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.

Points discussed within this guidance note:

> Introduction

Shares or securities awarded to employees are potentially taxable as earnings. The employment related securities  (ERS) rules are an overlay that modify the position in certain circumstances, which are discussed in detail in this note. Where shares or securities are transferred to or awarded to employees a s431 election can be made so that the employee can be taxed at the point of acquisition on any discount between unrestricted market value and actual market value.

> 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. This note looks at what are earnings and where the ERS legislation applies.

> The ERS rules

This note looks at the scope of the employment related securities rules, reporting regulations and exemptions.

> The scope of the ERS rules

> What are securities?

> Market value

> Reporting requirements

> Exceptions for certain control situations

> Restricted securities

> Convertible securities

> Securities with artificially depressed or enhanced market value

> Securities acquired for less than market value

> Securities disposed of for more than market value

> Post-acquisition benefits from securities

> Shares in research institution spin-out companies

> Securities options


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