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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Acquisition of securities

A straight forward form of reward with employment-related securities is where the employer gives the employee securities for free or for less than their market value. The difference between their market value and what the employee paid will be chargeable as earnings (being “money’s worth”) under ITEPA03/S62 – see ERSM20500.

However the amount chargeable under section 62 on acquisition of restricted securities or convertible securities may be modified by:

  • ITEPA03/S425 (forfeitable securities – see ERSM30300 & ERSM30370),
  • ITEPA03/S431 (elections on restricted securities – see ERSM30450), and
  • ITEPA03/S437 (convertible securities – see ERSM40050).

If the securities are “readily convertible assets” (see ERSM170020) then the employer must operate PAYE on the best estimate that can reasonably be made (see ERSM170010) of the amount to be chargeable on the employee.

The employee, to avoid a benefits charge under ITEPA03/S222, should make good to the employer any part of the PAYE tax that the employer is unable to deduct – see ERSM170400.

NIC is also likely to be due (see ERSM170700).