In HMRC v Vermilion Holdings Ltd [2023] UKSC 37, the Supreme Court (SC) found that share options issued to a director were made available by 'reason of his employment' despite the fact that these share options replaced earlier options given to his consultant company in lieu of fees for advisory services.

  • Mr Noble, via Quest Advantage Limited (Quest), advised technology businesses on fundraising, business growth, acquisitions and divestments.
  • Quest provided advisory services to the Vermilion group. In 2006, Vermilion Holdings Limited (Vermilion) granted share options over 2.5% of its Ordinary share capital in lieu of payment for the advisory services received (the 2006 option).
  • By December 2006, Vermilion was in serious financial difficulty, although commercial prospects were good.
  • In 2007, as part of a rescue package for Vermilion, Mr Noble became a director and the 2006 share options were cancelled with options over 1.5% of the equity being issued under a new agreement which named Mr Noble as the option holder (the 2007 option).
  • Vermilion submitted a non-statutory clearance request in 2016 to confirm that the 2007 option would be subject to Capital Gains Tax.
  • HMRC subsequently assessed for Income Tax and Class 1 National Insurance totalling £385,859 on the basis that the shares acquired under the 2007 option were Employment-Related Securities (ERS).
  • Successive appeals to the First Tier Tribunal, Upper Tribunal and Court of Session saw judgements swing between favouring Vermilion's and HMRC’s arguments.
  • In 2021, the Court of Session found that the 2007 option was not made available to Mr Noble by reason of his employment.
    • It concluded that the substance of the transaction was one of compromise and exchange. The 2007 option was granted in return for the 2006 option being given up: the right or opportunity was not made available by Vermilion as Mr Noble’s employer.
    • As there was no real link between Mr Noble’s employment and the right or opportunity to acquire the 2007 option, the deeming provision in s.471(3) was not triggered.
  • HMRC appealed to the Supreme Court (SC).

Subject to a limited 'friends and family' exception, section 471 ITEPA 2003 broadly states that where an option to acquire securities is made available by a person’s employer it is deemed to have been made available by reason of their employment.

The SC found that:

  • Section 471(1) is a 'casual' test looking at whether the right or opportunity to acquire a securities option is available by reason of employment.
    • This requires the facts of each case to be considered carefully.
  • Section 471(3) is a deeming provision which creates a ‘bright-line rule’ and avoids having to ask questions of causation required by s.471(1).
    • This subsection prevents having to address the subjective difficulties that can arise when applying section 471(1).
  • Under section 471(3), it is simply a case of establishing who conferred the right or opportunity to acquire the securities option.
    • If the right or opportunity is conferred by a person’s employer (or person connected with them) it is, under section 471(3), conclusively treated as having been made available by reason of the individual’s employment.
    • The reason why the employer conferred the right or opportunity is not relevant.
  • As the right over the 2007 option was conferred by Vermilion while it was Mr Noble’s employer, it fell within s.471(3). The 2007 option was made available by reason of Mr Noble’s employment.

The appeal was allowed.


This is a landmark judgement which brings clarity to the deeming provision section 471(3): the employer's motive behind conferring a right or opportunity to a securities option is irrelevant. The decision may result in share option agreements with consultants falling within the ERS regime.

Useful guides on this topic

Employee Shares: the Employment-Related Securities rules
What are the tax consequences when a company gives shares to an employee or director? What are employment-related securities? What is best: shares or share options? How do you set up a share scheme?

Employee Shares: setting up share classes with different rights for directors & employees
Can you set up different classes of shares? How do you create Alphabet or ABC shares? What are the rules in giving different classes of shares to directors and employees? 

Shares, securities & options: Tax compliance
What are the filing requirements for share-based remuneration? What needs reporting by the 6 July deadline? What penalties are there for late filing?

Employee Shares: Restricted Stock Units: tax reporting
How to report Restricted Stock Units for UK tax. I am an employee and my employer has granted me stock units or RSUs. How are they taxed? How do I complete my tax return?

External link

HMRC v Vermilion Holdings Ltd [2023] UKSC 37

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