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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Employment-related securities and options: scope of legislation

Part 7 of ITEPA 2003 contains special rules about cases where:

  • securities,
  • interests in securities, or
  • securities options

are acquired in connection with an employment (ITEPA03/S417) (see ERSM20110)

Other related provisions deal with:

  • the charge on “money’s worth” received (Chapter 1 Part 3 ITEPA 2003), see ERSM20500
  • residual liability to charge (Chapter 10 Part 3 ITEPA 2003 and ITEPA03/S418)
  • employment income provided through third parties (Part 7A ITEPA 2003).

Specific employment income

All the charges in Part 7 ITEPA constitute “specific employment income”, per ITEPA03/S6 (1) & ITEPA03/S7 (4). The hierarchy of terminology is set out in Chapter 2 as follows:

  • Tax is chargeable on employment income which consists of “general earnings” and“ specific employment income” - ITEPA03/S6 (1)
  • General earnings include “money’s worth” charge on acquisition of securities - ITEPA03/S62 (2)(b) - see ERSM20500.
  • General earnings are subject to residence and domicile rules in Chapter 4 and 5 Part 2 ITEPA.
  • Specific employment income includes all charges within Chapters 1 to 5 of Part 7 ITEPA - ITEPA03/S7 (4) & (6).
  • Specific employment income from Part 7 ITEPA is not subject to residence and domicile rules in Chapter 4 and 5 Part 2 ITEPA. Until 5 April 2015 it had its own rules on residence - see ERSM20300. From 6 April 2015, new residence and domicile rules in Chapter 5B Part 2 ITEPA broadly mirror the rules for general earnings in Chapters 4 and 5 of Part 2. See ERSM162000 onwards.

Grandfathering of older provisions

(Grandfathering allows for an exception from the new rules for pre-existing arrangements, despite a change in the rules applied to newer situations)

The following statutory provisions continue to be in force in particular circumstances:

  • Conditional shares acquired pre-16 April 2003 continue to be subject to the original Chapter 2 Part 7 ITEPA.
  • Notional loans created through shares being acquired for less than their market value before 16 April 2003 continue to be subject to Chapter 8 Part 3 ITEPA, rather than Chapter 3C Part 7.
  • Restricted shares acquired before 16 April 2003 continue to be subject to ITEPA03/S449 et seq. as originally enacted and roll-over provisions continue to apply where there is a reorganisation of share capital affecting those shares (ITEPA03/S461 or ITEPA03/S462 as originally enacted).