The following Employment Tax guidance note Produced by Tolley in association with Ken Moody provides comprehensive and up to date tax information covering:
Shares or securities awarded to employees are potentially taxable as earnings but the employment-related securities (ERS) rules are an overlay that modify the position in cases where the tax result that would flow from the particular circumstance does not reflect the full economic value received, or where the Government has determined that it wants a lesser / different tax burden to apply.
It has long been established by case law that where an employee acquires shares in his employer and pays less than their market value for them, the discount is taxable as earnings (as defined in ITEPA 2003, s 62).
The charge to tax on employment income in ITEPA 2003, s 6 relates to:
specific employment income
In outline, ‘general earnings’ are earnings within s 62 and amounts ‘treated as’ earnings, which includes benefits in kind within the benefits code, while ‘specific employment income’ refers to amounts which ‘count as’ employment income under various heads ― the one we are concerned with here being the ERS rules in ITEPA 2003, ss 417–554 (Pt 7).
The ERS legislation does not, in general, apply to the acquisition of securities since their value (less any consideration given by the employee) is taxable as earnings on general grounds.
The ERS legislation in ITEPA 2003, ss 417– 554 (Pt 7) may be divided into two main categories:
The rules for tax-advantaged schemes are not covered in this note. For more on those schemes, see the following guidance notes:
SAYE schemes ― an overview
Why use a company share option plan (CSOP)?
Share incentive plans ― an overview
Why use an EMI scheme?
Obviously, for the ERS rules to apply, we need to know what securities are regarded as employment-related. ITEPA 2003, s 421B(1) defines ERS as:
“… securities, or an interest in securities, acquired by a person where the right or opportunity to acquire the securities or interest is available
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