Shares From Your Employer No Sell to Cover or Payroll? HMRC Letters and What to Do

If your employer gives you shares and nothing is deducted through your payslip, the tax has not disappeared. Shares received because of your job are employment income, and when your employer does not collect the tax, the responsibility to declare it to HMRC passes to you.

We see this most often with employees of overseas parent companies, private companies and start ups, and even some listed companies that do not offer sell to cover. The shares usually sit in a brokerage account built for US taxpayers, so no UK tax report is ever produced. Many people only discover the problem when they sell, or when HMRC writes to them. HMRC is now running a targeted letter campaign aimed at exactly this group of employees.

This guide explains why some employer shares fall outside payroll, what a dry tax charge is, how to stay compliant when your shares vest regularly, and what to do if you have received a letter from HMRC about employment related securities.

Why are some employer shares not taxed through payroll?

Employer shares fall outside payroll when the company awarding them does not, or cannot, collect the tax through UK PAYE. The most common reasons are:

• The employer is based outside the UK. The shares are awarded by an overseas parent company, and the UK payroll is never told about the vesting. It is also possible that the responsibility is with the employee to deal with their own taxes and the UK payroll is not responsible for it.
• The company is not listed. Shares in a private company often cannot be sold easily, so the PAYE rules that apply to readily saleable shares do not require the employer to deduct tax.
• There is no sell to cover. Even some listed companies deliver the full number of shares without selling any to pay the tax, so nothing reaches HMRC.
• The broker is not built for UK taxpayers. US platforms produce US forms and US cost figures. They do not produce a UK tax report, and their numbers are often wrong for UK purposes.

If your payslip shows no entry for a vesting, that is a warning sign, not a reassurance. If you sell those shares, future sales must be considered for CGT implications.

Whose responsibility is it to declare employer shares?

It is yours. HMRC guidance is clear that where shares are received outside a tax advantaged scheme and your employer does not deduct tax through payroll, you must report the income through a Self Assessment tax return.

Your employer may still file an annual employment related securities return with HMRC, which means HMRC may already know about the award. That return is information only. It does not pay your tax, and it does not report your income for you.

If you have not filed before, you must register for Self Assessment by 5 October after the end of the tax year in which the shares vested. The return must then be filed and the tax paid by 31 January. For shares that vested in 2025/26, that is 31 January 2027.

Received a letter from HMRC about employment related securities?

HMRC is writing to employees whose employers have reported share awards on their annual employment related securities return, where HMRC cannot match that income to the employee’s tax returns. The campaign is targeted, so not everyone receives a letter. If you have, HMRC’s records suggest some of your shares may not have been declared.

The letter does not automatically mean you owe tax, but it should never be ignored. We recommend these steps:

1. Note the reply date on the letter and respond before it, even if you find nothing wrong.
2. Gather your records for each year mentioned: vesting statements, award agreements, payslips and P60s.
3. Check each vest. If a vest appears in the pay figures on your payslip or P60, it has probably been taxed already. If it does not, it is likely to be undeclared.
4. Correct recent years by amending your return. You can amend up to 12 months after the 31 January filing deadline, so 2024/25 returns can be amended until 31 January 2027.
5. Disclose older years through HMRC’s Digital Disclosure Service, or register and file returns if you have never been in Self Assessment.

Acting quickly, before HMRC opens a formal compliance check, usually leads to lower penalties and a far simpler process.

What is a dry tax charge?

A dry tax charge is income tax you owe on shares even though you have received no cash to pay it. You are taxed on the market value of the shares when they vest or are given to you, whether or not you sell them.

Example

Chloe earns a salary of £90,000. In 2025/26, 1,000 shares vest from her US employer’s plan, worth £20 each on the vesting date. Nothing is deducted through payroll.

• Shares taxed as employment income: £20,000
• Total income: £110,000, which takes her above £100,000
• Tax on the first £10,000 of shares at 40%: £4,000
• Tax on the next £10,000 at an effective 60%, because her personal allowance starts to be withdrawn: £6,000
• Income tax due by 31 January 2027: £10,000

Now suppose the share price falls to £10 before she sells. Her shares are worth £10,000, but her tax bill is still £10,000, because it was fixed on the vesting date. The £10,000 fall is a capital loss, which can only be set against capital gains, not against the income tax.

With private company shares the problem is sharper, because there may be no way to sell any shares to fund the bill. In both cases, a pension contribution made in the same tax year can reduce the 60% band and is worth considering early.

Regular vesting means regular reporting

Every vesting is a separate taxable event. If your shares vest monthly or quarterly, you will have four or twelve events a year, each needing its own figures:

• the number of shares received
• the market value per share on the vesting date
• the exchange rate on that date, if the shares are priced in dollars or another currency
• the sterling value taxed as income, which also becomes your cost for Capital Gains Tax later

We recommend recording each vest as it happens rather than reconstructing a year of activity in January. It also helps to set aside cash at each vest for the eventual tax bill.

Be aware of payments on account too. A large first tax bill on shares can trigger advance payments towards the following year. If your future vests will be taxed differently, for example because your employer moves them onto payroll, those payments can be reduced.

How are the shares taxed when you sell?

When you sell, Capital Gains Tax applies to any growth since vesting. Your cost is the value already taxed as income, so declaring each vest correctly protects you from being taxed twice.

UK rules match shares in a set order: shares bought on the same day, then shares acquired in the following 30 days, then an average cost pool of everything else. US brokers usually use a first in, first out method in dollars, and sometimes show a cost of zero for vested shares, so their gain figures are often wrong for UK purposes.

