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The taxpayers were directors of a UK private limited company EGS.
They were granted unapproved share options in the company which they subsequently realised receiving £1 092 439 and £976 919 each.
EGS considered that they had been granted the options as founder shareholders and did not deduct any PAYE or National Insurance on the basis that TA 1988 s 135 did not apply.
The company later agreed that a notional gain arose under s 135 and s 203FB therefore treated the notional payment as subject to PAYE.
EGS accepted liability for the employer’s and employee’s National Insurance which it paid.
The taxpayers included the amounts on their self-assessment tax returns. HMRC assessed them to tax under TA 1988 s 144A(1) (rewritten as ITEPA 2003 s 222).
The taxpayers appealed saying that s 144A did not apply and that no PAYE was due...
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