| Financial Benefits to Encourage Employee Participation |
9 |
Thirdly, it is open to any employer to arrange a mix of these benefits, so taking full advantage of the statutory reliefs while adding unapproved schemes on top. |
16A.1.4 Emoluments in Form of Shares and Share Options—Basic Rules |
ITEPA section 7(2) introduces a distinct type of income being an amount which ‘counts as’ employment income; this type includes income falling with part 7 of the Act or ‘income relating to securities’. |
16A.1.4.1 Remuneration in Shares |
16A.1.4.1.1 Basic Tax Rules If, in return for services, an employee, E, receives shares in the employing company, tax is chargeable on the value of those shares.8 Since the charge does not arise under of the special rules in part 7, this will be ordinary earnings within part 3 chapter 1 (section 62). If the shares are ordinary shares, the market value on the date of receipt will be taken as the taxable amount since they could be sold at that price. If, however, they are received subject to conditions which reduce their value, that reduction will usually be reflected in a reduction in the taxable amount.9 This was used as the basis of much planing in share incentive schemes. |
16A.1.4.2 Priority Allocations—and ITEPA Chapter 10 |
Income may also arise within part 3 chapter 1, ie section 62, if employees are given priority in a public offer and so end up with more shares than they would have been a members of the public—assuming that the values at allocation exceeded the price paid. Special rules in chapter 10 ETPA sections 542–548 may exclude the charge in such cases.10 |