive directors. These participants will not normally qualify for EMI or CSOP.
- Awards beyond the tax-advantaged limits. An employee may already have received the maximum award available under the relevant scheme.
- A company that does not qualify. The company’s structure or circumstances may prevent it from using EMI or CSOP.
- Different commercial terms. You may want an exercise price or exercise arrangements that would not meet a tax-advantaged scheme’s requirements.
Unapproved options can also be used for overseas participants, although their location does not automatically rule out EMI or CSOP. Local tax, employment and securities rules may affect the appropriate structure.
Timing can be relevant too. An unapproved scheme does not depend on obtaining advance HMRC valuation agreement, but the valuation, approvals and tax consequences still need proper consideration. We would not recommend giving up available tax advantages simply to save a little time.
How unapproved share options are taxed
For an employee or director, there is generally no tax charge when the option is granted. Income tax normally arises when it is exercised, broadly on the difference between the shares’ market value at that point and the amount paid for the option and shares.
Where the shares are “readily convertible assets”, PAYE and National Insurance will generally apply. This commonly includes exercise as part of a company sale, although the statutory test is wider than whether the shares can immediately be sold. Where permitted, the documents can provide for the participant to bear the employer’s National Insurance cost through an appropriate agreement or election.
If PAYE does not apply, the participant will generally account for the income tax through self-assessment. An exercise can therefore create a tax bill even if the shares are retained and no sale proceeds are available.
Further growth after exercise is generally subject to capital gains tax when the shares are sold. The company may also qualify for a corporation tax deduction, subject to the relevant conditions.
Genuinely self-employed consultants and overseas participants may be taxed differently. We identify where specialist tax advice is needed and work alongside your accountant.
Unapproved options or EMI?
Where the company and employee qualify, EMI will usually offer the more favourable tax treatment. Qualifying EMI options can generally be exercised without income tax or National Insurance where the exercise price is at least the relevant market value at grant. Relief may also be available when the shares are sold.
Read about EMI share option schemes
You can use both types of option within the same business. For example, qualifying employees might receive EMI options while consultants receive unapproved options.
The arrangements can be designed around similar vesting and leaver provisions, with the necessary differences reflected in the documents and reporting. We help you decide which route is appropriate for each participant.
What our unapproved share options service covers
Advice on the scheme structure
We start with who you want to reward, how much equity you are prepared to allocate and what you want the options to achieve.
We then work through the exercise price, vesting conditions and the circumstances in which options can be exercised. Leaver provisions also need careful thought: someone leaving after six months may warrant a different outcome from someone who has contributed to the business for several years.
The scheme must also fit with your investors’ rights and any plans for further funding or a sale.
Scheme rules and company approvals
We prepare the scheme rules and the board and shareholder approvals required to adopt the plan and grant options.
As part of that work, we review your articles of association and shareholders’ agreement for provisions affecting the scheme. These may include share class rights, pre-emption provisions and investor consent requirements.
If changes are needed, we explain them and confirm the scope before proceeding.
Valuation
There is no requirement to obtain advance HMRC valuation agreement before granting unapproved options. A valuation may nevertheless be useful when setting the exercise price, and the value at exercise will usually determine the employment tax charge.
Your accountant can prepare the valuation, or our specialist valuation partner can do so for a fixed fee of £1,500. We confirm what valuation work is needed and what the fee covers.
Option agreements and grants
We prepare the option agreements, grant letters and acceptance arrangements, together with the relevant corporate records.
Each participant’s documents record their award and the conditions attached to it. We also help establish an option register so that grants, lapses and exercises can be tracked.
HMRC registration and annual returns
Employment-related option arrangements generally need to be registered through HMRC’s Employment Related Securities service, known as ERS, by 6 July following the tax year of the first reportable event. This will commonly be the initial grant.
A return for that tax year is also generally due by the same deadline. Annual returns, including nil returns where required, then continue until the scheme is formally closed.
We guide you through registration and provide the scheme information your accountants need for their filings. We also confirm who is responsible for each step.
What it costs to set up unapproved share options
Our fixed fee for setting up an unapproved share option scheme is £1,350 to £2,000, depending on the number of participants.
If a valuation is needed, your accountant can prepare it or our valuation partner can do so for a separate fixed fee of £1,500.
