Legal Practice Notes

At any one time, an individual can be employed by more than one employer, commonly working on a part-time basis for each business. Those businesses might belong to the same group or be entirely unconnected to one another. Participation in numerous Share incentives glossary A– Z— Unapproved share option arrangements is generally not problematic; accordingly, this note concentrates on examining the effect of such simultaneous employments on an employee’s capacity to participate in HMRC statutory tax-advantaged plans, namely: enterprise management incentives ( EMI) schemes company share option plan ( CSOPs) share incentive plans ( SIPs), and save as you earn ( SAYE) schemes For more general information on each of these schemes, see Practice Notes: How EMI schemes work and key features How CSOPs work and key features How SAYE schemes work and key features What is a...

Jointly owned awards Jointly owned awards are exactly what the name suggests: shares held jointly by an employee or director and a separate party, being either an investor in the company or, more commonly, the trustees of an employee benefit trust ( EBT). The jointly owned share model was developed as an alternative to other share incentive arrangements, including share options, restricted shares, or performance share plans, often delivered through nil-cost options. For more general background on joint share ownership plans ( JSOPs), see Practice Note: Introduction to joint share ownership plans. This Practice Note is intended to compare JSOPs with other unapproved share scheme structures in this context. Undertaking an exhaustive analysis is challenging, as there exists a multitude of structures, approaches—both distinct and overlapping—and variations on a common theme across the market in practice. Accordingly, the comparison drawn here, so far as...

Summary of the tax treatment of the acquisition of an interest in a jointly owned share Putting to one side the specific statutory provisions for employment-related securities outlined below, providing an individual with an interest in jointly owned shares as part of their overall package would be taxed as ordinary pay. Nevertheless, the employee acquires an “interest in an employment-related security”. Moreover, the eventual tax position is influenced by the targeted provisions in the Income Tax ( Earnings and Pensions) Act 2003 ( ITEPA 2003) concerning restricted securities. Typically, to avert later income tax and National Insurance contributions ( NICs) becoming payable when such restrictions are lifted or amended, the parties enter into a joint election under ITEPA 2003, s 431. This Practice Note explores each of these tax considerations in greater depth below. For more general guidance on joint share ownership plans ( JSOPs) and...

What are JSOP awards? Jointly owned shares are exactly what the term suggests: shares held together by an employee or director and another party — either a company investor or, more typically, the trustees of an employee benefit trust ( EBT). Joint share ownership arose as a substitute for other share incentive arrangements, for example share options, restricted shares or performance share plans (frequently delivered via nil cost options). Under a joint share ownership plan ( JSOP), the value received equals the uplift in the share price after grant (usually plus a ‘carrying cost’). Consequently, a JSOP operates like a market value share option, albeit with a distinct tax outcome. In essence, the plan focuses value on growth arising after grant, rather than existing value at the time of award for participants today. Commercial rationale The JSOP model offers a number of commercial strengths when set...

Specific income tax rules Specific income tax provisions (contained in sections 471–484 of the Income Tax ( Earnings and Pensions) Act 2003, Part 7, Chapter 5 ( ITEPA 2003)) govern securities options that are connected with employment. These are the relevant provisions that usually bring unapproved share options within the scope of income tax. For broader guidance on unapproved options, see Practice Note: Unapproved share options. For details on employment‑related securities, see Practice Note: What is an employment‑related security? Alternative rules apply to options issued under the statutory tax‑advantaged share option schemes, namely enterprise management incentives ( EMI), save as you earn ( SAYE) and company share option plans ( CSOPs). For more detailed guidance on the tax position of these options, see the following Practice Notes: Enterprise management incentives ( EMI)—income tax and NIC treatment of options EMI— CGT, including business asset disposal relief and...

This Practice Note deals with the specific rules applying to employment-related securities acquired for less than market value contained within Chapter 3C, Part 7 of Income Tax ( Earnings and Pensions) Act 2003 ( ITEPA 2003) For the definition of employment-related securities, see Practice Note: What is an employment-related security? Where the provisions apply, an employee or director who obtains shares or other securities: is regarded as having an interest-free, notional loan (see: below), and is charged to income tax each year on the benefit of that loan as though it were a real employment-related loan (see: below). Further income tax (and potentially National Insurance contribution ( NIC)) liabilities may arise when the notional loan is treated as discharged, for example on a disposal of the securities (see: below). In this Practice Note, these rules are called the ‘notional loan’...

