Income Tax (Earnings and Pensions) Act 2003 section 226A

Amount treated as earnings

Section 226A sets out how shares acquired by an employee under an employee shareholder agreement are treated as taxable earnings, and the rules for determining their market value.

• Where shares worth at least £2,000 are acquired under an employee shareholder agreement, their full market value is treated as employment earnings in the tax year of acquisition.
• This deemed earnings treatment does not apply where the shares are acquired through an employment-related securities option — in that case, the normal securities option rules apply instead.
• Where the deemed earnings rule does apply, no other amount can count as employment earnings in respect of the same share acquisition, preventing a double charge.
• For the purpose of testing whether the £2,000 threshold is met, market value is calculated ignoring any elections to treat restricted shares as unrestricted and any rules that treat convertible securities as non-convertible.