How employment income is taxed—shares or securities
How employment income is taxed—shares or securities

The following Tax practice note provides comprehensive and up to date legal information covering:

  • How employment income is taxed—shares or securities
  • Distinction between general earnings and specific employment income
  • Employment and office-holding
  • Earnings—the Weight v Salmon charge
  • Connection with employment
  • The residual benefits charge
  • Connection with employment
  • Jurisdictional limitations—general earnings and specific employment income
  • Reform and the future

Where an employee or director acquires, holds or disposes of shares or securities in connection with his or her employment, income tax on employment income can arise under one or more of the following key charges relating to:

  1. earnings — the Weight v Salmon charge

  2. residual benefits

  3. employment-related securities, and

  4. notional payments resulting in income tax:

    1. payable by an employer (via PAYE), and

    2. which is not reimbursed by the employee to the employer within 90 days after the end of the relevant tax year (referred to in this note as notional payments not made good)

The main charge on earnings and the residual benefits charge are described below. These charges are particularly relevant when an employee or director acquires shares in his or her employing company (or a connected company). Such shares may be issued directly to an incoming director or transferred by one of the existing shareholders.

To explain how each of these charges sits within the framework of income tax on employment income, this Practice Note starts by setting out:

  1. the distinction between general earnings and specific employment income, and

  2. what is meant by employment for these purposes

For a checklist of the key chargeable events and tax charges applying to the acquisition, holding and disposal of employment-related securities (which are the focus of this subtopic), see: Key income tax charges

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