A UK company joins a Dutch group and the share plan travels with it, unexamined. The plan is treated as a human resources document while the acquisition is a tax and legal matter, and the two files never meet. Months later the finance team discovers that options granted after completion produce an income tax charge at exercise, that employer National Insurance is payable on the same amount, and that the corporation tax deduction the UK company had been taking is no longer available. Nothing was done incorrectly. The plan stopped qualifying on the day the shareholder changed.
The UK tax advantaged plans react differently to a foreign parent, and the differences are structural rather than administrative. One of them cannot survive the transaction at all. The corporation tax deduction that funds the exercise runs on conditions of its own, which reach awards no plan covers but share with the plans the one test a Dutch chain is most likely to fail.
Where the enterprise management incentive stops
The enterprise management incentive is the plan that founders think of first, and it is the one that will not follow a company into a group. Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 imposes an independence requirement at paragraph 9: the company must not be a 51 per cent subsidiary of another company, nor under the control of another company, with or without connected persons, even where it does not become a 51 per cent subsidiary. A Dutch acquirer taking control breaches that requirement on the day of completion.
The other conditions were relaxed with effect from 6 April 2026. HMRC now states a gross assets ceiling of £120 million and fewer than 500 full time employees, against £30 million and fewer than 250 employees for grants on or before 5 April 2026, figures that paragraphs 12 and 12A of the same Schedule keep in force for specified Northern Ireland companies rather than retiring, with options exercisable within either 10 or 15 years of grant. The individual limit remains £250,000 of share value under paragraph 5 of Schedule 5, measured over the three year restriction period defined in paragraph 6, and it is a limit on the employee rather than on the company, which runs a separate ceiling of its own at paragraph 7. Those relaxations matter to a growing independent company and are irrelevant to a company that has ceased to be independent, because independence is not one condition among many; it is the condition that fails first.
Options already granted are not annulled, but they are put on a clock. Section 534 lists the company becoming a 51 per cent subsidiary, and coming under the control of another company without becoming one, among the disqualifying events. Section 532 then modifies the consequences where the option is exercised later than 90 days after the day on which the event occurred, so that growth in value after the event is taxed as employment income. In practice the acquirer either settles the existing options at completion or accepts that the holders lose most of the advantage they were promised.
What survives a foreign parent
The company share option plan does survive, and it is usually the honest answer for a UK subsidiary of a Dutch group. Paragraph 16 of Schedule 4 allows the scheme shares to be ordinary share capital of the scheme organiser, of a company which has control of the scheme organiser, or of a consortium member in defined cases. A Dutch parent that controls the UK employer is within that description, so the plan can be written over the parent’s shares rather than over shares in a subsidiary nobody will ever buy. That is not the whole of the shares test: paragraph 15 requires paragraph 17 as well, and paragraph 17 admits only shares of a class listed on a recognised stock exchange or shares in a company which is not itself under the control of another company, so the Dutch parent serves only where it sits at the top of the chain.
The trade offs are known. Paragraph 6 caps the aggregate market value of shares an individual may acquire under outstanding options at £60,000, raised from £30,000 with effect from 6 April 2023, and HMRC’s guidance sets the exercise window at between three and ten years from grant for the income tax and National Insurance relief to apply. That is a narrower instrument than the enterprise management incentive, but it is an instrument that continues to work after a change of control, which the enterprise management incentive does not.
Save as you earn arrangements and share incentive plans are similarly available to a group, subject to their own conditions, but they are all-employee plans, required by paragraph 6 of Schedule 3 and paragraph 8 of Schedule 2 to be open to every employee who meets the conditions, rather than negotiated with a handful of executives. Where the group wants selective equity for senior UK hires, the realistic choices are a company share option plan within its limits or an unapproved arrangement priced on the basis that it carries no relief.
The corporation tax deduction adds conditions of its own
The relief that funds the plan economically is the statutory deduction in Part 12 of the Corporation Tax Act 2009, and it is easy to assume it follows the plan. It does not. Section 1008 sets conditions on the shares acquired: they must be ordinary shares, fully paid up and not redeemable, and they must be shares of a class listed on a recognised stock exchange, or shares in a company that is not under the control of another company, or shares in a company that is under the control of a listed company.
Read that against a typical Dutch structure. If the shares used are those of the Dutch topco and nothing sits above it, the second limb is satisfied and the deduction is available on the usual terms. If the group has interposed a further holding entity above the company whose shares are used, or if the shares are those of an intermediate Dutch holding under a private topco, the second limb fails and the first and third do not apply, because nothing in the chain is listed. The deduction is then lost, and it is not lost alone. Paragraph 17 of Schedule 4 asks the same question of the same shares in narrower terms, as does paragraph 27 of Schedule 2 for the share incentive plan, so the plan written over those shares stops qualifying at the same moment. What reads as a lost deduction is a lost regime, and the employees carry it.
