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HMRC internal manual

Employment Related Securities Manual


About this manual

This manual contains guidance on the taxation and NICs treatment of securities (which includes shares and options over securities), which are used to remunerate employees, including directors. These are referred to as employment-related securities.

The manual explains how the tax and NICs code works where different forms of securities are used, such as options over securities, securities carrying restrictions and securities capable of being converted into other securities. It also includes guidance on the special rules that apply to university spinout companies, and some guidance on the tax consequences when employment-related securities are disposed of. It includes links to related subjects such as the valuation of shares, relief for the costs of providing employees with shares and the operation of the transfer pricing rules when an employee share scheme is operated in a group of companies.

The manual has been written to take account of the main legislative changes in Finance Act 2003, Finance Act 2004 and both Finance Acts in 2005. Statutory references throughout are to sections and chapters of ITEPA 2003 unless otherwise indicated.

Empirical studies have shown that when the interests of employees are aligned with those of their employer through shareholdings in the employer company, there is a correlation with increased company productivity. To encourage employees to hold shares in their employer, there are four statutory arrangements that give significant relief from income tax and NICs on employee shares under certain conditions. These are:

  • Company Share Option Plan


  • Save as You Earn (or Sharesave)


  • Share Incentive Plan


  • Enterprise Management Incentives

Guidnace on these schemes can be found in the Employee Tax Advantaged Share Scheme User Manual