Gain subject to PAYE

The taxpayer saved into her employer’s SAYE share option scheme from February 2005 to May 2007 when a management buyout of the business E took place.

The employees who had been saving into the scheme were each given a bonus by the new company KN to enable them to have enough savings to exercise their share options at the option price because they would not have otherwise paid enough into the scheme. Tax and National Insurance were correctly deducted from the bonuses.

The taxpayer used her net bonus and her SAYE savings to exercise her share options. She immediately sold the shares to the company. The gain realised on the sale of shares was subject to income tax because the deal happened within three years of the date of grant of her options.

She included the gain in her 2007/08 self assessment return as...