How do I make a section 431 election?

To use the section 431 election, the employee must pay for the UMV of the shares. They then need to sign the section 431 election within 14 days of receiving the shares. As explained above, this is a legal document which confirms that you have paid for the UMV for the shares and therefore want to be taxed as such.

What does a section 431 election do?

The purpose of a section 431 election is to effectively ignore all/some of the restrictions in valuing the shares at acquisition/subscription and treat the shares as having been acquired at their UMV. The definition of restriction is wide and most private company articles contain ‘restrictions’.

How do I submit an ERS return?

To submit a nil return you need to log into the PAYE section of HMRC’s website and select Employment Related Securities. Once in the ERS system select the scheme you’re interested in filing for from the list of schemes and arrangements. You should then see the option to submit an annual return.

What is a joint election form?

Model NICs Joint Elections There are two formats: a two-part NICs joint election, which allows the employer to sign only one document to apply to all employees entering into the election, instead of one document for each employee.

How does Section 431 affect a share sale?

The section 431 election will generally ignore the valuation impact of all restrictions on securities meaning that the values on acquisition are taken to be the unrestricted market value. This might increase tax liabilities when shares are acquired but prevent a restricted securities charges on subsequent event. Points to consider are:

How is capital gains taxed in Section 431?

This means that the shares automatically fall within the employment related securities legislation, and on a disposal, the gain will, in part, be subject to income tax at a potential rate of 45%, rather than capital gains tax at a potential rate of 10%.

When does HMRC need to see share option?

HMRC may ask to see the section 431 elections during an enquiry or to ensure that there is no income tax charge arising on a later sale. So you should keep them in a safe place. You should also ensure that you pick up the company’s tax relief when the employee exercises their share option.’

Do you have to send tax returns to HMRC?

Do we send that to the HMRC?’ asked Seb. ‘No. The election must be made within 14 days and is retained by the company. HMRC may ask to see the section 431 elections during an enquiry or to ensure that there is no income tax charge arising on a later sale. So you should keep them in a safe place.

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