In Vermilion Holdings Limited v HMRC [2019] TC07077, the First Tier Tribunal (FTT) found that share options granted to a director were not Employment-Related Securities. They were not issued by reason of his employment.

Shares including share options given to an employee or director by virtue of employment are termed as 'Employment-Related Securities' (ERS). 

Vermilion Holdings Ltd (Vermilion) was the holding company for a software company. Quest Advantage Limited ('Quest'), was a consultancy company owned by Mr Marcus Noble and another individual.

The FTT, after much discussion about how to interpret a deeming provision and the wording of s.471(3), found that the options were not Employment-Related Securities.

Comment

The judge said that the facts of the case were unusual, mainly because Mr Noble had happened to be the right person to steer the Company out of its financial difficulties. It is not uncommon for start-up businesses to offer share options in lieu of payment for consultancy services in circumstances where the service provider then takes on a future role in the business. The ERS rules should not be overlooked when agreeing to accept payment on such terms.

Links

Employment-Related Securities and share schemes
This guide explains the tax consequences when a company gives shares to an employee or director and will assist you in designing share schemes.

EMI: Enterprise Management Incentives
The Enterprise Management Incentive (EMI) scheme is a tax incentivised employee reward scheme which uses share options. 

External link

Vermilion Holdings Limited v HMRC [2019] TC07077


 

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