There are a number of circumstances when a UK employee or director receiving shares should complete an ITEPA S431 election
To minimise the risk of any future income tax charges under the 'restricted securities legislation', there are times when a UK employee or director should enter into a section 431 election within 14 days of the acquisition of shares.
For the purpose of activities on the Vestd platform, the key times are listed below:
On acquisition of conditional growth shares or ordinary shares
When a company issues an employee conditional or ordinary shares, ERS rules state that the employee could be liable to pay income tax on the eventual sale of the shares.
However, entering into an ITEPA S431 confirms the employee purchased the shares at their unrestricted market value (UMV) and is therefore protected against income tax charges upon sale. They will only be subject to Capital Gains Tax at their usual rate.
On the exercise of EMI options
When the shares cannot be immediately sold and the exercise price has been set below the Actual Market Value (AMV) agreed with HMRC at the date of grant of the options.
On the exercise of EMI options more than 90 days after the holder has become ineligible
When an employee leaves the company that granted the EMI options, they become ineligible for the EMI tax treatment after 90 days. At this point, the employee may choose to set the tax point at the UMV (as opposed to the AMV) of the shares at the time of exercise.
On the exercise of options by a UK employee or director
When exercising a non-qualifying CSOP or unapproved option, the option holder has the choice to set their tax point at the AMV or UMV of the shares at the time of exercise.
If they choose the UMV, an ITEPA S431 will be needed.
If they choose the AMV, an ITEPA S431 won't be needed.
Download the ITEPA S431 form here.Certain web browsers (e.g. Chrome) don't open the HMRC form. You can either try a different browser or right-click the link, click ‘Copy Link Address’ and paste the address in a new tab.
Completing the ITEPA form
- Section 1: the name of the employee and company making the joint election, and their respective National Insurance and Company Registration Numbers.
- Section 3: the details of the securities (e.g. conditional growth shares, EMI option), the number of shares being acquired by the employee, the date acquired, and the name of the issuer (the granting company).
- Section 4: in most cases, the election disapplies all restrictions attached to the securities (meaning the recipient has paid the unrestricted market value for the shares and should only be liable to CGT from this point onwards). In this scenario, just delete the second bullet point.
- If some restrictions do apply (e.g. the recipient paid less than the UMV), you will need to provide details.
- Section 5: both parties must sign and date the declaration. This should be dated no more than 14 days after the date of acquisition, otherwise income tax charges may be due.
Once the form is complete, both the employer and recipient should maintain a copy for their records.
The employer doesn't need to submit the form to HMRC within the 14-day window, but they will need it when submitting an annual ERS notification.
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