What to do when receiving shares from an employee share scheme

KemanoThief

I've just redeemed share options from my employer and I've been told to seek my own advice about managing tax payable on these. What can I expect to pay? Does anybody have any advice about what to do to keep this tax-efficient?

Let's say that the shares I'm receiving have been estimated to be worth £100k. I'm told that there is tax to pay because I've acquired them for free and this is below the estimated market value. Having said that, the company has not yet IPO'd so, in my mind, the shares have no market value. How can I be taxed based on a rough estimate? I'm confused.

p00hsticks

If the shares aren't being openly traded on a secondary market then aren't the shares basically valued at whatever the company is worth (assets - liabilities) divided by the number of shares ? This is how I've come to a rough price for some in a private non-listed company that I'm involved in. 

If you;d happily give them away, then you can argue they have no market value. But I suspect this isn't the case. Did you have to redeem the share options now ?

Jeremy535897

It's a bit more complicated than that:
https://www.gov.uk/hmrc-internal-manuals/shares-and-assets-valuation-manual

p00hsticks

Jeremy535897 said:

It's a bit more complicated than that:
https://www.gov.uk/hmrc-internal-manuals/shares-and-assets-valuation-manual

I suspected it might be.....

Jeremy535897

With all of these things, the devil is in the detail. The first question is what exactly have you done? I assume you mean you have exercised your option, not redeemed the shares. If you had redeemed them, you would know what you received on redemption.

There are many sorts of share option, but it sounds like your employers have an unapproved scheme. It is really silly of your employer to say that you need to manage your own tax advice, for several reasons:

• the employer must have taken their own advice on the tax implications of exercising share options under the scheme, so should understand the tax implications for you
• the employer is the only person in a position to put a value on the shares

Dead_keen

The word "redeemed" is a strange one to use in the context of share options. Presumably, you have the exercise price (sometimes called strike price) to acquire shares pursuant to your option.  If not, then you will need to explain more.

If it is the exercise of a share option and your employer has not told you about the tax consequences then chances are it is not an "enterprise management incentive" share option or some other tax advantaged share option (like a "company share option").  If it were, your employer would have to have done something to get that tax treatment and words like that would be on your option certificate.  So check that.  If it is, explain more.

If there are still restrictions on the shares (and you got them within the last 14 days) you will probably want to make a section 431 election on them.  You can google the form and your employer needs to sign it too.  Restrictions might include good/bad leaver provisions. If in doubt (and within time limits) get the election done.

If you are engaged through a personal service company then your PSC should have put the option gain through payroll (i.e. PAYE and NIC on its best estimate of the value of those shares).

If you are the employee, the shares are not redeemable, the company has taken no meaningful steps to an IPO and you can't sell the shares then normally (terms and conditions apply) you have to include the value of the shares you got, less your exercise price, on your tax return.  More details here: https://www.gov.uk/government/publications/employee-shares-and-securities-further-guidance-hs305-self-assessment-helpsheet  You would need to pay any tax by 31 January 2022.

The "normally" bit above means that in some cases the employer can have a PAYE/NIC liability.

If the shares have no value, why did you exercise your option?  How much was the exercise price? Why did someone say that they are worth £100k?  Your employer has an obligation to tell HMRC the value of the shares by early July 2021.  So it would definitely be worth asking them (i) what they think the value of the shares are, (ii) why they think that is the value of the shares and (ii) what are they going to tell HMRC.  Just because they think that the shares are worth some amount does not mean that is their tax value for tax purposes (i.e. what you have to put on your tax return). Again, if you have some background then explain more.

Oh, and when you sell them you will pay capital gains tax on any future growth in value.