IR35 anti-avoidance legislation IR35—named after the HMRC press release reference announcing the rules in Budget 1999—also called the ‘intermediaries legislation’ and, more recently, the ‘off-payroll working’ regime, applies when an individual supplies services to an end client via an intermediary, such as a personal service company ( PSC) or a partnership, in cases where the individual would otherwise be: for income tax purposes, treated as an employee or an office-holder of the client; and for National Insurance contributions ( NICs) purposes, treated as employed in employed earner’s employment by the client The purpose of IR35 has always been to ensure the worker’s income tax and NICs position broadly mirrors that of an employee. It does so by placing a PAYE and NICs obligation on an entity within the supply chain. Although the history of IR35 is set out fully below, to properly...

Large and public client off-payroll regime The large and public client off-payroll regime generally applies where a public body or a private sector organisation (excluding one that is 'small' or lacks a ' UK connection') hires a worker through an intermediary, such as a personal service company ( PSC), and, absent the presence of that intermediary, the engagement between the worker and the end client would amount to employment. The large and public client off-payroll regime puts the onus of determining whether IR35 applies, in effect, on the end client and, if the large and public client off-payroll regime does apply to the engagement, the duty to deduct income tax and National Insurance contributions ( NICs) rests, under the rules, with the fee-payer (i.e. the party closest, in the relevant contractual chain, to the PSC—this might be the end client where it...

Practice Note: IR35—introduction, developments and key difficulties As outlined in Practice Note: IR35—introduction, developments and key difficulties, IR35 consists of two principal components in total, as further described. This Practice Note sets out and addresses the strand of the IR35 rules that applies when an individual worker supplies services to an end client via an intermediary—such as a personal service company ( PSC) or a partnership—in circumstances where the individual would otherwise: for income tax purposes, be treated as an employee or office-holder of the end client, and for National Insurance contributions ( NICs) purposes, be regarded as employed in employed earner’s employment by the end client except where the end client is, instead, a public authority or a medium or large private entity with a UK connection. Across this Practice Note, together with all other items within this subtopic, this is...

What is sustainable business and ESG issues? Sustainable business is a broad notion, covering an organisation’s effects on the environment as well as on society at large. It has moved up the corporate agenda, with companies under mounting pressure to adopt responsible operational and strategic practices—particularly in view of climate change targets that stakeholders and government are focussing on. This Practice Note gives a high‑level overview of how the sustainability agenda has affected executive pay. It also highlights continuing updates to guidance from government and the principal institutional investor bodies. For more on sustainable business generally, see: ESG and sustainability collection. ESG reporting Stronger demands for transparency and accountability through corporate governance and disclosure have refocused attention on environmental, social and governance ( ESG) impacts. Interest from a range of stakeholders in companies’ ESG performance is growing. Multiple mechanisms exist to shape corporate social...

A share option gives an employee a binding right to purchase shares at a fixed price, provided specified conditions are met. The option agreement between the grantor and the employee will usually also state who must procure the shares and settle the option when it is exercised. Shares are commonly provided either by the company or by an authorised third party entitled to grant an option, such as an individual shareholder, corporate shareholder, or a trustee of an employee benefit trust ( EBT). A third-party shareholder can also agree to fulfil options granted by the company by transferring their own shares on exercise of the options. This Practice Note considers the situation where a UK tax resident individual is the one who satisfies the share option and specifically examines: reasons an individual may choose to make their shares...

FORTHCOMING CHANGE: On 26 November 2025, within Budget 2025, it was confirmed that from April 2029 only the first £2,000 each tax year of pension saving made under a salary sacrifice arrangement will escape National Insurance contributions ( NICs). Any amount an employee sacrifices above £2,000 a year will attract both employer and employee NICs, meaning the surplus over £2,000 will, for NICs, be handled in the same manner as other employee workplace pension payments. Employer pension funding is unchanged, and income tax relief is also preserved. Employers must record and report the total value of salary given up using the existing payroll software already in use by employers for reporting purposes, and HMRC has pledged to work with stakeholders as appropriate in practice. HMRC will issue further guidance ‘before April 2029’. The National Insurance Contributions ( Employer Pensions...

This Practice Note reviews the UK prudential framework for investment firms, called the Investment Firms Prudential Regime ( IFPR). It summarises the origins and evolution of the IFPR, together with the rules introduced by the Financial Conduct Authority ( FCA) to put the regime into effect. Background and introduction to the IFPR On 20 December 2017, the European Commission unveiled plans to overhaul the EU prudential regime for investment firms, aiming to deliver a framework that is more proportionate and sensitive to risk. Under the new EU measures—now set out in the Investment Firms Regulation ( EU) 2019/2033 ( IFR) and the Investment Firms Directive ( EU) 2019/2034 ( IFD)—most EU investment firms follow new, simpler prudential requirements, while large, systemic firms undertaking bank-like activities and posing risks akin to banks are regulated and supervised as banks. For more on the IFR and IFD, see...

