Income Tax (Trading and Other Income) Act 2005 section 385A

No charge to tax on purchase by company of exempt employee shareholder shares

Section 385A prevents an income tax charge from arising when employee shareholder shares are bought back by the issuing company, ensuring that the proceeds are instead treated as giving rise to a capital gain which may qualify for a separate exemption.

• When an employee shareholder sells their shares back to the company, the payment received is not subject to income tax.
• This treatment applies where the individual is no longer an employee or officer of the employer company, or of any associated company.
• Instead of being taxed as income, the proceeds from the buy-back are treated as giving rise to a capital gain, which may itself be exempt under the employee shareholder shares capital gains tax exemption.
• This provision was introduced by Finance Act 2013 and subsequently amended by Finance Act 2017, which restricted the availability of the employee shareholder status for new arrangements.