We confirm the scope and fees before work begins. If the agreed work takes longer than expected, our fee stays the same. If your instructions change the scope, we discuss any revised fee with you before carrying out the additional work.
Forward Law is not currently VAT registered, so we do not add VAT to our fees. If that changes, VAT will be added at the standard rate.
How we set up your scheme
We begin by discussing the business, the proposed participants and any investment or sale plans. We then review the existing company documents and agree the main terms with you.
Once the structure is settled, we prepare the scheme rules, approvals and option agreements. We coordinate signing and the grants, then explain the registration and reporting requirements.
The process usually takes two to four weeks from instruction to grant, depending on the work required and how quickly information and approvals are available.
If you need to grant options before a particular date, tell us at the outset so that we can assess the timetable.
Who will handle your unapproved share options?
If you are looking for unapproved share options solicitors or a law firm to set up your scheme, it is helpful to understand how Forward Law operates.
Forward Law is a legal consultancy. Your scheme is handled by David Cammack, our managing director and a practising solicitor with more than 30 years’ experience as a commercial lawyer, including at several leading firms.
David advises on all types of share scheme and works directly with you, from the initial discussion through to the grants and guidance on HMRC registration.
David is authorised and regulated by the Solicitors Regulation Authority in his own right. Forward Law is not a firm regulated by the SRA.
What we need from you
To get started, we will usually ask for:
- Your current shareholding and option records, often referred to as the cap table.
- The articles of association, shareholders’ agreement and relevant investor consent requirements.
- Details of existing options and any promises or commitments to award equity.
- The proposed participants, their roles and where they work, together with the intended awards.
- Your initial thoughts on exercise price and vesting.
- A finance contact for valuation, payroll and HMRC matters.
You do not need to have settled all the terms before speaking to us. We can help you work through those decisions.
Support as the scheme develops
After the first grants, you may want to include new participants, make further awards or deal with someone leaving. A funding round or sale may also require decisions about outstanding options.
We advise on those events and prepare the relevant documents, taking account of the tax position before changes are made. Where options are exercised on a sale, we can coordinate with your accountants on the payroll requirements and how the exercise price and tax will be funded.
Where the shares acquired on exercise carry restrictions, such as a requirement to sell them back on leaving, we also consider whether the participant should make a section 431 election with the company. The election must be made within 14 days of exercise. It means tax is paid on the full unrestricted value at that point, so that later growth is subject to capital gains tax rather than a further income tax charge when the restrictions fall away.
If you use our Legal Desk service, this support can be included within your agreed monthly hours.
Frequently asked questions
Employment-related option grants generally need to be reported to HMRC. Registration and the first annual return are normally due by 6 July following the tax year in which the first reportable event occurs.
Once registered, annual returns continue to be required, including nil returns where appropriate, until the scheme is formally closed. We help identify the requirements for your arrangements and provide the information your accountants need.
For employees and directors, there is generally no tax on grant. Income tax normally arises on the gain when options are exercised, and PAYE and National Insurance may also apply.
Further growth after exercise is generally subject to capital gains tax when the shares are sold. Different rules can apply to consultants and overseas participants, so their position needs separate consideration.
Yes. Unapproved options can be used to reward consultants, advisers and non-executive directors who would not normally qualify for EMI or CSOP.
Their tax treatment will depend on their status and circumstances. A director is an office holder, for example, and is not treated in the same way as a genuinely self-employed consultant.
Yes. You can grant EMI options to qualifying employees and unapproved options to other participants, or use unapproved options for additional awards where appropriate.
The documents can provide for similar commercial terms, including vesting and leaver treatment, while addressing the different tax and reporting requirements.
No. Unapproved options can have an exercise price below market value. However, the arrangements must still comply with company law, including the restriction on issuing new shares below their nominal value.
Nil-cost arrangements require suitable structuring. A lower exercise price will also generally increase the employment income gain on exercise, so we explain both the commercial benefit and the tax consequences before the price is agreed.
Talk to our unapproved share options lawyers
If you want to offer share options to your team, we can help you decide whether an unapproved share option scheme is suitable and how it should work.
Book a free 45-minute discovery call to discuss the proposed participants and what you want to achieve. We can then provide a proposal setting out the work and the fixed fee.