For 2025/26, the first £3,000 of gains is tax free, with gains above that taxed at 18% or 24%. If you are registered for Self Assessment, sales with total proceeds over £50,000 must be reported even if no tax is due. Dividends paid on overseas shares are foreign income and usually need reporting too.

Our guide to RSU taxes and Self Assessment explains the share matching rules in more detail.

Situations that need specialist care

Some cases need more than a standard calculation:

• National Insurance. Whether National Insurance is due depends on whether the shares count as readily saleable for tax purposes. If they do, it should normally be dealt with through the employer, so it is worth raising with your employer before filing.
• Valuing private company shares. Without a stock market price, the market value must be established. Your employer may have agreed a value with HMRC’s Shares and Assets Valuation team.
• Restricted shares and section 431 elections. Shares with restrictions attached can create further tax charges later. A joint election with your employer within 14 days of acquisition can simplify this, but it must be made on time.
• Working abroad during the vesting period. If you were not UK resident for part of the period, only part of the income may be taxable in the UK, and foreign tax already paid may be creditable.
• Employer PAYE errors. If your employer later realises it should have operated PAYE and pays the tax for you, you need to reimburse it within 90 days of the end of the tax year. Otherwise the amount paid is treated as further taxable income.

Share options and NSOs, including EMI options, follow their own rules.

Quick checklist: do you need to declare your shares?

If any situation below applies to you, it is likely you need to act.

• Shares vested with no entry on your payslip
  • Trigger: any vest where no tax was deducted through payroll
  • Action: record the value and register for Self Assessment
• Overseas employer or US broker
  • Trigger: no UK tax report available
  • Action: build your own UK records; do not rely on broker forms
• Private company shares
  • Trigger: shares with no stock market price
  • Action: ask your employer for the agreed market value
• Shares sold
  • Trigger: gains over £3,000, or proceeds over £50,000 if registered
  • Action: prepare a UK Capital Gains Tax calculation
• Share price fell after vesting
  • Trigger: shares sold for less than their vesting value
  • Action: claim the capital loss within 4 years of the tax year end
• Regular vesting
  • Trigger: monthly or quarterly vests
  • Action: record each vest and set aside cash for the tax

Appoint TaxQube to manage your employer share taxes

Being a regulated firm of specialist tax accountants supervised by ACCA, we look after a large number of professionals who receive shares from overseas and private employers. We calculate each vesting in sterling, keep your share pools up to date, and prepare your Self Assessment so nothing is missed.

We work proactively. We record vests as they happen and start your return as soon as the tax year ends, so you know your tax bill well before 31 January.

Unlike some firms, we do not take a share of your tax savings; you keep 100% of them. We charge an all inclusive monthly retainer with no additional invoices, giving you year round access to qualified tax advisers.

If you have received employer shares with no tax deducted, have vests from earlier years that were never declared, or have received a letter from HMRC about employment related securities, contact us for a free initial consultation.

Frequently asked questions

My employer gave me shares but nothing appeared on my payslip. Do I need to pay tax?

Yes. Shares received because of your employment are taxable income. If your employer has not deducted the tax through payroll, you must declare the value of the shares on a Self Assessment tax return.

My employer is based outside the UK. Do I still pay UK tax on the shares?

Yes, if you are UK resident and the shares relate to work done in the UK. Where the employer abroad does not operate UK payroll for the shares, you report them yourself.

Why doesn’t my broker give me a UK tax report?

Many share plan platforms are designed for US taxpayers. Their forms and cost figures follow US rules, so they cannot be used for a UK return without being recalculated.

What is a dry tax charge on shares?

It is tax due on the value of shares you have received, even though you have not received any cash. The tax is still payable by 31 January after the tax year, whether or not you sell.

My shares fell in value after vesting. Can I reduce my income tax?

No. Income tax is based on the value at vesting. The later fall is a capital loss, which can only reduce capital gains. Claim it within four years of the end of the tax year of the sale.

My shares vest every quarter. Do I report each one?

Yes. Each vest is a separate taxable event with its own value and exchange rate. All the vests in a tax year are added together on that year’s return.

I have never declared shares from earlier years. What should I do?

Put it right as soon as possible. Telling HMRC voluntarily before it contacts you usually leads to much lower penalties than if HMRC finds the income first.

Why has HMRC written to me about employment related securities?

Your employer reports share awards to HMRC each year. If HMRC cannot match those awards to income on your tax returns, it may write asking you to check. It does not automatically mean you owe tax, but you should review every year the letter mentions.

Do I have to reply to HMRC’s letter?

Yes. Reply by the date given, even if you find everything was taxed correctly. Ignoring the letter can lead to a formal compliance check.

When do I need to register for Self Assessment?

By 5 October after the end of the tax year in which the shares vested. For shares that vested between 6 April 2025 and 5 April 2026, the return and payment are due by 31 January 2027.

This article is general guidance based on HMRC rules for the 2025/26 and 2026/27 tax years and is not advice for your specific circumstances. Please speak to a qualified adviser before acting.

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We help taxpayers in the UK to ensure compliance with HMRC – It is a legal responsibility. If you need help in submitting your Tax reports or accounts preparation, please do feel free to get in touch with us by completing the contact us form.

This article is general guidance based on HMRC rules for the 2025/26 and 2026/27 tax years and is not advice for your specific circumstances. Please speak to a qualified adviser before acting.