Meaning
Joint elections between employees and employers in the United Kingdom allow for the taxation of shares based on their unrestricted market value at acquisition. By entering into these uk itepa section 431 arrangements, the parties agree to ignore any restrictions that would otherwise lower the value of the shares for income tax purposes. This choice is usually made within fourteen days of the share acquisition to prevent a future income tax charge on the growth in value.
Restricted Value
Employment related securities often come with conditions such as forfeiture provisions or transfer blocks that depress their initial worth. Without the use of these uk itepa section 431 elections, the tax office would view the lifting of these restrictions as a taxable event in the future. The law treats the increase in value as employment income rather than a capital gain.
Paying the full tax on the higher value today removes that risk.
Future Liability
Shifting the tax burden to the start of the holding period protects the employee from high income tax rates on the eventual sale price. Once these uk itepa section 431 steps are completed, any subsequent growth in the share price falls under the capital gains tax regime. Capital gains rates are typically much lower than the top bands of income tax.
This creates a more favourable outcome for the participant when the company reaches a liquidity event.
Election Procedure
Signatures from both the company representative and the employee are required on a formal document to make the choice valid. These uk itepa section 431 records are not filed with the revenue department immediately but must be kept for inspection during a future audit. Failure to complete this paperwork correctly results in the shares being taxed as restricted securities by default.
The employer must also report the election in the annual end of year returns for employee share schemes to ensure that the revenue service has a record of the choice made by the parties.
