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HMRC internal manual

Employment Related Securities Manual

Employment-related securities and options: Weight v Salmon (19TC174)

The taxpayer was the managing director of a limited company and had a service agreement under which he was entitled to a fixed salary. In addition, each year the directors of the company passed a resolution giving him the privilege to buy some of the company’s shares at their par value (that is, their face value), which was considerably less than their current market value. He duly purchased and retained the shares. Earlier resolutions had said that this privilege was granted having regard to the ‘eminent and special services’ that the managing director had performed for the company, but the resolutions for the years under appeal made no reference to his services.

The managing director appealed against his tax assessment, claiming that as he had not sold the shares he had received no profit, and thus no earnings on which to be taxed (see generally EIM00515 onwards). The Courts agreed with the Inland Revenue that the shares themselves were emoluments, or earnings. The taxpayer was chargeable on the difference between the market value of the shares and the amount that he had paid for them.