The Private Intermittent Securities and Capital Exchange System (PISCES), which will facilitate trading in private company shares, is expected to launch later this year. PISCES is intended to give private companies’ shareholders – including employees – a new way to obtain liquidity in their shares.
Why PISCES matters for private company share plans
Studies have indicated that employee ownership can increase engagement and productivity, improve the retention of key skills in the workforce and lower the costs of recruitment.
For many individuals, the gain realised on disposal of their shares is the main financial benefit of employee ownership. Some form of liquidity event (e.g. a future exit) or facility (e.g. trading arrangements) is therefore important for employee share plans to attract, incentivise and retain a high-quality workforce.
When launched, PISCES will offer private companies a new alternative to other arrangements for buying and selling their shares (e.g. an internal market operated and funded by the company). To help companies start assessing whether PISCES might be right for them, HMRC published a tax technical note at the Spring Statement that clarifies some tax implications of employees trading shares on a PISCES platform.
This article summarises the key points and considers some broader issues.
Implications for payroll withholding
Shares in private companies will be ‘employment-related securities’, and therefore potentially subject to income tax charges on acquisition, whilst they are held, and/or on disposal, if they are acquired by reason of employment. Shares that are not acquired by reason of employment can be deemed to be employment-related securities in certain circumstances (see also our article in relation to family companies).
Where amounts count as employment income in relation to shares, the employer must account for income tax under PAYE, and both employer’s and employee’s NIC charges, if the shares are ‘readily convertible assets’.
HMRC’s technical note confirms that shares will be ‘readily convertible assets’ if:
- There are arrangements for them to be traded on a PISCES platform (even if the trading window is not open at the relevant time); or
- They are acquired in anticipation of the company’s shares being traded on a PISCES platform (even if this is not guaranteed).
Whilst the lack of an employer’s NIC exemption to encourage uptake of the new platform might disappoint some employers, this payroll withholding treatment is in line with that for other trading arrangements for private company shares.
Issues for tax-advantaged employee share options
HMRC also comment on the interaction of PISCES with tax-advantaged Enterprise Management Incentive (EMI) and Company Share Option Plan (CSOP) options.
The technical note confirms that a PISCES trading window can be a specified event that allows employees to exercise EMI or CSOP options, provided this is a term of the option agreement when it is granted. Amending an existing EMI or CSOP option so that admission of a company’s shares to a PISCES platform gives rise to a new right to exercise (or allowing the exercise of) an existing EMI or CSOP option during a PISCES trading window under a broad Board discretion, will reduce or remove that option’s tax advantages. However, the Government will consider legislating to let existing EMI and CSOP options be exercised on admission of a company’s shares to a PISCES platform.
The impact of PISCES trades on tax valuations
For capital gains tax (CGT), inheritance tax (IHT) and most employment tax purposes, the tax market value of private company shares is the price they would be expected to fetch on the open market.
HMRC’s technical note confirms they will generally accept that acquisitions and disposals of shares on a PISCES platform will take place at tax market value for income tax or CGT purposes reflecting, where relevant, a discount for small minority holdings. HMRC will therefore regard the price at which PISCES transactions take place as evidence to be considered when arriving at the tax market value of a company’s shares for other purposes (e.g. for setting the exercise price of EMI or CSOP options, or as a starting point/benchmark for calculating the IHT due on a chargeable lifetime transfer of shares).
Stamp Duty and Stamp Duty Reserve Tax (SDRT)
PISCES transactions will be exempt from Stamp Duty and SDRT. HMRC launched a consultation on this exemption at the Spring Statement, which will close on 23 April 2025.
What should private companies consider?
A statutory instrument to legislate for the legal framework for PISCES is expected to be laid before Parliament in May. This will be followed by publication of the Financial Conduct Authority’s PISCES rules. Private companies should then be able to consider whether allowing their shares to be traded on a PISCES platform presents a commercially attractive mechanism for providing shareholder liquidity.
Tax issues companies should consider when assessing their positions include:
- Whether existing EMI or CSOP plans should be amended to allow any options granted in the future to become exercisable if the company’s shares become tradable on a PISCES platform;
- Whether intermittent trading on a PISCES platform could be a more cost-effective way to provide employees and other shareholders with liquidity (e.g. compared with an internal market operated and funded by the company); and
- The potential impact of PISCES transactions on tax valuations for other purposes (e.g. the grant of employee options and IHT).
How KPMG in the UK can help
Please get in touch with the authors or your usual KPMG in the UK contact to talk through how KPMG in the UK can help you assess the potential implications of PISCES for your company, and how to maximise the value employee share plans can deliver for your workforce and your business.
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