PISCES – HMRC release technical note on the interaction of PISCES on share schemes and incentives

As part of the Spring Statement 2025, HMRC published a technical note regarding the tax consequences for companies and employees trading their shares on the incoming Private Intermittent Securities and Capital Exchange System (PISCES). PISCES is a new type of stock exchange which will allow private companies to trade their shares on a secondary market during intermittent “trading windows”. This platform aims to enhance the growth of private secondary markets, granting access to liquidity for shareholders, whilst allowing companies to remain private.

The technical note deals with some of the key questions raised by practitioners and stakeholders during the PISCES consultation that took place in 2024, including keenly awaited clarification regarding how PISCES will interact with:

• the readily convertible asset (RCA) rules;
• two key tax-advantaged share schemes (Enterprise Management Incentive (EMI) and Company Share Option Plan (CSOP) schemes); and
• the valuation of employee shares.

Readily convertible assets

Currently, where shares are issued to employees and those shares are “readily convertible assets”, they are effectively treated as employment income provided in the same way as cash. This means that the recipient’s employer is required to operate PAYE in respect of:

• income tax; and
• employee and employer class 1 National Insurance Contributions (NICs).

If shares are not RCAs, any income tax due is payable via self-assessment and no employee or employer class 1 NICs will arise. As the income tax and class 1 NICs due often cannot be deducted directly from RCAs in the same way as cash, it is important for employers to understand when a particular share or shares are RCAs so that they can plan ahead to put in place suitable arrangements to collect the income tax and employee class 1 NICs.

Shares may be considered RCAs in a number of circumstances, including if they are listed on a stock exchange or if “trading arrangements” exist or are likely to exist. Until the Spring Statement, it was unclear whether the possibility of trading on a PISCES exchange would qualify as “trading arrangements.” However, the PISCES technical note specifies that if arrangements exist for shares to be traded on a PISCES platform at the time of acquisition, they will be viewed as RCAs. This classification will apply even if a trading window is not open at the time of award. Additionally, shares acquired in anticipation of a company being admitted to PISCES, even if admission is not guaranteed, will also be considered RCAs due to the understanding that trading arrangements are likely to come into existence.

Employers will therefore need to consider the potential cash flow issues of operating on PISCES. This could impact employees who could be required to fund the income tax in circumstances where they have not received any cash for their shares yet. Furthermore, the class 1 NICs charges represent additional liabilities that would not exist if trading on a PISCES exchange did not qualify as “trading arrangements.” The combined effect of the income tax and NICs cost may represent a barrier to companies wishing to trade on PISCES.  

EMI and CSOP Schemes

Many private companies have established tax-advantaged share schemes, such as EMI and CSOP schemes to reward employees for their loyalty and assistance in growing their business. Key members of management teams are often incentivised with the promise that, on an exit, they will benefit alongside the existing shareholders. Commonly, EMI schemes are drafted so that they are only exercisable in connection with an exit of the company (for example on a “sale” of the company’s shares or where the company lists its shares on a recognised stock exchange). It is unlikely that the sale of shares on PISCES will have been considered when many existing schemes were originally drafted. However, amending the exit provisions of EMI and CSOP plans risks the loss of their tax advantages.

The consequences of HMRC’s interpretation of trading on PISCES as set out in the technical note on legacy tax-advantaged schemes are therefore significant. To begin with, the note states that for these schemes, PISCES trading windows can be specified events for exercising options, provided they are explicitly included in the option agreement from the time of grant.

However, the note explains that existing option agreements cannot be amended to include a PISCES trading window as a specified trading event or “exit” event whilst retaining their tax-advantaged status as this would amount to a change to a fundamental term of an EMI option (resulting in a deemed surrender and regrant of the option), or to a release and re-grant of a CSOP option. HMRC have confirmed in the technical note that this will still apply where the relevant EMI options (or scheme) permit use of discretion to amend the terms of the option. Ultimately, this means that holders of options over shares granted under legacy schemes may not be able to access PISCES trading platforms if they wish to retain their tax-advantaged status.

It is helpful that HMRC have confirmed that new EMI and CSOP options can include provisions allowing for exercise during a PISCES trading window. However, it will be a disappointing result for many employees who hold options with traditional exit provisions. On a more positive note, the technical note ends this section by commenting that the Government will continue to consider legislating to allow existing EMI and CSOP contracts to be exercised during a PISCES trading window.

Valuation queries

Whether the value of a share sold on PISCES can be taken as being the market value of that share is important for a number of reasons. There are, for example, employment tax charges that may arise where employees acquire “employment related securities” for less than their market value and where “employment related securities” are sold by employees for more than their market value. Additionally, for companies that operate share schemes such as EMI or CSOP schemes, knowing the market value of shares at the date of grant of an option is also key to the tax treatment of those options. Those companies may be wary of trading on PISCES if the effect of doing so is to materially impact the market value of the shares under option.

In response to queries around the impact of PISCES on share valuations and valuing shares where PISCES arrangements exist or transactions have occurred, HMRC confirmed in the technical note that transactions on PISCES are likely to be at arm’s length. As a consequence, those transactions will be deemed to have taken place at market value. However, HMRC have also confirmed that they may review transactions between connected parties to ensure compliance with market value standards.

HMRC confirmed that past transactions on PISCES may be considered as evidence of market value, and that normal principles of share valuation will apply in the context of the grant of EMI and CSOP options. HMRC have also confirmed that where shares, in particular small minority holdings, are being transacted at a price on PISCES, then a discount may not be appropriate for other purposes such as where EMI or CSOP options are being granted. HMRC state that:

“Where shares are being transacted at a price, then there is no better evidence of value than actual transactions – these transactions can provide a reliable guide to the current market value.”

HMRC have also confirmed that there will be no advance assurance route to agree a market value for PISCES transactions for employment tax purposes.

ERS Bulletin 59

In addition to the technical note, on 27 March 2025, HMRC also published the latest Employment Relates Securities Bulletin, which confirmed the relevant treatment of employment related securities that are sold on PISCES. The Bulletin states that:

“When completing the Employment Related Securities (ERS) end of year return, and entering data for shares that can be traded on PISCES, you must answer ‘No’ to the question ‘are they listed on a recognised stock exchange?

There are no other changes to the reporting requirements because of PISCES.”

Conclusion

The publication of the technical note and in particular HMRC’s responses to some challenging aspects of the PISCES legislation provides helpful clarification of their view in a number of important areas. It is also encouraging that new EMI and CSOP options will be allowed to become exercisable during a PISCES trading window. However, HMRC’s response regarding the impact on existing tax-advantaged share option plans in particular will be disappointing to existing optionholders and companies. HMRC and the Government will hopefully consider new legislation to allow for existing EMI and CSOP options to be amended to include the ability to exercise on PISCES whilst retaining their tax-advantaged status to ensure that companies are not dissuaded from trading on PISCES and employees who hold options under existing schemes are not disadvantaged.