Here the tax position depends on the shape of the chart rather than on the drafting of the plan, and it is cheap to fix, since which company’s shares are used is a design decision taken once. In one mandate we moved the plan up one level in a Dutch chain for exactly this reason, at no commercial cost, because the equity offered to the UK team was economically identical either way.
Payroll, valuation and the cost nobody budgeted
Where an award falls outside a tax advantaged plan, the gain on exercise is employment income and the employer has to operate pay as you earn if the shares are readily convertible assets within the meaning of section 702 of the Income Tax (Earnings and Pensions) Act 2003. Employer Class 1 National Insurance is due on the same amount, at 15 per cent for the 2026 to 2027 tax year on earnings above the secondary threshold. On a plan of any size that is a real cash cost falling on the UK company in the month of exercise, and it is frequently absent from the acquisition model.
The market practice response is a joint election under paragraph 3B of Schedule 1 to the Social Security Contributions and Benefits Act 1992 transferring the employer contribution to the employee, which reduces the employer’s exposure and the employee’s net outcome at the same time. Whether that is acceptable is a remuneration question rather than a tax question, but it should be settled before the awards are communicated.
Valuation is the other recurring difficulty. A private Dutch parent has no market price, so the exercise price and the reported values rest on a valuation the group prepares, and in a tax advantaged plan that valuation is doing legal rather than presentational work. It should be documented on a basis the company would be content to produce three years later on enquiry.
The Dutch side of the same instrument
If the plan is written over Dutch parent shares and offered across the group, the Dutch employees are taxed under Dutch rules on the same instrument. Since the Wet aanpassing fiscale regeling aandelenoptierechten entered into force on 1 January 2023, the taxable moment for option gains under article 10a of the Wet op de loonbelasting 1964 is in principle the moment at which the shares acquired on exercise become tradable, rather than exercise itself, with an election available to the employee, on conditions and in writing no later than exercise, for taxation at exercise as before.
The consequence for a group operating one plan in two countries is that the same award is taxed at different moments on either side of the North Sea. A UK holder of an unapproved option is taxed at exercise. A Dutch holder of the same award may be taxed later, when the shares become tradable, on a base that has moved in the meantime. Neither outcome is wrong, but a single plan document that assumes a single taxable event will misdescribe one of the two populations.
Deferral is not automatically favourable either. Where the shares appreciate between exercise and tradability, the Dutch base is larger, which is why the election exists and why employees who are not told about it tend to discover the point too late.
Mobility compounds the problem. An award granted in London and vested partly in Amsterdam is apportioned rather than allocated whole, and the apportionment is defensible only where the group kept a record of where the holder actually worked. That record is a payroll function, not a share plan function, and it cannot be reconstructed from the option certificate.
Registration and the annual return
Tax advantaged plans have to be registered with HMRC, and the guidance states that new tax advantaged schemes should be registered by 6 July following the tax year in which they were set up, with the tax benefits at risk where that is missed. The annual employment related securities return, or a nil return where no reportable event occurred, is due by 6 July following the end of the tax year for every registered scheme, and penalties follow late filing.
The enterprise management incentive has its own notification. For options granted on or after 6 April 2024 the grant must be notified on or before 6 July following the end of the tax year of grant, replacing the 92 day period that applied to earlier grants. The consequence of missing it is unchanged and remains disproportionate: the tax advantages of the grant are at risk.
None of this is difficult. It fails because responsibility sits between the UK subsidiary’s payroll provider and the parent’s finance function, and each assumes the other has it. On an acquisition these obligations should be assigned by name at completion, alongside statutory accounts and corporation tax returns.
Deciding this before completion, not after
The pattern in these files is consistent. The incentive arrangement is drafted for a company that is independent, and the company then stops being independent for perfectly good commercial reasons. The plan does not adjust itself, the deduction quietly changes character, and the first person to notice is an employee who was told the equity would be taxed as capital and finds it on a payslip.
The work is modest if it is done at the right moment. Establish which existing awards are affected by the change of control and settle or accelerate them deliberately. Decide whose shares the continuing plan will use, and confirm that the chosen company satisfies section 1008 as well as the plan’s own schedule. Register what has to be registered and diarise the return. Then write the plan to describe two tax systems rather than one, because that is what a Dutch group with a UK subsidiary actually has. Done after completion, the same work becomes a remediation exercise conducted in front of the people it was meant to reward.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.