09/06/2023
Giving Shares to Employees
Where companies give shares to employees in the company or group that they work, the employee will generally be taxed on the difference between the market value of those shares and any amount paid. There are some instances when no income tax charge will exist such as when shares are passed in the course of a family relationship (e.g. parents pass shares down to children).
The transaction also needs to be reported online to HMRC by 7 July following the end of the applicable tax year. There are some exceptions though to this reporting requirement such as the example described above.
HMRC provide a template to enable employers to report the transaction online: See: Other ERS schemes and arrangements: end of year return template, technical note and guidance notes – GOV.UK (www.gov.uk)
Considerations around whether employers need to operate PAYE and whether national insurance contributions are payable depends upon whether the shares are ‘readily convertible assets’. Broadly, this would be where there are trading arrangements in place to quickly sell the shares.
It is generally more tax efficient for the employee if the company awards them shares under a tax-advantaged share incentive scheme such as under the Enterprise Management Incentive (EMI) scheme or a Share Incentive Plan (SIP).
Contact us if you would like more information about these schemes.
Corporation Tax relief for Employee Share Acquisitions
Provided certain conditions are satisfied, the employing company will obtain a corporation tax deduction when employees acquire shares in the company or group that they work for, whether they acquire the shares directly or under a share option agreement. The amount of the deduction is the difference between the market value of the shares and the amount paid by the employee and will often mirror the amount taxed on the employee. This is a statutory deduction and will be available irrespective of whether there is a deduction for the transaction in the company’s profit and loss account.
Awarding shares to employees is a complex area so please contact us before you consider such arrangements, please contact Gemma Hedges on 023 8046 1259.
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