The recent Spring Statement brings new developments in the taxation of employee shares in connection with the introduction of the Private Intermittent Securities and Capital Exchange System, otherwise known as PISCES. For those of us who champion employee share ownership, including through EMI and CSOP options, these changes present both opportunities and concerns.

Here’s what you need to know and why it matters:

PISCES: unlocking liquidity, but at what cost?

The government is promoting PISCES as a platform for trading private company shares. PISCES could enhance liquidity and provide much-needed opportunities for employees to realise the value of their equity.

A major positive is the exemption of PISCES transactions from Stamp Duty and Stamp Duty Reserve Tax (SDRT). This move will reduce transaction costs and incentivise participation.

However, HMRC's technical note published at the Spring Statement confirms that PISCES will constitute trading arrangements for the purpose of classifying shares as Readily Convertible Assets (RCAs). As a result, shares will be viewed as RCAs during a trading window or where a trading window or admission to trading is anticipated (even if not guaranteed). Although shares will not be RCAs purely because they have previously been admitted to trading on PISCES, where they are no longer admitted and no other trading arrangements exist or are likely.

If shares acquired by employees are treated as RCAs, as well as income tax they will be subject to employee and employer National Insurance Contributions (NICs), and potentially the apprenticeship levy, which the employer must withhold through PAYE —a significant deterrent to participation.

The government must be careful not to penalise companies and employees who use PISCES. If PISCES-traded shares face additional tax and social security burdens compared to those in companies that don’t use the platform, it could stifle adoption.

Enterprise Management Incentives (EMI) and Company Share Option Plan (CSOP): a missed opportunity?

The EMI scheme is a powerful tool for small trading companies to attract and retain talent by offering tax-advantaged share options, with CSOP options offering tax-efficient share options to employees across a broader range of companies than EMI.

The government’s proposal confirms that EMI and CSOP options can include PISCES trading windows as an exercise event only if explicitly stated at the time of grant.

Existing EMI and CSOP agreements cannot be amended to include a new right of exercise on a PISCES trading window without being treated as a re-grant - potentially leading to the loss of tax benefits. Companies that want to enable option holders to exercise their options and sell their shares on PISCES will have to work within existing constraints or grant entirely new options.

This rigid stance risks undermining the potential of PISCES. Employees should not be penalised for changes in the trading landscape that were unforeseeable when their options were granted. This is a missed opportunity although the technical note did leave the door open to the government to legislate on this. The government should provide flexibility to allow PISCES trading windows to be incorporated as exercise triggers into existing EMI and CSOP option agreements without negative tax consequences.

Valuations: clearer, but still a concern

The government has reaffirmed that transactions on PISCES will generally be recognised as taking place at market value, ensuring fairness, however transactions between connected parties could be subject to further HMRC scrutiny. The technical note also confirms that past PISCES transactions would be considered as evidence of value and may represent the market value of the shares, although it does also state that this would depend on other factors such as the timing of the transactions and other financial circumstances.

While this provides some clarity, the impact of PISCES on share valuations remains a concern.

Final thoughts: a step forward, but more work needed

The government’s proposals signal a recognition of the need for greater liquidity in private share markets, but they fall short in critical areas. If PISCES is to succeed, a more balanced approach is needed to encourage employee participation.

Employee share ownership drives productivity, retention, and wealth creation. If the government truly supports these schemes, it must refine its approach to ensure PISCES strengthens—not weakens—the benefits of employee ownership including removing barriers to PISCES trading for holders of EMI and CSOP options. Let’s push for a more employer and employee-friendly framework.

- END -