The following Employment Tax guidance note Produced by Tolley in association with Ken Moody provides comprehensive and up to date tax information covering:
In some cases, a company may wish to make outright share awards to its employees rather than granting options. This will normally be the case where it wants employees to acquire shares without paying for them. One common example is the award of shares under a long-term incentive plan or performance share plan. Under these plans, employees receive contingent awards of shares and where demanding performance targets are met, usually after a three-year measurement period, the free shares are awarded. This type of arrangement is commonly used by listed companies but may be used by any company. However, for an unlisted company, consideration should be given to how the income tax / NIC costs will be funded by the employee if there is no market for the shares.
There are two significant issues in making a share award:
an award of shares for no consideration will give rise to an income tax charge on the employee on an amount equal to the tax market value of the shares at the date the employee acquires the shares
a UK company cannot issue its shares for nil consideration ― the minimum payment for new shares is their nominal value (ie their face value)
There are two types of share awards. Frequently, awards are made as contingent share awards. In other words, the employee only receives the shares when certain conditions are met. Alternatively, the employee may receive an award of restricted shares where he holds the shares subject to certain conditions, including a provision that he will forfeit the shares if he leaves. This approach is less common because it involves the employee holding the shares from the outset and it is more difficult for the employer to retrieve the shares if the employee leaves.
These two types of arrangements are taxed differently and the treatment is set out below. It should be noted that ITEPA 2003,
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