The Vermilion Case: Key Takeaways For Asset Managers Of The Supreme Court's Decision Covering The Application Of Deeming Provisions In The Employment-related Securities Legislation

• Published date: 28 February 2024
• Law Firm: Alvarez & Marsal
• Author: Rhys Owen, Joe Macklin-Gray and Shirley Ly

In this update, we provide key takeaways from the Supreme Court's decision in HMRC v Vermilion Holdings Ltd [2023] UKSC 37 for asset managers and outline how A&M can help. The Vermilion case emphasises the importance of considering the deeming provisions in the UK employment-related securities ("ERS") rules and is highly relevant for those who seek to argue that securities awarded do not fall within the ERS rules. For asset managers, a typical scenario is the participation in carried interest and co-invest arrangements of a fund by individuals who are partners in the asset management business rather than employees, but who may also be directors of one or more entities in the fund structure or of companies invested in by the fund.

The ERS rules are very broad and cover a wide range of securities acquired by reason of employment, or are deemed to be so acquired because the opportunity to acquire them is made available to employees by an employer or a person connected with an employer (note that there is a limited 'friends and family' exemption). Securities can include limited partnership interests, carried interest awards, co-investment awards, shares, share options and other interests. If applicable, the ERS rules can result in employment tax liabilities (i.e. Pay-As-You-Earn ("PAYE") income...