Finance Bill

House of Commons

Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 22 — Employee shareholder shares
Part 3 — Corporation tax
340

      (4)
After subsection (5) insert—
“(6)
Where the shares are employee shareholder shares, this section is
subject to section 1038B.”
24
In section 1010(1) (acquisition of shares: relief if shares neither restricted nor
convertible), after “section 1012” insert “and, in the case of employee
5
shareholder shares, section 1038B”.
25    (1)
Section 1011 (acquisition of shares: relief if shares are restricted or
convertible) is amended as follows.
      (2)
In subsections (2) and (3), for “earnings of the employee within Chapter 1 of
Part 3 of ITEPA 2003” substitute “relevant earnings of the employee”.
10
      (3)
For subsection (4) substitute—
“(4)
For the purposes of subsections (2) and (3) “relevant earnings”
means—
(a)
earnings within Chapter 1 of Part 3 of ITEPA 2003, and
(b)
any amount that is treated as earnings by virtue of section
15
226A of that Act (employee shareholder shares) (but see also
section 1038B of this Act),

except that it does not include any amount of exempt income (within
the meaning of section 8 of ITEPA 2003).”
26
In section 1018(1) (acquisition of shares pursuant to option: relief if shares
20
neither restricted nor convertible), after “section 1020” insert “and, in the
case of employee shareholder shares, section 1038B”.
27
In section 1019(1) (acquisition of shares pursuant to option: relief if shares
are restricted or convertible), after “section 1020” insert “and, in the case of
employee shareholder shares, section 1038B”.
25
28
In section 1022 (takeover of company whose shares are subject to option),
after subsection (4) insert—
“(5)
Where the shares are employee shareholder shares, this section is
subject to section 1038B.”
29
In section 1026 (restricted shares: relief available on chargeable event), after
30
subsection (4) insert—
“(5)
Where the shares are employee shareholder shares, this section is
subject to section 1038B.”
30
In section 1027 (restricted shares: relief available on death of employee), after
subsection (4) insert—
35
“(5)
Where the shares are employee shareholder shares, this section is
subject to section 1038B.”
31
In section 1033 (convertible securities: relief available on chargeable event),
after subsection (4) insert—
“(5)
Where the shares are employee shareholder shares, this section is
40
subject to section 1038B.”
32
In section 1034 (convertible securities: relief available following death of

Finance Bill
Schedule 22 — Employee shareholder shares
Part 4 — Employment income exemption
341

employee), after subsection (4) insert—
“(5)
Where the shares are employee shareholder shares, this section is
subject to section 1038B.”
33    (1)
At the end of Chapter 6 of Part 12 insert—
“1038B
Employee shareholder shares
5
For the purposes of this Part, any payment treated as made under
section 226B of ITEPA 2003 (employee treated as paying £2000 for
employee shareholder shares) in respect of the acquisition of shares
is to be ignored when determining—
(a)
whether a person is subject to a charge to tax under that Act,
10
(b)
the amount that counts (or would have counted) as
employment income under that Act, or
(c)
the consideration given by a person in relation to the
acquisition of the shares.”
      (2)
Accordingly, in the heading for that Chapter, at the end insert “ETC”.
15
34
In section 1292 (provision of qualifying benefits), after subsection (6)
insert—
“(6ZA)
In determining whether condition A or B is met, any payment treated
as made under section 226B of ITEPA 2003 (deemed payment for
employee shareholder shares) is to be ignored.”
20
35
In section 1293 (timing and amount of certain qualifying benefits), after
subsection (5) insert—
“(5A)
In determining for the purposes of subsections (3) and (5) the amount
that is, or would be, charged to tax under ITEPA 2003, any payment
treated as made under section 226B of that Act (deemed payment for
25
employee shareholder shares) is to be ignored.”
36
In Schedule 4 (index of definitions), at the appropriate place insert—

“employee shareholder share (in Part
section 226A(6) of ITEPA 2003

12)
(see section 1005 of this Act)”.

