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Transfer of shares to employee

Paperwork for income tax and s431 election

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A client is gifting 5% of their shares in their private company to a long standing unconnected employee.

Client will register a scheme for employment related securities. I have a valuation for the transfer on which income tax falls due, however as the shares aren't RCAs, then this is not collected through PAYE.

Please can someone assist with the following:

- What paperwork does the employer give the employee so they include the gift on their tax return?

- Does the employer need to get involved in the s431 election, if required?

- When the ERS form is completed at the end of the year, I assume I just include the value and that no PAYE was deducted? Since obviously I won't know if tax has been/will be paid by the employee since my understanding is that it is paid through self-assessment.

Thanks and surprised I couldn't find any posts on this but maybe I am missing something really obvious...

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By Wilson Philips
09th Apr 2021 10:05

As far as I am aware, the employer does not need to provide the employee with any paperwork. As you say, it is the responsibility of the employee to self assess the chargeable amount on his/her tax return.

Whether a s431 election will be in point will depend on whether or not the shares are restricted. But, yes, if in point it is a joint election between employee and employer.

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By Matrix
09th Apr 2021 12:56

Thanks I was just wondering what employers do in practice, here are some free shares but sort out your own tax. How would an employee know to self-assess?

Is there any benefit for the employer of making the s431 election? I doubt the employer would pay me to prepare it otherwise.

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Replying to Matrix:
By Wilson Philips
09th Apr 2021 15:53

I can't speak for all employers, but I would imagine that a client such as yours, represented by a competent adviser, would be told to inform the recipient of the shares that an income tax charge is likely to arise based on the market value of the shares.

As far as I am aware, a s431 election has no impact on the employer (other than potentially increasing any PAYE that might be due). Since the benefit of the election rests with the employee then they should probably be asked to pay for it. But a real faff if the employee is not your client - in such cases we charge the employer and let the employer recover the cost from the employee if they are so minded.

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