In CooperVision Lens Care Limited v HMRC [2026] TC09808, the First Tier Tribunal (FTT) found that sums received on the sale of shares were taxable as employment income as the shares fell within the Employment-Related Securities regime.
Sauflon Pharmaceuticals Ltd (now CooperVision Lens Care Ltd) was founded as part of the Contact Lenses (Manufacturing) Ltd (CLM) Group.
- By the mid-1980s, the business needed new leadership, and Mr Wells and Mr Maynard were recruited as Managing Director and Finance Director.
- In 1985, Mr Wells and Mr Maynard were granted options to acquire 30% and 6% of the shares in CLM, respectively.
- Between 1987 and 1995, Mr Wells and Mr Maynard completed four distinct acquisitions of shares in the company, each with different commercial circumstances.
- In 1987, Mr Wells and Mr Maynard converted loan notes into shares.
- These were derived from the 1985 option arrangements.
- In 1988, the CLM owners renegotiated the arrangements, giving Mr Wells and Mr Maynard a further opportunity to buy shares at a favourable price.
- In 1991, a new investor, Quester, entered the business. As part of the required capital restructuring, Mr Wells and Mr Maynard were granted new options, which they exercised on 21 August 1991.
- These rights were expressly exercisable only so long as they remained employees or engaged as consultants.
- In 1995, the CLM owners sold their remaining shares, and the opportunity to buy was offered to all shareholders, including non-employees.
- Mr Wells and Mr Maynard purchased significant additional shares, gaining majority control.
- In 2011, Mr Maynard gifted roughly half his shares to his wife, Mrs Maynard.
- From 2012 onwards, the company's value increased substantially, particularly due to US market expansion and the quality of its products.
- In 2014, CooperVision Holdings (UK) Ltd (CV) opened negotiations to purchase 100% of the share capital.
- After complex disputes with some of the minority shareholders, CooperVision Lens Care Ltd was sold to CooperVision Holdings (UK) Ltd (CV) on 6 August 2024.
- After agreeing on a global price of approximately £665 million, the shareholders conducted a separate internal negotiation among themselves to divide the consideration.
- This internal process produced dramatically different price levels:
- Approximately £2,850 per share for the majority shareholders (Mr Wells and the Maynards).
- £1,555 to £1,539 per share for minority shareholders.
- The evidence showed that the differing allocations were driven by:
- The bargaining power of the majority shareholders.
- Settlement of disputes with Prism and Bond (two of the minority shareholders).
- Warranties and indemnities disproportionately given by certain sellers.
- Prism's urgent need to sell due to the approaching fund closure.
- Internal compromises over control and potential litigation.
- These factors had nothing to do with the value of the shares to CV, which wanted all shares at a single global price and did not care how the proceeds were split among sellers.
- The shareholders paid Capital Gains Tax (CGT) on the disposals of their shares.
- Under s.446X Income Tax (Earnings and Pensions) Act 2003 (ITEPA), if the disposal value of Employment-Related Securities (ERS) exceeds their market value, the excess is treated as employment income.
- Market value is defined by the Taxation of Chargeable Gains Act 1992 (TCGA) s.272-273, under which the test is the price a hypothetical buyer and seller would agree in the open market.
- HMRC's view was that the price differential should be subject to Income Tax under the special rules in Chapter 3D of Part 7 of ITEPA and should have been taxable as employment income and subject to Class 1 National Insurance Contributions (NICs).
- On 8 February 2021, HMRC issued a Regulation 80 PAYE determination outside the normal four-year time limit.
- CooperVision Lens Care Ltd appealed against the determination.
The First Tier Tribunal (FTT) found that:
- Although the 1985 agreement included a clause stating the options "were not granted by reason of employment", this was not determinative.
- The options were clearly tied to Mr Wells' and Mr Maynard's appointments and were part of the overall remuneration/inducement package.
- The first acquisition in 1987 was linked to employment. Because the original rights were granted because of their new senior roles, the subsequent shares retained that character.
- The renegotiation of the second acquisition was a continuation of the employment-linked arrangements, since the new option rights were provided to incentivise them to remain and drive company performance.
- There was a clear employment connection under the third acquisition, satisfying s.421B(1) ITEPA. The third acquisition, therefore, produced further ERS.
- The fourth acquisition was not connected to employment, as the offer arose from shareholder status, not from any role or service. The fourth shares were not ERS.
- Under Section 421C(2) ITEPA, when ERS are transferred to an 'associated person', their employment-related character persists, unless the transfer is itself employment-related.
- Mrs Maynard's holdings, therefore, inherited the same status as Mr Maynard's.
- The negotiated allocations among sellers were irrelevant to market value unless they reflected what the hypothetical buyer would pay.
- There was only one relevant purchaser, CV.
- CV paid a single global price for the whole issued share capital; it did not bargain for differential prices per shareholder.
- The internal allocation exercise represented a private redistribution, influenced by personal leverage, legal disputes, and the majority's bargaining strength.
- Market value was determined by dividing the global price by the total number of shares, not by the amounts actually received by the majority shareholders.
- The excess each of them received over this constituted employment income under Chapter 3D, except in relation to the fourth shares, which were not ERS.
- PAYE should have been operated by the employer to account for Income Tax and Class 1 National Insurance.
- For the determination to be valid, HMRC needed to show the loss of tax was brought about by the employer's carelessness.
- The company's tax lead relied heavily on a memorandum from EY Sauflon, which itself warned of significant risk.
- He failed to obtain independent specialist UK employment-tax advice.
- He did not critically interrogate EY's assumptions or technical caveats.
- Once the transaction closed, the PAYE risks were not monitored or reviewed.
- Comparing this with the standard of a 'reasonable taxpayer', the employer did not take reasonable care.
- HMRC's extended six-year time limit therefore applied and the determination was valid.
The appeal was dismissed, except in relation to the fourth shares.
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Employment-Related Securities: Reporting
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Employee Shares: the Employment-Related Securities rules
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ERS: Share valuation checklist
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Recovery of PAYE: Regulation 80 and 72 assessments for PAYE
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How to appeal an HMRC decision
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