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Employee Share Schemes and Securities

If you provide shares, share options, or other securities to your employees, you'll face specific tax, National Insurance, and reporting obligations. Shares and securities can trigger income tax charges at multiple points — when awarded, when restrictions lift, or when sold —...

Introduction

Employment-related securities (ERS) are shares, share options, or other securities (such as bonds or loan stock) that employees receive because of their employment. This includes shares awarded outright, share options that can be exercised in future, and interests in securities trusts.

These arrangements are separate from tax-advantaged share schemes (such as Enterprise Management Incentives or Share Incentive Plans), which have their own favourable tax treatment and reporting rules.

When do tax charges arise?

Tax charges can arise at several different points when employees receive securities:

On acquisition — when an employee first acquires shares or securities, they may face an income tax charge if they acquire them for less than market value or subject to restrictions.

Restricted securities — shares subject to restrictions (such as limits on when they can be sold) may trigger a tax charge when those restrictions are lifted or when the shares are sold.

Convertible securities — if securities can be converted into other securities or assets, a tax charge may arise on conversion.

Notional loans — if an employee acquires securities for less than market value, the discount is treated as a "notional loan" which creates an ongoing tax charge until the loan is discharged, the shares are sold, or the employee pays off the discount.

Share options — when an employee exercises an option to buy shares, they're taxed on the difference between what they pay and the market value of the shares at the time of exercise.

Disposal above market value — if an employee sells securities for more than their market value, the excess counts as employment income.

PAYE and National Insurance obligations

If the securities you provide are Readily Convertible Assets (RCAs) — meaning they can easily be converted into cash — you must operate PAYE and National Insurance contributions on any employment income arising from them.

Securities are RCAs if they can be readily converted into cash, such as shares in listed companies or shares with buyback arrangements. Securities may also be deemed to be RCAs if they don't qualify for a Corporation Tax deduction under specific rules.

When a chargeable event occurs and PAYE applies, you must deduct the necessary income tax from the employee's other pay. If you cannot deduct enough tax (because the employee has no cash salary to deduct from), you must pay the shortfall to HMRC yourself. If the employee does not reimburse you within 90 days after the end of the tax year, further reporting obligations arise.

Reporting requirements to HMRC

Companies operating employment-related securities schemes must make annual returns online to HMRC. You must report information about the following events:

The acquisition of shares or securities by employees because of their employment (even if no tax charge arises)
The grant of share options, exercise of options, assignment or release of options, and any benefits received in connection with options
Any chargeable event relating to restricted securities (such as restrictions being lifted)
Any chargeable event relating to convertible securities
Events that give rise to taxable amounts because of artificial increases or reductions in the market value of securities
Events discharging a notional loan (such as when an employee pays off a discount they received)
Disposals of securities for more than market value
Receipt of benefits that count as employment income in connection with securities

If you've operated a joint National Insurance agreement or election with the employee to cover the employer's secondary National Insurance contributions, you must also report this on the online return.

Notional loans and P11D reporting

Where the acquisition of shares creates a notional loan (because the employee acquired them at a discount), you must report this notional loan on form P11D each year as a beneficial loan until it's discharged, paid off, or the shares are sold.

Reporting deadlines

You must submit your annual return for employment-related securities by 7 July following the end of the tax year in which the reportable event occurred. For example, events in the 2025/26 tax year (6 April 2025 to 5 April 2026) must be reported by 7 July 2026.

HMRC may also issue a notice requiring information about employment-related securities by a specific date shown in the notice.

Who must report?

Each of the following parties is responsible for ensuring the information is reported:

The employer
Any host employer (the person treated as the employer for PAYE purposes)
The person from whom the securities or options were acquired
The person issuing the securities (with certain exceptions)

Once one of these parties submits the information, this satisfies the obligation for all of them.

Employee obligations

Employees may need to report taxable amounts from employment-related securities on their Self Assessment tax returns. This is particularly important if PAYE has not been operated on the income or if they need to claim reliefs.

Securities provided through third parties

Special rules apply where arrangements use third parties (such as trusts or offshore entities) to provide securities or options to employees. These rules are designed to prevent tax avoidance and may create additional reporting and tax obligations.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.

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