Finance (No. 2) Bill (HC Bill 190)

be if there were any) general earnings to which any of the charging
provisions of Chapters 4 and 5 of Part 2 applies.”

11 In section 431 (election for full or partial disapplication of Chapter 2 of Part
7 of ITEPA 2003), after subsection (5) insert—

“(6) No election may be made under this section unless, at the time of the
5acquisition, the earnings from the employment are (or would be if
there were any) general earnings to which any of the charging
provisions of Chapters 4 and 5 of Part 2 applies.”

12 Omit section 474 (cases where Chapter 5 of Part 7 of ITEPA 2003
(employment-related securities options) does not apply).

13 (1) 10Section 540 (no charge on acquisition of shares as taxable benefit) is
amended as follows.

(2) In subsection (1), omit “In its application in relation to a UK resident
employee,”.

(3) Omit subsection (2).

14 15Part 7A (employment income provided through third parties) is amended as
follows.

15 In section 554L (exclusions: earmarking for employee share schemes (3)), in
subsection (10)(c)(i), for “section 474” substitute “Chapter 5B of Part 2”.

16 (1) Section 554M (exclusions: earmarking for employee share schemes (4)) is
20amended as follows.

(2) In subsection (9)(b)(i), for “section 474” substitute “Chapter 5B of Part 2”.

(3) In subsection (10)(b)(i), for “section 474” substitute “Chapter 5B of Part 2”.

17 (1) Section 554N (exclusions: other cases involving employment-related
securities etc) is amended as follows.

(2) 25In subsection (1)(b), omit “, or would apply apart from section 421E(1),”.

(3) In subsection (2)(b), omit “, or would apply apart from section 474(1),”.

(4) In subsection (6)—

(a) omit “421E(1),”, and

(b) omit “, 474(1)”.

(5) 30In subsection (10)—

(a) in paragraph (b), omit “, but ignoring section 474(1)”, and

(b) in paragraph (c), omit “or would be a chargeable event apart from
section 474(1)”.

(6) In subsection (13)(c)(i), for “section 474” substitute “Chapter 5B of Part 2”.

18 35In Chapter 4 of Part 11 (PAYE: special types of income), in section 700A
(employment-related securities etc: remittance basis), in subsection (3), for
“41A” substitute “41F”.

Consequential amendments to other Acts

19 TCGA 1992 is amended as follows.

20 In section 119A (increase in expenditure by reference to tax charged in
relation to employment-related securities), in subsection (5A), for
“unremitted foreign securities income” substitute “unchargeable, and
unremitted chargeable, foreign securities income”.

21 (1) 5Section 119B (section 119A: unremitted foreign securities income) is
amended as follows.

(2) In the heading, for “unremitted foreign securities income” substitute
“unchargeable, and unremitted chargeable, foreign securities income”.

(3) In subsection (1), for the words from “unremitted” to the end substitute “—

“(a) 10unchargeable foreign securities income, or

(b) unremitted chargeable foreign securities income.”

(4) After subsection (1) insert—

“(1A) In this section “unchargeable foreign securities income” means
unchargeable foreign securities income for the purposes of section
1541F of ITEPA 2003 (taxable specific income: internationally mobile
employees etc) (see sections 41H to 41L of that Act).”

(5) In subsection (2)—

(a) after “unremitted” insert “chargeable”, and

(b) for paragraph (a) substitute—

“(a) 20is chargeable foreign securities income for the
purposes of section 41F of ITEPA 2003, and”.

(6) In subsection (3), after “unremitted” insert “chargeable”.

22 In section 144ZB (exception to rule in section 144ZA), in subsection (2)(a),
omit “or would, apart from section 474 of that Act, apply”.

23 25In section 149A (employment-related securities options), in subsection
(1)(b), omit “or would, apart from section 474 of that Act, apply”.

24 In section 288 (interpretation), in subsection (1A), omit “or would, apart
from section 474 of that Act, apply”.

25 In section 809K of ITA 2007 (remittance of income and gains: introduction),
30in subsection (1), for paragraph (c) substitute—

“(c) Chapter 5B of Part 2 of that Act (taxable specific income from
employment-related securities etc: internationally mobile
employees),”.

26 CTA 2009 is amended as follows.

27 35In section 1017 (condition relating to employee’s income tax position for CT
relief following acquisition of shares pursuant to option), omit subsections
(2) to (4).

28 In section 1025 (additional CT relief available if shares are restricted shares),
omit subsections (3) to (5).

29 40In section 1032 (meaning of “chargeable event” for the purposes of
additional CT relief in cases involving convertible securities), omit
subsections (3) to (5).

Part 2 Restricted securities and securities acquired for less than market value:
replacement and additional securities and rollover relief etc

30 ITEPA 2003 is amended as follows.

31 (1) 5In Chapter 1 of Part 7 (income and exemptions relating to securities:
general), section 421D (replacement and additional securities and changes in
interests) is amended as follows.

(2) In subsection (3), insert at the end “and for the purposes of Chapter 3C as a
payment made for their acquisition at or before the time of the acquisition”.

(3) 10In subsection (4), insert at the end “or a payment was made for their
acquisition at or before the time of the acquisition”.

