Employment-related securities ― PAYE and NICs

By Tolley in association with Ken Moody
Employment_tax_img

The following Employment Tax guidance note by Tolley in association with Ken Moody provides comprehensive and up to date tax information covering:

  • Employment-related securities ― PAYE and NICs
  • Share awards
  • Charges under ERS rules
  • PAYE
  • National Insurance contributions
  • Real Time Information (RTI)
  • Valuation
  • Making good by employee
  • Payment of employer’s NIC by employee
  • Reporting requirements
  • Employee’s self assessment

Share awards

An outright award of employment-related securities (ERS) represents ‘money’s worth’ and is within the meaning of earnings within ITEPA 2003, s 62 and is taxable as such. The amount taxable is reduced by any payment made by the employee. The ‘money’s worth’ value is seldom different from the statutory open market value for capital gains tax purposes.

TCGA 1992, ss 272–273; SI 2015/616 (subscription sensitive)

The charge to tax as earnings does not apply to shares that are acquired as a result of exercising an ERS option. Instead, the acquisition of such shares is a chargeable event under ITEPA 2003, s 476 (see Charges under ERS rules below). Likewise, shares acquired by an employee under one of the tax-advantaged schemes (SAYE, share incentive plan (SIP), company share option plan (CSOP) and enterprise management incentive (EMI)) are subject to the tax rules covering the scheme in question, rather than being taxed as earnings.

Charges under ERS rules

Under the ERS rules in ITEPA 2003, ss 422–484 (Ch 2–5, Pt 7) a charge to tax can arise if any of the various ‘chargeable events’ occurs (see the Employment-related securities ― overview guidance note). In such a case, an ‘amount which counts as employment income’ is taxable as ‘specific employment income’.

PAYE

The employer potentially has to operate PAYE in respect of ‘PAYE employment income’. That is made up of ‘taxable general earnings’ (ie earnings and benefits in kind) and ‘specific employment income’ (charges under the ERS rules). However, whether the employer has to operate PAYE on a particular item of income depends upon whether that income takes the form of a payment or benefit, or is treated as such, and whether the securities are readily convertible assets (RCAs) ― see the Readily convertible assets guidance note.

Where PAYE income is provided

More on Employment-related securities: