Non-qualified stock options (NSOs) allow employees to buy a company’s shares at a fixed price (known as the strike price). The stock options will be priced at a fair market value when the grant is issued at that time. This means that once the vesting period is over, the strike price will be the same as the fair market value when the NSO was granted.
Employees will still have to pay income tax on the difference with the fair market share price and the exercise price (profit made). After acquiring the options, the employee would have the freedom to either sell the shares or keep them. The helps sheet HS305 advises that you report.
You only need to complete the ‘Share schemes’ box, box 1 on page Ai 2 if: your employer has not deducted tax from the whole of the taxable amount and your employer tells you that the valuation used to arrive at the taxable amount for PAYE, was lower than it should have been, the taxable amount which has not had tax deducted due to this difference should be entered in the ‘Share schemes’ box 1.
HS305 Employment-related shares and securities — further guidance (2023)