Cash accounting scheme meaning

What is a phantom award? In essence, phantom awards fall into two main types: phantom share awards and phantom options. Phantom share awards A phantom share award gives the holder a right to a cash sum mirroring the value of an actual share. These arrangements are also known as ‘shadow shares’, ‘synthetic shares’, or ‘equity appreciation units’; for simplicity, this note calls them ‘phantoms’ and ‘phantom share awards’. Phantom options A phantom option typically entitles the holder to the increase in the value of a real share above a notional exercise or base price. Practical example BigCo Limited is a rapidly expanding private UK company seeking to launch an incentive plan that allows all employees to participate and share in any future growth of the business. Its investor base, however, is reluctant to issue actual shares to employees, as that would dilute the current investor shareholders. By granting phantom awards to its workforce, BigCo Limited can provide employees with a right to a...

When a company launches a new plan, it will typically decide to settle awards by either: issuing fresh shares, or using existing shares bought on the market, commonly via an employee benefit trust (EBT) that purchases shares in the market or from individual shareholders to satisfy awards granted under the company’s share plans This practice note examines share hedging in the context of an employee share plan and outlines the key points to address to manage potential costs and the financial risks associated with share hedging. In essence, a company must balance: the need to acquire enough (but ideally not excess) shares ahead of option exercises/acquisition of shares by employees, and the need to contain costs by buying when the share price is low Why do companies use EBTs to share hedge? Companies operating share plans (for example through the grant of options or conditional share awards and/or direct share acquisitions) often need to...

Pay as you earn (PAYE) Pay as you earn (PAYE) is the system through which income tax (together with National Insurance contributions (NICs) and certain other statutory deductions) must be withheld by employers (and other payers) and accounted for to HMRC in respect of specified payments of, namely the following categories: employment income pension income social security income (together, PAYE income). For further information and guidance, see the Practice Note titled Scope of the PAYE system. PAYE income typically covers cash amounts paid to employees or directors (eg salaries, bonuses and termination payments). Non-cash remuneration is generally outside the operation of PAYE, but an important exception applies where amounts are provided as (or treated as) readily convertible assets for PAYE purposes. In the sphere of employment-related securities, whether PAYE obligations arise depends largely—though not entirely—on the securities in point being readily convertible assets. For full details on the meaning of readily convertible assets, see Practice Note: PAYE—readily convertible assets, intermediaries and...