Shares in companies are commonly used by employers to reward, retain or provide incentives to employees. The most common forms of employment related securities are share options schemes and share awards. These may be provided to employees under a formal company scheme or plan, which will usually have a written set of rules, or as informal one-off awards of shares or grants of options.
Where employees receive shares or other securities from their employer as a reward for their employment, then the money’s worth of the shares (less anything the employee pays for them) will normally be taxed as earnings.
The employment related securities legislation deals with arrangements involving shares and securities provided by reason of employment where the earnings charge does not tax the full value of the employment reward provided to the employee by way of employment related securities. Furthermore, the legislation seeks to monitor changes to existing employee shareholdings where the rights offered by the shares might change over the life of their ownership.
Compliance with the legislation
The employment related securities legislation is wide-ranging in the events in which it covers and the definition of shares and securities. Any companies where shares are offered, or have been offered in the past, to employees need to monitor any reportable events and make any reportable events on the annual Form 42. The Form 42 is an annual, electronic submission to HMRC that discloses all relevant share options and gifts of shares by three months following the end of the tax year. Nil returns are also required if HMRC have specifically requested a return – even if there is nothing to report.
HMRC can and do charge penalties for non-compliance with the Employment Related securities regime.
If you have any questions please call the tax team on 0113 231 4131 or email us at firstname.lastname@example.org.