Gifting Company Shares to Employees

Start-Up | Shares

Gifting company shares to an employee can be a great way to reward staff in a tax efficient manner.
First step is to establish the type of shares you plan to gift
It is first important to establish the type of shares being gifted. If the shares are a ‘Readily Convertible Asset’ the treatment of the shares gifted will be different. A ‘readily convertible asset’ are usually shares that are listed on the stock exchange, but can include shares where the below conditions are met:

  • Has the employer made arrangement for the shares to be sold or turned into cash after the gift?
  • Is the company in which the shares are gifted from controlled by another company?

Tax Treatment for the shares you plan to gift
On the assumption that the shares you wish to gift are not Readily Convertible Assets, the employer will be able to gift shares to an employee without paying any tax. The employee will be taxed on the market value of the shares at the date the shares were gifted. The benefit will form part of the employee’s self-assessment tax return. If, the shares are Readily Convertible Assets the employer will be required to operate PAYE/ NIC on the shares gifted (market value). The employer will be required to pay the PAYE tax to HMRC by the 19th or 22nd of the following tax month of the gift. The employee could be left in a deficit cash position as PAYE tax will be applied on both the shares as well as his cash earnings. If this is the case, the employee will have 90 days from the end of the tax year to repay the deficit to the employer. The employer may wish to provide a beneficial loan to cover the PAYE tax, which if below £10,000 will not be a taxable benefit.

How the Company reports the gift
Employers will be required to complete and submit a ‘Form 42’ detailing the transaction and PAYE operated (if the shares are ‘readily convertible asset’).
If you would like to discuss this option further please contact Paul Dell at paul.dell@raffingers-stuart.co.uk.