Gift of shares as redundancy package

Gift of shares as redundancy package

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A client company transferred 3 B shares worth around £350 each (restricted hence low vlaue compared to A shares) to each of three leavers as part of redundancy package.

Not in contract so not a PILON.

can it escape operating PAYE/NI on these?

They left on 03/06/05 and the shares were transfered on 30/09/05 but obviously agreed as part of the redundancy package at the time.

Any help would be much appreciated.

One of them has been re-hired this May as the company has turned around. Any implications?
Samuel Khan

Replies (6)

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By User deleted
27th Jul 2006 11:16

If real, fine
My understanding is that PAYE (and possibly NIC) is not applied to non-cash payments on termination which would, of course, include redundancy. In any case is the total individual package (including the shares) worth in excess of £30000? If it is not, surely everything is paid gross.
On the assumption that we are looking here at real redundancies , there should be no problem about one of the individuals coming back into the fold. Being in an optimistic mood , I would hope that the collective imagination of HMRC can encompass the by no means unique scenario of a firm hitting a bad financial patch , having to lay off staff and subsequently recovering enough that more workers have to be taken on. Any half-decent proprietor or director would think first of the poor devils who had originally been made redundant. What I am driving at, Samuel, is that solid and logical reasons for dismissal and re-hiring ought to be sufficient to convince the most cynical of Inspectors.

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By AnonymousUser
28th Jul 2006 20:33

interesting
so, if the compnay had given them cash of £950 instead of 3 shares worth £950, there would be no issue.

So surely the argument could be that the company did in fact 'give/offer' them £950 in cash and the employees bought 3 shares with the cash.

Coincidentally, because the shares were of the same value as the tax free redundancy cash, the money didn't change hands and were contra'd in the company's books?!

Honest inspector!

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By User deleted
07th Aug 2006 17:25

look at the law?
The answer lies in ITEPA Part 7. Nothing in that Part is concerned with why the securities are acquired.[gift, golden handshake or whatever]. See s421B(3), which provides with , with the exception of the circumstances set out in sub paras. a) and b)-neither of which applies here-

'A right or opportunity to acquire securities made avaialble by a person's employer, or by a person connected with a persons's employer, is to be regarded as available by reason of an employment of that person.'

Hence if the securities concerned are restricted securities, ipso facto the profit on them will be subject to Schedule E.

The second part of the problem-what about the golden handshake provisions?- is answered in the frequently forgotten few words in what is now ITEPA Pt 6 Chapter 3 s401(3), which excludes from the golden handshake rules[ which include the £30,000 exemption] 'any payment .. chargeable to income tax apart from this Chapter'

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By User deleted
07th Aug 2006 17:00

Are we talking now, or future?
I am very far from being well versed in share schemes but recognise the significance of restricted securities in the tax code. I agree that past employees can be caught if and when, after leaving the employer, there is a chargeable event in respect of restricted shares prerviously acquired "in post''.
The main question Samuel put was the relationship of the acquisition to a genuine termination payment. I cannot find the overriding section which debars the £30000 exemption to these shares whilst affording it to the monetary equivalent (under the code) of other non-cash benefits. For the moment, let's assume £950 MV is agreed by HMRC: what part of ITEPA 2003 wil be quoted by them in effectively disregarding that the shares are part of a redundancy package (not exceedind 30k) and taxing now as well as , possibly, at a future date ? I would be most interested to hear.

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By wdr
28th Jul 2006 15:25

I fear this falls squarely into ITEPA, and any profits will be
ITEPA s421B(2)(b) includes "former employment"in the ITEPA provisons.

There is some hope of avoiding the full rigours by making a s431 election, but that involves paying tax now on the value of the shares without the restrictions.

The fact that the shares are issued as part of a redundancy package is a red herring . If the argumenmt is without the restrictions their value is less than £30K, then that won't give the result you want.
The s431 election only applies for the purposes on s431(3), which doesn't include s 401[golden handshake provisions]

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By wdr
29th Jul 2006 18:20

The method of acquisition is not at issue for ITEPA
My understanding is that the mere fact of acquisition, not the identity of the person from whom the shares are acquired[the company or another shareholder, for example]governs the tax treatment; the same schedule E rules apply if the shares are 'restricted' shares-which these seem to be.

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