UK staff warned of dotcom tax bomb

Employees made newly redundant from a dotcom may face hefty tax bills for now worthless share options if they haven't taken professional advice, accountants have warned.

A growing problem in the US, the situation arises when employees exercise options but do not sell the stock immediately, waiting instead for the firm's share price to rise. According to US reports, more than 25 Microsoft staff in the US have filed for bankruptcy as a result.

Dotcom staff been left stranded by overnight crashes that render their stock next to worthless. Employees have to pay tax on the value of shares at the option price, regardless of the share price on tax return day.

The problem has been exacerbated in the US by workers borrowing money against existing options to take advantage of a scheme which gives them tax breaks if they buy their company's stock for their pension scheme.

"It would be very peculiar if it happened here," said Nicki Demby, reward partner at Andersen. "It could, theoretically, but anyone taking professional advice will be told not to exercise the options until the day they want to sell them, so that their tax liability is always less than their profits."

"Andersen strongly advises against borrowing against future share options. They are an investment opportunity, not free money," she added.

Meanwhile, a separate Andersen report revealed this week that over half the share options granted at flotation prices by firms listing on the stock exchange in the last four years are now worthless.

Over half the companies questioned for the report were hi-tech firms.