Section 431 Elections – Updated guidelines by HMRC
September 13, 2022
HM Revenue & Customs have recently updated the Employment Related Securities Manual at ERSM30450 and ERSM30460, which relate to the making of joint elections under section 431 of the Income Tax (Earnings and Pensions) Act 2003 (Section 431 Election). These updates try to address some helpful practical points in relation to making Section 431 Elections.
A section 431 Election is an election made jointly by an employee/officeholder and their employing company in relation to the acquisition of shares and securities by the employee/officeholder pursuant to a right or opportunity provided by reason of their office or employment. Section 431 Elections are normally made in respect of shares and securities that are subject to restrictions (typically, forfeiture provisions, transfer restrictions, etc.). By making a Section 431 Election, the employee opts out of the future charging provisions under the ‘restricted securities regime’. Accordingly, the employee/officeholder is treated as acquiring the shares and securities at their unrestricted market value and they are required either to give consideration in that amount or incur a tax liability on the appropriate amount. A Section 431 Election must be made within 14 days of the acquisition of the shares and securities by the employee/officeholder.
HMRC have recently updated their guidance in the Employment Related Securities Manuals to include:
- More than one employer – where an employee/officeholder has more than one employment/office, so long as the employers are members of the same group of companies, it would be sufficient for any one of such employers to sign the Section 431 Election
- Multiple securities acquired at the same time – where more than one type/class of shares and securities are issued by more than one company, so long as all of the companies are members of the same group, one Section 431 Election would be sufficient to cover all of the different shares and securities
- Power of Attorney – a Section 431 Election may be signed on behalf of an employee/officeholder by a person under a power of attorney
- Electronic signature – a Section 431 Election may be signed by the parties electronically (including on-line confirmation or email voting buttons) provided that they can be verified and stored satisfactorily
- Other Formats – there is no longer a requirement to make the Section 431 Election in the HMRC approved form, so long as it can be shown that the employee/officeholder and their employer have agreed (whether by email or in a share subscription agreement or otherwise) the key terms of the Section 431 Election, which contains no less detail than the approved HMRC form.
The updated guidelines contain some helpful and useful confirmations on the practical aspects concerning the making of Section 431 Elections. The confirmation that the use of electronic signatures, signature by attorney, sufficiency of one employer signing where there are more than one employer in a group situation and one election covering multiple securities issued by more than one group members are all practically very helpful.
However, with regard to the use of other formats of Section 431 Elections, we strongly recommend the continued use of the HMRC approved format. This is to avoid the risk of a Section 431 Election not being treated as having been validly made. While HMRC appears to be relaxed about the use of other formats, they would only be valid if they contain “no less detail than the written form of election supplied by HMRC”.