EIM01600 - Employment income: phantom share schemes
Section 62 ITEPA 2003 and (from 16 April 2003) Part 7 ITEPA 2003
The Employment Related Securities Manual (ERSM) contains full guidance about schemes that involve the actual transfer of shares to employees.
However, some employers set up incentive schemes that involve the award of 바카라 사이트˜phantom바카라 사이트™ or hypothetical shares. In schemes of this type, the employee is given an award which represents a specified number of units, or shares, in the employer바카라 사이트™s company. At the time of the initial award the employee does not receive money, or any form of 바카라 사이트˜money바카라 사이트™s worth바카라 사이트™. There is no payment of earnings, and so no charge to tax on employment income at the time of the initial award. All the employee actually gets is the prospect of receiving a cash payment at some time in the future.
The employer바카라 사이트™s object is to encourage the employee to continue in the employment, and to provide an incentive for the employee to work well, by holding out the prospect of a future bonus payment linked to the value of the company바카라 사이트™s shares.
The details may vary from scheme to scheme. Typically, and provided that the employee remains with the company, he or she eventually receives a cash payment equal to the value of the 바카라 사이트˜phantom바카라 사이트™ shares at the time of payment. This is likely to be greater than the value at the time of the original award. The cash payment is taxable as earnings within section 62 ITEPA 2003 in the year that the employee receives it. It바카라 사이트™s usually, though not invariably, earnings for that year. This will depend upon the scheme rules. See section 16 ITEPA 2003.
See ERSM110020 for more information on how phantom share schemes are viewed from the perspective of employer share schemes.