Part 4
30
Employment income exemption
37
In Chapter 11 of Part 4 of ITEPA (employment income: miscellaneous
exemptions), after section 326A insert—
“Employee shareholder agreements
326B
Advice relating to proposed employee shareholder agreements
35
(1)
No liability to income tax arises by virtue of—
(a)
the provision of relevant advice by a relevant independent
adviser, or

Finance Bill
Schedule 23 — EMI options and entrepreneurs’ relief etc
342

(b)
the payment or reimbursement, in accordance with section
205A(7) of the Employment Rights Act 1996, of any
reasonable costs incurred in obtaining relevant advice.
(2)
“Relevant advice” means—
(a)
advice, other than tax advice, which is provided for the
5
purposes of section 205A(6)(a) of that Act (advice as to terms
and effect of employee shareholder agreement), and
(b)
tax advice which is so provided and consists only of an
explanation of the tax effects of employee shareholder
agreements generally.
10
(3)
In this section—
“employee shareholder agreement” means an agreement by
virtue of which an employee is an employee shareholder (see
section 205A(1)(a) to (d) of that Act);
“relevant independent adviser” has the meaning that it has for
15
the purposes of section 203(3)(c) of that Act.
Part 5
Commencement
38
The amendments made by this Schedule come into force in accordance with
provision made by the Treasury by order made by statutory instrument.
20
Schedule 23
Section 63

EMI options and entrepreneurs’ relief etc
Entrepreneurs’ relief to apply to shares acquired under EMI option
1     (1)
In Chapter 3 of Part 5 of TCGA 1992 (entrepreneurs’ relief) section 169I
(material disposal of business assets) is amended as follows.
25
      (2)
In subsection (5) for “or B” substitute “, B, C or D”.
      (3)
After subsection (7) insert—
“(7A)
Condition C is that—
(a)
the assets disposed of are relevant EMI shares,
(b)
the option grant date is, or is before, the first date of the
30
period of 1 year ending with the date of the disposal, and
(c)
throughout that period of 1 year—
(i)
the company is either a trading company or the
holding company of a trading group, and
(ii)
the individual is an officer or employee of the
35
company or (if the company is a member of a trading
group) of one or more companies which are members
of the trading group.
(7B)
Condition D is that—

Finance Bill
Schedule 23 — EMI options and entrepreneurs’ relief etc
343

(a)
the assets disposed of are relevant EMI shares acquired by
the individual before the cessation date,
(b)
the option grant date is, or is before, the first date of the
period of 1 year ending with the cessation date,
(c)
the conditions in paragraph (c) of subsection (7A) are met
5
throughout that period of 1 year, and
(d)
the cessation date is within the period of 3 years ending with
the date of the disposal.
(7C)
In this section “relevant EMI shares” means—
(a)
shares of a company acquired by an individual to which
10
subsection (7D) applies, or
(b)
shares of a company to which subsection (7F) applies.
(7D)
This subsection applies to shares of a company acquired by an
individual if the individual—
(a)
acquires them on or after 6 April 2013, and
15
(b)
acquires them as a result of the exercise of a qualifying option
within the meaning given by section 527(4) of ITEPA 2003
(enterprise management incentives) where the option is
exercised on or before the tenth anniversary of the date
mentioned in section 529(2) of that Act.
20
(7E)
Subsection (7D) does not apply to shares acquired as a result of the
exercise of a qualifying option if—
(a)
a disqualifying event (see section 533 of ITEPA 2003) occurs
in relation to the option before its exercise, and
(b)
it is exercised later than the period mentioned in section
25
532(1)(b) of ITEPA 2003.
(7F)
This subsection applies to shares of a company if—
(a)
the shares are the new holding in a case in which section 127
applies in relation to an individual,
(b)
the original shares in that case are relevant EMI shares
30
(whether by virtue of subsection (7D) or this subsection), and
(c)
that case is one in which section 127 applies by virtue only
of—
(i)
section 126, or
(ii)
subject to subsection (7G), section 135(3).
35
(7G)
Subsection (7F)(c)(ii) applies only if—
(a)
the exchange of shares in question is a qualifying exchange of
shares as defined in paragraph 40 of Schedule 5 to ITEPA
2003, and
(b)
when the exchange occurs, the independence requirement
40
(see paragraph 9 of Schedule 5 to ITEPA 2003) and the
trading activities requirement (see paragraphs 13 and 14 of
that Schedule) are met in relation to the new company (see
paragraph 40(1)(a) of that Schedule).
(7H)
In this section “the original relevant EMI shares”, in relation to shares
45
which are relevant EMI shares by virtue of subsection (7F), means the
shares originally acquired by the individual to which subsection (7D)
applied.

