Share options
Grant, exercise, exercise price and market value are reviewed to identify any employment-income charge and later CGT basis.
Shares received through employment can create Income Tax, National Insurance and Capital Gains Tax at different stages. The tax treatment depends on what was granted, the price paid, market value, restrictions, whether the shares are readily convertible assets and whether a tax-advantaged scheme such as EMI or CSOP applies.
We separate the employment reward from the later investment gain. The first question is usually whether any part of the share value or option gain is employment income. Once the employment-related amount and tax basis are established, a later disposal can then be analysed for Capital Gains Tax.
Give us the scheme or award type, relevant dates and whether the shares have been exercised, vested or sold.
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The tax result depends on the legal and commercial terms of the award, not simply on whether the employee describes it as shares, options or equity.
Shares acquired for less than their employment-related market value can create taxable earnings. Options can create a charge at exercise or another taxable event. Once the employment-income amount and acquisition cost for tax purposes are established, the later increase or decrease in value can then fall within Capital Gains Tax.
The engagement can cover one employee's award, founder or director shares, or the tax analysis surrounding a wider company equity arrangement.
Grant, exercise, exercise price and market value are reviewed to identify any employment-income charge and later CGT basis.
Restrictions, forfeiture provisions and unrestricted market value are reviewed together with any section 431 election.
Company, employee and option conditions are reviewed before assuming the EMI tax advantages are available.
Readily convertible asset treatment and employer payroll obligations are considered where the share-related amount is employment income.
Sale proceeds, employment-income amounts, option cost and relevant share identification rules are reconciled before the capital gain is calculated.
Employer ERS returns and the employee's personal Income Tax or CGT reporting are reviewed as separate but connected obligations.
The award documents and valuation history are reconstructed before Income Tax, NIC and CGT are calculated.
We review option agreements, subscription documents, restrictions, vesting terms and relevant company records.
Grant, acquisition, exercise and unrestricted market values are identified where they affect the tax calculation.
Income Tax, PAYE and NIC consequences are determined before the later investment gain is considered.
The resulting base cost, later disposal gain and ERS or Self Assessment reporting are reconciled to the same transaction history.
Restricted shares can defer part of the employment-income charge until restrictions are lifted or another chargeable event occurs. A section 431 election can change that treatment by taxing the shares on an unrestricted basis at acquisition.
A section 431 election should not be signed mechanically. Paying tax on unrestricted market value at acquisition may be attractive where the current share value is low and substantial growth is expected, but the commercial risk and valuation need to be understood because the election is generally irrevocable.
HMRC's Employment Related Securities Manual explains section 431 elections and the 14-day statutory deadline.
Section 431 guidance ↗HMRC guidance explains the employment-income, PAYE and NIC treatment where securities are acquired for less than market value.
ERS acquisition guidance ↗EMI remains a valuable tax-advantaged option regime, but the tax treatment depends on continuing to meet statutory conditions and completing the required employer reporting.
The expanded EMI company limits from April 2026 do not remove the other qualifying requirements. Trading activity, independence, permanent establishment, employee working-time requirements, individual option limits and the terms of the option still need review. Companies operating ERS arrangements must also maintain the annual reporting cycle even where no taxable event occurred during the year.
Current GOV.UK guidance reflects the expanded EMI company limits applying from 6 April 2026.
Official EMI guidance ↗Current guidance confirms the 6 July deadline for Employment Related Securities end-of-year returns.
ERS reporting guidance ↗Employment-related securities can cross from payroll and Income Tax into personal CGT, director tax and company transaction planning.
Potentially both. Employment-related value can be taxed as employment income at acquisition, exercise, vesting or another chargeable event. A subsequent increase in value after the relevant tax basis has been established can then fall within Capital Gains Tax.
It is a joint employer and employee election relating to restricted employment-related securities. A full election broadly ignores relevant restrictions when establishing the acquisition value for the restricted-securities tax rules.
The statutory deadline is no later than 14 days after acquisition. HMRC's guidance states that there is no general extension to that deadline.
The individual EMI limit remains £250,000 of unrestricted market value, subject to the detailed EMI rules and interaction with relevant CSOP options.
For most qualifying companies, the gross-assets limit increased to £120 million, the employee limit increased to fewer than 500 employees and the overall company limit for qualifying unexercised EMI options increased to £6 million. Certain Northern Ireland companies remain subject to different limits.
The annual ERS return is due by 6 July following the end of the relevant tax year. A nil return can still be required for a registered arrangement with no reportable transactions.
PAYE can apply where taxable employment-related securities are readily convertible assets. National Insurance can also arise depending on the particular securities and transaction.
No. Qualifying EMI treatment can prevent Income Tax and NIC on the option gain where the statutory conditions are satisfied, but discounts at grant, disqualifying events, exercise timing and other failures can change the result.