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HMRC internal manual

Employment Related Securities Manual

Employment-related securities and options: overview

Shares in companies are commonly used by employers to reward, retain or provide incentives to employees. The most common forms of employment-related securities are share options and share awards. These may be provided to employees under a formal “scheme” or “plan”, which will usually have a written set of rules, or as informal “one-off” awards of shares or grants of options.

Where employees receive shares or other securities from their employer as a reward for their employment, then the money’s worth of the shares (less anything the employee pays for them) will normally be taxed as earnings. (See ERSM20500 for guidance on the money’s worth charge.)

Very broadly, the employment-related securities legislation at Part 7 of ITEPA 2003 deals with arrangements involving shares and securities provided by reason of employment where the earnings charge does not tax the full value of the employment reward provided to the employee by way of employment-related securities. The legislation covers the acquisition of securities whether or not they are received under a formal scheme or plan.

All shares and securities acquired in connection with an employment come within the scope of the employment-related securities regime, including shares acquired by directors or employees on the formation of a company. The rules also extend to rights or opportunities to acquire securities, and to benefits in connection with shares and securities that are not otherwise chargeable to tax. They cover cases where the securities, or opportunities or rights to acquire the securities, are provided by a person other than the employer, and where the securities are not directly received by the employee.