What are the issues associated with employees acquiring shares?
When employees acquire shares or securities without paying market value there is an exposure to income tax charge based upon the market value of the shares or securities received.
The employment-related securities (ERS) rules seek to modify the position in cases where the tax consequences, that would in the absence of the ERS rules, would not reflect the full economic value received, or in specific circumstances where the Government intends a more favourable tax treatment to apply.
What does this mean practically?
In practical terms, this means that anyone who establishes a company and becomes a director of it will be treated as having acquired employment related securities.
Shares that fall within the ERS regime can be acquired in many ways such as:
- Unapproved share options;
- Approved share options e.g. EMI
- Certain share for share transactions
Surely employees can acquire shares while the value is low?
There are specific rules to target situations where the value of a share is artificially depressed for acquisition e.g. by having certain rights or restrictions attached to it or where the share can be converted into another form of security at a future date.
There are also anti-avoidance measures to cover situations where the value of shares is artificially depressed or enhanced by other than commercial means.
