»Ê¹ÚÌåÓýapp

Section 62(3)(b) ITEPA 2003

Weight v Salmon (19TC174)

»Ê¹ÚÌåÓýapp taxpayer was the managing director of a limited company and had a service agreement under which he was entitled to a fixed salary. In addition, each year the directors of the company passed a resolution giving him the privilege to buy some of the company’s shares at their par value (that is, their face value), which was considerably less than their current market value. He duly purchased and retained the shares. Earlier resolutions had said that this privilege was granted having regard to the ‘eminent and special servicesâ€� that the managing director had performed for the company, but the resolutions for the years under appeal made no reference to his services.

»Ê¹ÚÌåÓýapp managing director appealed against his tax assessment, claiming that as he had not sold the shares he had received no profit, and thus no earnings on which to be taxed (see generally EIM00515 onwards). »Ê¹ÚÌåÓýapp Courts agreed with the Inland Revenue that the shares themselves were emoluments, or earnings. »Ê¹ÚÌåÓýapp taxpayer was chargeable on the difference between the market value of the shares and the amount that he had paid for them.

Ede v Wilson (26TC381)

A similar point arose in Ede v Wilson (26TC381). In that case, a group of employees were allotted shares on the condition that, as long as they continued to work for the company, they could not sell them without the permission of the company’s directors. »Ê¹ÚÌåÓýapp Court held that the shares were still emoluments, or earnings, even though there was a restriction on sale. »Ê¹ÚÌåÓýapp restriction was simply a factor to be taken into account in determining the value of the earnings.