Finance Bill
Schedule 23 — EMI options and entrepreneurs’ relief etc
344

(7I)
If the shares disposed of are relevant EMI shares by virtue of
subsection (7F), in relation to times before the reorganisation
mentioned in section 127, in subsection (7A)(c) references to the
company are to be read as references to (if different)—
(a)
the company whose shares are the original relevant EMI
5
shares, or
(b)
if there has been more than one reorganisation since the
original relevant EMI shares were acquired—
(i)
the company whose shares are the original relevant
EMI shares, or
10
(ii)
if at the time in question the individual is holding
relevant EMI shares which are shares of another
company, that other company.

This subsection is subject to subsection (7N).
(7J)
If the shares disposed of are relevant EMI shares by virtue of
15
subsection (7F), the question of whether the requirement of
subsection (7B)(a) is met is to be determined by reference to the date
of the acquisition of the original relevant EMI shares.
(7K)
Subject to what follows, in subsections (7A)(b) and (7B)(b) “the
option grant date” means the date on which the qualifying option in
20
question was granted.
(7L)
Subsections (7M) and (7N) apply if the qualifying option is a
replacement option for the purposes of the EMI code (see paragraph
41 of Schedule 5 to ITEPA 2003).
(7M)
In subsections (7A)(b) and (7B)(b) “the option grant date” means—
25
(a)
the date on which the old option was granted, or
(b)
if the old option was also a replacement option, the date on
which the earlier old option was granted,

and so on.
(7N)
In relation to any time during the currency of an old option taken
30
into account under subsection (7M), in subsection (7A)(c) references
to the company are to be read as references to the company whose
shares were the subject of the old option.
(7O)
In subsection (7B) “the cessation date” means the date on which the
company—
35
(a)
ceases to be a trading company without continuing to be or
becoming a member of a trading group, or
(b)
ceases to be a member of a trading group without continuing
to be or becoming a trading company.
(7P)
Subsections (7Q) and (7R) apply in relation to a disposal of relevant
40
EMI shares if—
(a)
the shares were acquired as a result of the exercise of a
qualifying option where—
(i)
a disqualifying event (see section 533 of ITEPA 2003)
occurs in relation to the option before its exercise, but
45
(ii)
it is exercised within the period mentioned in section
532(1)(b) of ITEPA 2003, or

