Employment-related securities (ERS) acquired by employees due to their employment are taxable as earnings. This document covers this in detail, along with the acquisition charge; ERS rules; reporting requirements; exceptions for certain control situations; restricted and convertible securities; securities with artificially depressed or enhanced market value; securities acquired for less than or sold for more than market value; post-acquisition benefits; spin-out companies; and security options.

Introduction

Shares or securities awarded to employees are potentially taxable as earnings but the employment-related securities (ERS) rules are an overlay that modify the position in cases where the tax result that would flow from the particular circumstance does not reflect the full economic value received, or where the Govern-ment has determined that it wants a lesser / different tax burden to apply.

Charge on acquisition

It has long been established by case law that where an employee acquires shares in his employer and pays less than their market value for them, the discount is taxable as earnings (as defined in ITEPA 2003, s 62). Weight v Salmon HL (1935) 19 TC 174; Ede v Wilson and Cornwall [1945] 1 All ER 367

The charge to tax on employment income in ITEPA 2003, s 6 relates to:

  • general  earnings
  • specific  employment income

In outline, 'general earnings' are earnings within s 62 and amounts 'treated as' earnings, which includes benefits in kind within the benefits code, while 'specific employment income' refers to amounts which 'count as' employment income under various heads - the one we are concerned with here being the ERS rules in ITEPA 2003, Part 7.

The ERS legislation does not, in general, apply to the acquisition of securities since their value (less any consideration given by the employee) is taxable as earnings on general grounds.

Access this article and thousands of others like it free for 7 days
with a trial of TolleyGuidance.

ACCESS THE FULL ARTICLE

Already a subscriber? Login

Request a Free Trial to TolleyGuidance to gain access to the full article

TolleyGuidance is produced by specialists within the field, our tax guidance materials provide actionable insights and practical guidance to support you day-to-day. We don’t just inform you about the latest changes in the tax world. We take the time to explain the implications and, most importantly, what actions you need to take for your clients.


A bit about you:

Please note that all fields marked with a * must be filled in
Salutation
First name*
Last name*
Company*
Job title*
Email*
Phone*
Postcode