Employment-Related Securities - General

These flashcards cover key concepts and principles related to employment-related securities and their taxation as outlined in the lecture.

What are the four main reasons why employers provide share incentives to employees?

1. As remuneration for services. 2. As a performance incentive. 3. To attract talent. 4. As a means to retain staff.

Under which act is the value of employment-related securities taxable as earnings?

ITEPA 2003, s.62.

What happens to the tax implications when an employee acquires shares as a gift from a non-family related individual?

They are deemed to be acquired by reason of employment.

What is a tax-advantaged share plan?

A share plan that offers tax and NICs advantages provided certain conditions are met.

What are the four types of tax-advantaged share plans mentioned?

1. Share Incentive Plans (SIPs) 2. Save As You Earn (SAYE) Share Option Schemes 3. Company Share Option Plans (CSOPs) 4. Enterprise Management Incentives (EMI).

When is income tax charged for options on employment-related securities?

Tax is charged when the options are exercised, not when they are granted.

What is the income tax charge upon the exercise of an option based on?

The difference between the market value of the shares at the date of exercise and the exercise price paid.

In what scenario does the 'seven-year rule' apply?

It applies when an employee ceases employment; securities cease to be 'employment-related' seven years after cessation.

What are 'readily convertible assets'?

Securities that are listed on a recognized stock exchange or have an arrangement for sale at acquisition.

What implications arise when an employee receives shares valued above the amount they paid?

The employee must pay income tax on the difference as employment income.

What happens to tax obligations if an employee does not reimburse the employer for tax deducted on shares within 90 days after the tax year?

The unrecovered amounts are treated as a taxable benefit.

What are the general reporting requirements for exempt employment-related securities?

Employers must register share schemes online with HMRC and make annual returns detailing share awards.

What should an employer do if they award shares in a subsidiary company rather than the parent company?

This may prevent corporation tax deductions and result in different tax treatments.

What factors influence the design of employment-related securities plans?

Tax treatment, employee retention needs, funding concerns, and flexibility of vesting and exercise.

Describe the potential tax rate on lifetime capital gains of £1 million if an employee qualifies for Business Asset Disposal Relief (BADR).

The tax rate may be as low as 14% on lifetime gains.

What happens if an employer fails to submit a return for share options by the 6 July deadline?

An automatic penalty of £100 will be charged, increasing with time.

What do you need to consider regarding the source of shares when planning a share incentive?

Employers must ensure they have sufficient authorized shares and consider stamp duty costs.

If shares are not classified as readily convertible, how is income tax accounted for?

It is accounted for through the employee's self-assessment tax return, not under PAYE.

What is the impact of internationally mobile employees on share awards?

Specific tax treatments and considerations based on their mobility and local laws apply.

What is a 'notional payment' in the context of employment-related securities?

It represents the value of the shares for PAYE purposes that the employee must report and for which tax is withheld.