Finance Bill
Schedule 23 — EMI options and entrepreneurs’ relief etc
345

(b)
if the shares are relevant EMI shares by virtue of subsection
(7F), the original relevant EMI shares were acquired as
mentioned in paragraph (a).
(7Q)
Subsection (7A)(b) has effect as if the reference to the date of the
disposal were a reference to the date of the disqualifying event.
5
(7R)
If the disqualifying event is within section 534(1)(c) of ITEPA 2003,
subsection (7B)(a) has effect as if the reference to the cessation date
were a reference to the first day after the period mentioned in section
532(1)(b) of that Act if that day is later than the cessation date.”
Identification of shares acquired under EMI option
10
2
Chapter 1 of Part 4 of TCGA 1992 (general provision relating to shares etc) is
amended as follows.
3
In section 105 (disposal on or before day of acquisition of shares etc) after
subsection (3) insert—
“(4)
Subsection (5) applies if an individual—
15
(a)
acquires shares (“the relevant shares”) of the same class, on
the same day and in the same capacity, and
(b)
some of the relevant shares are relevant EMI shares (as
defined by section 169I(7C) to (7G)).
(5)
This section has effect as if—
20
(a)
paragraph (a) of subsection (1) required the relevant EMI
shares to be treated as acquired by the individual by a single
transaction separate from the remainder of the relevant
shares (which are also to be treated by virtue of that
paragraph as acquired by the individual by a single
25
transaction), and
(b)
subsection (1) required the relevant EMI shares to be treated
as disposed of after the remainder of the relevant shares.”
4     (1)
Section 106A (identification of securities for capital gains tax purposes) is
amended as follows.
30
      (2)
In subsection (5)—
(a)
omit the “and” after paragraph (a),
(b)
after paragraph (a) insert—
“(aa)
with securities acquired by him within that period
which are not relevant EMI shares, rather than with
35
securities acquired by him within that period which
are relevant EMI shares; and”, and
(c)
at the beginning of paragraph (b) insert “subject to paragraph (aa),”.
      (3)
After subsection (6) insert—
“(6A)
Subject to subsections (4) and (5) above, a company’s shares which
40
are disposed of shall be identified—
(a)
with relevant EMI shares, rather than with other shares, and
(b)
with relevant EMI shares acquired at an earlier time rather
than with relevant EMI shares acquired at a later time.

Finance Bill
Schedule 23 — EMI options and entrepreneurs’ relief etc
346

(6B)
No shares identified with relevant EMI shares by virtue of subsection
(6A)(a) or (b) above shall be regarded as forming part of an existing
section 104 holding or as constituting a section 104 holding.”

      (4)
In subsection (10), before the definition of “securities”, insert—
5
“relevant EMI shares” has the meaning given by section
169I(7C) to (7G),”.
Commencement and transitional provision
5     (1)
The amendments made by paragraphs 1 to 4 above have effect in relation to
disposals of shares on or after 6 April 2013.
10
      (2)
In the case of the amendments made by paragraphs 2 to 4 above, sub-
paragraph (1) is subject to paragraph 6(4) below.
6     (1)
This paragraph applies if, during the tax year 2012-13, an individual
acquires shares of a class in a company (“the relevant shares”) which would
be relevant EMI shares were the reference to 6 April 2013 in section
15
169I(7D)(a) of TCGA 1992 (as inserted by paragraph 1 above) a reference to
6 April 2012 instead.
      (2)
If the individual makes no disposals of shares of that class in that company
during that tax year, the relevant shares are to be treated as if they were
relevant EMI shares.
20
      (3)
If the individual disposes of shares of that class in that company during that
tax year, the individual may elect for the relevant shares to be treated as if
they were relevant EMI shares.
      (4)
If the individual makes an election under sub-paragraph (3)—
(a)
the amendments made by paragraphs 2 to 4 above also have effect,
25
in the case of the individual, in relation to disposals of shares of that
class in that company during that tax year, but
(b)
for this purpose, the amendment made by sub-paragraph (5) has
effect instead of the amendment made by paragraph 4(3) above.
      (5)
In section 106A of TCGA 1992 after subsection (6) insert—
30
“(6A)
Subject to subsections (4) and (5) above, a company’s shares which
are disposed of shall be identified—
(a)
with shares which are not relevant EMI shares, rather than
with relevant EMI shares, and
(b)
with relevant EMI shares acquired at a later time rather than
35
with relevant EMI shares acquired at an earlier time.
(6B)
No shares identified with relevant EMI shares by virtue of subsection
(6A)(b) above shall be regarded as forming part of an existing section
104 holding or as constituting a section 104 holding.”
      (6)
An election under sub-paragraph (3) may not be made or revoked after 31
40
January 2014 (and paragraph 3(1)(b) of Schedule 1A to TMA 1970 does not
apply in relation to such an election).
      (7)
For the purposes of this paragraph shares in a company are not to be treated
as being of the same class unless they are so treated by the practice of a