Employment-related securities—basic tax principles
Employment-related securities—basic tax principles

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Employment-related securities—basic tax principles
  • What is an employment-related security?
  • The general earnings charge on acquisition
  • Restricted securities and joint elections
  • Convertible securities
  • Subsequent chargeable events involving employment-related securities
  • Securities options
  • PAYE and NICs
  • Notional payments not made good—the section 222 charge
  • Reporting obligations

Various income tax and national insurance contributions (NICs) charges can arise for an employee or director in relation to the acquisition, ownership or disposal of employment-related securities. Associated PAYE and NICs obligations can also arise for the employing company.

What is an employment-related security?

A security (which includes shares, debt, derivatives and interests in investment partnerships) will be an employment-related security where the right or opportunity to acquire the securities (or interest in securities) is:

  1. available by reason of an employment of the person acquiring the securities (or interest) or any other person, or

  2. made available by a person's employer (or a person connected with a person's employer) (the deeming provision) unless such right or opportunity is made available:

    1. by an individual, and

    2. in the normal course of the domestic, family or personal relationships of that individual

For these purposes, employment includes a former, current and prospective employment.

The rules on employment-related securities apply very broadly because of the deeming provision. It means that the employment-related securities rules must be considered whenever shares are acquired in the employing company or a connected company.

For more details, see Practice Note: What is an employment-related security?.

The general earnings charge on acquisition

Where an employee or director acquires shares by virtue of his employment for free or for less than market value, an