Autumn Statement 2015: Reform of Employment Related Securities (ERS) legislation

The rules on the taxation of shares acquired by employees are complex and contain a number of hazards for employers who do not obtain specialist advice; often the first indication that there is a problem comes on a transaction where a purchaser is undertaking due diligence.

In addition to this complexity, internationally mobile employees are not necessarily taxable under the ERS rules, with the result that there is effectively a separate, parallel tax regime affecting share awards and share options given to this class of employee.

The Government intends to amend the legislation affecting ERS, with changes to the rules on the existing tax-advantaged share schemes and non-tax-advantaged schemes.  The changes will also clarify the treatment of internationally mobile employees.

The announcement does not explain the changes that the Government intends to make.  Various statutory, tax-advantaged share schemes have already been subject to significant reforms in both the 2013 and 2014 budgets and it will be very interesting to see what further changes are proposed.

Since its introduction in 2003, the ERS regime has been reviewed by the courts in unflattering terms on a number of occasions and it is to be hoped that any reform will address the complexity and piecemeal construction of the existing legislation.