Employment Related Securities Tax Calculator 2025/26 | ERS
Calculate tax on employment related securities (ERS) — shares, options or other securities received through employment. Income tax and NI on unrestricted market value.
Employment Related Securities (ERS) Tax Calculator 2025/26
Employment income chargeable
—
Income tax
—
Employee NI (8%)
—
Employer NI (13.8%, for reference)
—
Net value after tax
—
Effective tax rate
—
For restricted shares without a s.431 election, a further charge may arise when restrictions are lifted. Employer NI is shown for reference — it is a cost borne by the employer unless a NI indemnity applies.
Understanding Employment Related Securities Tax Rules
The Employment Related Securities (ERS) rules under ITEPA 2003 Part 7 are among the most complex areas of UK employment tax. They apply whenever an employee or director receives shares, options, or other securities by reason of their employment — either free of charge or at below their true unrestricted value.
The central concept is the Unrestricted Market Value (UMV): the price the securities would achieve on the open market if all employment-related restrictions were removed. Employment income is calculated as UMV minus any amount paid.
ERS Types and When Tax Arises
ERS Type
When Income Arises
Charge Basis
Unrestricted shares awarded
At acquisition
UMV − amount paid
Non-approved share options
At exercise
Market value at exercise − exercise price
Restricted shares (no s.431)
At acquisition AND when restrictions lift
Restricted value − paid; then further charge
Restricted shares (s.431 election)
At acquisition only
UMV − amount paid — no further charge
Convertible securities
At conversion event
Value of securities received − value given up
Why the s.431 Election Matters
Making a s.431 election converts what would otherwise be a series of income charges (as restrictions lift) into a single upfront income charge on UMV. All future growth above UMV is then CGT-only. For shares expected to appreciate significantly, this can generate substantial tax savings over time. The election must be made within 14 days of acquisition.
Frequently Asked Questions — Employment Related Securities
Why does HMRC use UMV rather than the restricted value?
HMRC uses UMV to prevent avoidance — if restricted shares were taxed on their lower restricted value and restrictions were quickly lifted, the gain would escape Income Tax and be taxed only at CGT rates. UMV ensures the full employment benefit is charged as income.
When should I consider a s.431 election?
If you expect the restricted shares to increase significantly in value after restrictions are lifted, a s.431 election at acquisition locks in a single income charge on UMV. Future gains are CGT (10–20%) rather than Income Tax (up to 45%). The election must be made within 14 days of acquisition.
What is the deadline for a s.431 election?
The election must be made jointly by employer and employee within 14 days of the date of acquisition. Missing this window means the default restricted securities rules apply with potential future income charges when restrictions lift.
How is the employment income calculated for non-approved share options?
Employment income = (market value at exercise) minus (exercise price paid). This amount is added to your earnings for the tax year and taxed at your marginal rate, with NI on top.
Is there any CGT relief available on ERS?
Once employment income has been assessed, CGT applies on future gains above that base cost. Business Asset Disposal Relief (10%) is available if conditions are met — generally requiring at least 5% shareholding and 2 years as employee/officer.
What is the employer cost of an ERS award?
In addition to the direct value of shares awarded, employers face Employer NI (13.8%) on the employment income charge. For large RSU or ERS grants, this can be a significant cost. Some plans include indemnity clauses requiring the employee to reimburse employer NI.
Can ERS be structured to avoid the employment income charge entirely?
No. HMRC's anti-avoidance provisions are broad. Where securities are acquired by reason of employment below UMV, an employment income charge will arise. Approved schemes (EMI, SAYE, SIP, CSOP) provide statutory exemptions but require HMRC compliance.
How does ERS affect my P60 and payslip?
ERS employment income should be included in your P60 earnings total for the relevant year. If processed through payroll (payrolled benefits), it will appear on your payslip. P11D reporting applies if not payrolled.
What is a CSOP and how does it differ from non-approved options?
A Company Share Option Plan (CSOP) is an HMRC-approved option scheme. Options can be granted up to £60,000 (from April 2023) per employee. If conditions are met, no Income Tax arises on exercise — only CGT on disposal. Non-approved options trigger Income Tax on the full gain at exercise.
Does ERS income affect my pension annual allowance?
ERS employment income typically does not count as 'relevant UK earnings' for pension contribution relief purposes unless it flows through PAYE as employment income in the normal way. Seek specialist pensions advice for large ERS events.
What are the key HMRC reference documents for ERS?
ITEPA 2003 Part 7 contains the primary legislation. HMRC's Employment Income Manual (EIM30000 onwards) provides detailed guidance. HMRC also publishes a series of ERS technical notes. The HMRC ERS online service is used for all annual returns.
Who is responsible for ERS PAYE compliance?
The employer (or the person operating the ERS arrangement) is responsible for collecting Income Tax and NI through PAYE, making the employment income assessment, and filing the annual ERS return. Employees may need to make additional payments if PAYE is not sufficient.
What happens if ERS shares are transferred before restrictions lift?
Transferring restricted ERS shares (e.g. to a spouse) can trigger a deemed disposal under the ERS rules if the transferee is a connected person. An income charge may arise on the chargeable amount at the time of transfer.
Disclaimer: This calculator is for informational purposes only and does not constitute tax or legal advice. ERS rules are highly complex. Always take specialist advice for significant ERS transactions.