Decision in Vermilion Holdings Limited

HMRC v Vermilion Holdings Limited

The Supreme Court has recently published their decision on a case that involved share options.

The case has affirmed that an individual who receives securities or options from their employer will, by default, also be deemed to have received them in connection with the employment, regardless of the actual reason, unless an exception applies (for domestic, family, or personal relationships).

For example.

If a bank decided to give shares to all its account holders, then any account holders who were also employees would be deemed to have been given an Employment Related Security even though the actual reason had no link to their employment. This seems quite a strange resultand means that extra care must be taken to ensure that all issues and transfers of shares or options have been correctly treated.

Within scope.

The case means that it will be very hard to argue that any shares given to employees or directors are not within the scope of employment tax.  We would recommend that advice be obtained in situations where shares or share options (as well as convertible loans) are to be issued to someone who is an employee or director. This applies even if the individual is already a shareholder and is receiving shares in their capacity as an investor.

The case also highlights the need to have the correct tax indemnities included in the documentation. Without these, if employment taxes do become due, they will be the responsibility of the employer, but an indemnity can ensure the cost is met by the employee.

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