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HMRC internal manual

Employment Related Securities Manual

Employment-related securities and options: principles: charge on employment-related securities

The treatment of remuneration delivered through shares and other forms of securities follows the main principle that applies to other forms of remuneration such as cash and benefits. That principle is to subject to Income Tax and National Insurance contributions (NICs) the value that the employee accesses as reward for his services at the time he accesses that value.

In deciding whether the employee has received reward for services in connection with securities, it is necessary to look at the extent to which, if at all, the employee has given consideration other than services. If, for example, the employee has paid the full market value for a simple share received from his or her employer, then there will be no employment reward and no charge to income tax and NICs on acquisition of the share. Any future normal commercial growth in the value of the share is within the capital gains tax regime.

Similarly, if an employee is given a free share as a reward for services, and pays Income Tax and NICs on the full value of that share, then the employee is exposed to exactly the same potential financial loss if the venture fails as he or she would have been having risked his or her own funds from the outset. Future normal commercial growth in the value of such a security is also within the capital gains regime.

In more complex situations, the employee may receive a share as a reward for services, with the acquisition structured so that the value is acquired at some future point, contingent on some future event or condition being fulfilled and as a reward for future services. This right or opportunity is not dissimilar to a share option. When that opportunity crystallises and the employee receives the benefit of that value, then the rules also tax that benefit.