As part of the 2025 Spring Statement, HMRC has released long-awaited guidance on the employment tax implications of PISCES.
PISCES is the new secondary trading platform proposed to be launched this year, with legislation expected in May 2025. It allows shareholders in private companies to sell their shares at certain times, known as trading windows. It's all secondary, no primary – no capital raises are involved in the making of your trading window.
RCA or not RCA – What does the future provide?
In the UK, the tax treatment of an employment-related security on acquisition depends on whether it is a Readily Convertible Asset (RCA). If it is, income tax, employee and employer NICs, and potentially apprenticeship levy, generally arise on the difference between market value and the price paid, which the employer must account to HMRC through PAYE. If it isn't, only income tax arises and is paid by the employee/director through self-assessment.
Among other scenarios, a share is an RCA where, at the relevant time, trading arrangements for the shares either exist or are likely to come into existence. HMRC has confirmed that PISCES is such a trading arrangement: shares will be RCAs during a trading window, or if a trading window or admission to trading is anticipated (even if not guaranteed).
What if shares were admitted to trading on PISCES in the past but no longer? Provided the company is not taking steps to prepare for a new trading event or admission to PISCES, and there are no other trading arrangements (or other facts that could make the share an RCA) the shares will not be RCAs.
EMI and CSOP – Smooth sailing or stormy waters ahead?
Many companies who have granted tax-advantaged share options will want to allow their employees to take advantage of PISCES. But HMRC have confirmed that whether those options can be exercised without losing tax-advantage depend on the terms of the option as at grant.
Tax-advantaged options can be exercised in line with the legislation pursuant to an already-triggered exercise right or an exercise right that triggers on the opening of a PISCES trading window even if at the time of grant, the shares are not admitted to trading on PISCES. But the right has to be explicit in the plan or agreement at grant of the option. If you try to add the right in after grant, the option stops qualifying for tax-advantaged treatment. Attempting to exercise a general discretion to allow exercise where a trading window has been opened also loses tax-advantaged treatment. This aligns with long understood principles around option exercises, although the clarity is helpful.
For options going forwards, companies should consider putting in an explicit exercise right. For options currently subsisting, employees may unfortunately need to wait for another time to exercise.
Valuations – A mystery
Unfortunately, HMRC declined to give much substantive comment or reassurance on how PISCES will affect the valuation of shares for tax purposes – whether for granting tax-advantaged options, or when calculating employment tax charges on the purchase or sale of shares, other than confirming that they will accept the sale price of an arms length sale as market value. Further guidance may be released closer to the time or parties may need to seek valuation advice.
