Employment-related securities ― PAYE

Produced by Tolley in association with Ken Moody
Employment-related securities ― PAYE

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

  • Employment-related securities ― PAYE
  • Share awards
  • Charges under the ERS rules
  • Tax
  • NIC
  • Real Time Information (RTI)
  • Valuation
  • Making good by employee
  • Payment of employer’s NIC by employee
  • Reporting requirements
  • More...

Share awards

An outright award of employment-related securities (ERS) represents ‘money’s worth’ and is within the meaning of ‘earnings’ for 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.

The charge to tax as earnings does not apply to shares that are acquired as a result of the exercise or vesting of 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 the ERS rules

Under the ERS rules in ITEPA 2003, ss 422–484 (Chapters 2–5, Pt 7), a charge to tax can arise if any of the various ‘chargeable events’ occur (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’.

Tax

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’ (including charges under the ERS rules). However, whether the employer has to deduct tax 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 conve

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