Scope of this Practice Note The core purpose of the Financial Services and Markets Act 2000 ( FSMA 2000) was to create and confer powers on the then Financial Services Authority ( FSA), following the government’s decision to introduce a single regulator for financial services in the UK. It serves as an overarching framework for financial services legislation and regulation within the UK. FSMA 2000 took effect on 1 December 2001, at which point the FSA became the sole regulator of the UK financial services industry. As part of government plans to reform the UK’s financial services regulatory architecture, the FSA was abolished on 1 April 2013 and its responsibilities were divided between two new bodies: the Prudential Regulation Authority ( PRA) and the Financial Conduct Authority ( FCA). FSMA 2000 remained the primary statute for the UK financial services industry, although the...

Establishing whether an employment‑related security exists is essential to deciding if the specific (and sometimes punitive) income tax and National Insurance contributions ( NICs) charges for employment‑related securities are triggered. The definition is wide and splits into two principal parts: what constitutes a security—covering shares, debt, derivatives and interests in investment partnerships, and whether the security is employment‑related—being so if the right or chance arises by reason of employment or is provided by an employer What is a security? Securities are defined in very broad terms and include: shares (including stock) in any: body corporate (whether UK or overseas incorporated), or non‑ UK unincorporated body rights under contracts of insurance other than “excluded” insurance contracts (ie pension annuity...

ARCHIVED: This archived Practice Note outlines the data protection regime before 25 May 2018 and reflects the position under the Data Protection Act 1998. It is provided for background information only and is not maintained. Under the GDPR, employers are even less likely than under the Data Protection Directive ( Directive 95/46/ EC) to rely on employee consent as the legal basis for data processing at work. Given the significant consequences of failing to meet GDPR obligations, employers should therefore avoid using consent as a lawful condition for processing. In most situations, the employer will instead be able to rely on the ‘legitimate interests’ basis, provided: the processing is necessary for the employer’s legitimate interests those interests are not overridden by the employee’s interests or fundamental rights and freedoms the processing is proportionate and cannot be achieved by other, less intrusive means the data...

Private and unlisted companies encounter distinctive challenges when rolling out employee share schemes. Chief concerns are the absence of a ready market for shares and the difficulty of valuing them. Businesses must also consider amendments to their Articles of Association and the knock-on effects for shareholders and external investors. This note sets out the essentials and shows how, with careful design and delivery, these obstacles can be overcome. Perceived barriers to share plans in private companies These include: losing control of the company no ready market for shares a lack of awareness of the tax benefits associated with HMRC tax‑favoured arrangements concerns about complexity and, therefore, the cost of establishing a plan With the right advice and planning, these hurdles can be managed. Why private companies use employee share plans The Finance Act 2014 gave a major impetus to employee ownership through the...

Background Enterprise Management Incentives ( EMI) are share option arrangements favoured by employers and employees because of their flexibility and the generous tax reliefs they can deliver when administered correctly. These plans frequently permit participants to exercise on a sale, enabling them to dispose of their shares alongside the other shareholders. For businesses, they offer a chance to reward key staff for the effort that helps achieve what will often be a major milestone in the company’s history. For an introduction to the principal features of EMI schemes, their eligibility conditions and tax treatment, see Practice Note: How EMI schemes work and key features. Nevertheless, managing EMI options on a sale (whether advising the buyer or the seller) can be complicated, as a variety of matters may surface during the due diligence process, on either side of the transaction. To benefit from...

Employment-related securities options—specific tax rules A distinct set of income tax provisions, set out in Chapter 5 of Part 7 of the Income Tax ( Earnings and Pensions) Act 2003 ( ITEPA 2003), applies to securities options connected to employment. These rules generally bring unapproved share options—ie those granted outside a tax-advantaged share ownership arrangement—within the scope of income tax. This Practice Note explains: what constitutes a securities option, and when a securities option is regarded as employment-related For comprehensive guidance on the income tax treatment of employment-related securities options, see Practice Note: Securities options—income tax treatment. An unapproved option that does not fall within the statutory definition of a securities option—for example, a share option obtained under arrangements whose main purpose is the avoidance of tax or National Insurance contributions ( NICs)—is not charged to income tax under the securities option rules....

Employment-related loans The benefits code in ITEPA 2003, Part 3 contains tailored provisions for ‘employment-related loans’ which, in some circumstances, give rise to income tax and National Insurance contributions ( NICs) for directors and employees, and employer’s NICs for employers, in respect of such borrowing. This Practice Note explains what amounts to an employment-related loan for the purposes of the benefits code. The concept is broadly framed and is treated as covering loans made by the employer and by other associated persons. Lending by prospective employers also falls within the definition. As with any other form of employment reward, where a third party rather than the employer provides the loan, it is prudent to consider whether the disguised remuneration rules in ITEPA 2003, Part 7A apply, as those provisions take precedence over most other employment income charging rules (including the benefits code). For further...