32 In Chapter 2 of Part 7 (restricted securities), before section 431 (election for
full or partial disapplication of Chapter 2) but after the heading before that
section (supplementary) insert—

“430A 15 Application of this Chapter where securities exchanged for further
securities

(1) This section applies if—

(a) an associated person disposes of the employment-related
securities (the “old securities”) for consideration, otherwise
20than to another associated person,

(b) the whole or part of the consideration consists of, or includes,
other securities which are restricted securities (the “new
securities”) being acquired by an associated person,

(c) the value of the consideration determined in accordance with
25subsection (2) is no more than what would have been the
market value of the old securities immediately before the
disposal but for any restrictions, and

(d) the avoidance of tax or national insurance contributions is not
the main purpose (or one of the main purposes) of the
30disposal.

(2) The value of the consideration is the sum of—

(a) what would have been the market value of the new securities
immediately before the disposal but for any restrictions, and

(b) the value of the rest of the consideration (if any).

(3) 35If the consideration consists partly of the new securities and partly of
other consideration, the disposal is to be treated for the purposes of
this Chapter as being two separate disposals as follows—

(a) a disposal, that is a chargeable event within section 427(3)(c),
of the appropriate amount of the old securities (see
40subsection (4)) for such of the consideration as does not
consist of the new securities, and

(b) a disposal, to which this section applies, of the remaining old
securities for consideration consisting wholly of the new
securities.

(4) In subsection (3)(a) the appropriate amount of the old securities is—

where—

• OS is the total number of the old securities,

• 5OC is the value of such of the consideration as does not
  consist of the new securities, and

• TC is value of the consideration determined in accordance
  with subsection (2).

(5) If the consideration consists wholly of the new securities—

(a) 10neither the disposal of the old securities, nor the acquisition
of the new securities, gives rise to any liability to income tax,

(b) the disposal is not a chargeable event within section 427(3)(c),
and

(c) this Chapter applies to the new securities as it applies to the
15old securities, subject to subsections (6) to (17).

(6) Sections 425 and 431 do not apply in relation to the new securities.

(7) If, at the time of the disposal, sections 426 to 429 do not apply to the
old securities by virtue of—

(a) an election made under section 430(1) or 431(1) in relation to
20the old securities, or

(b) this subsection,

sections 426 to 430 do not apply to the new securities.

(8) If there is a chargeable event for the purposes of section 426 in
relation to any of the new securities, for the purposes of section 428
25(amount of charge)—

(a) IUP (see subsection (3) of that section) is to be determined in
accordance with subsection (9), and

(b) PCP (see subsection (4) of that section) is to be determined in
accordance with subsection (10).

(9) 30IUP is equal to what IUP was, for the purposes of determining the
taxable amount for the purposes of section 426, in relation to
chargeable events relating to the old securities that occurred before
the disposal (or what it would have been had there been any such
chargeable events).

(10) 35PCP is the aggregate of—

(a) PCP determined in accordance with section 428(4), and

(b) what PCP would have been, for the purposes of determining
the taxable amount for the purposes of section 426, if a
chargeable event relating to the old securities had occurred
40immediately before the disposal but after any chargeable
events relating to the old securities that actually did occur
before the disposal.

(11) Subsections (12) to (14) apply if—

(a) section 425(2) (no liability to income tax on acquisition of
45certain securities subject to forfeiture etc) applied in relation
to the old securities, and

(b) at the time of the disposal, there is still a restriction relating to
those securities such that they are restricted securities by
virtue of section 423(2) (provision for forfeiture etc).

(12) This Chapter has effect in relation to any of the new securities that
5are not restricted securities by virtue of section 423(2) as if—

(a) there were a restriction relating to them (“the deemed
restriction”) corresponding to the restriction relating to the
old securities mentioned in subsection (11)(b), and

(b) immediately after their acquisition, the deemed restriction
10were removed.

(13) Subsection (14) applies if—

(a) there is a restriction by virtue of which some or all of the new
securities are, at the time of the disposal, restricted securities,
by virtue of subsection (2) of section 423, and

(b) 15within 5 years after the acquisition of the old securities, the
restriction is not removed or varied such that the new
securities to which it relates cease to be restricted securities
by virtue of that subsection.

(14) For the purposes of this Chapter the restriction mentioned in
20subsection (13) is to be treated as being removed 5 years after the
acquisition of the old securities.

(15) Subsection (16) applies if, at the time of the disposal—

(a) there is a restriction relating to the old securities such that
they are restricted securities by virtue of section 423(2), and

(b) 25subsections (13) and (14) apply in relation to the old securities
(including by virtue of subsection (16)).

(16) Subsections (12) to (14) apply in relation to the new securities, but—

(a) the reference in subsection (12)(a) to the restriction
mentioned in subsection (11)(b) is to be read as a reference to
30the restriction mentioned in subsection (15)(a), and

(b) the references in subsections (13)(b) and (14) to the
acquisition of the old securities are to be read as references to
the acquisition of the original forfeitable securities.

(17) In subsection (16) “original forfeitable securities” means the
35restricted securities by virtue of the application to which of section
425(2) subsections (13) and (14) apply to the old securities.

(18) In this section references to restricted securities include a restricted
interest in securities.”

33 (1) In Chapter 3C of Part 7 (securities acquired for less than market value),
40section 446U (discharge of notional loan) is amended as follows.

(2) In subsection (1), omit the “or” at the end of paragraph (a) and for paragraph
(b) substitute—

“(b) if there is an outstanding or contingent liability to pay for the
employment-related securities, that liability is released,
45extinguished, transferred or adjusted so as no longer to bind
any associated person (except in circumstances in which
subsection (4)(aa) applies), or”.

(3) After that subsection insert—

“(1A) Subsection (1)(a) does not apply if, at the time of the acquisition,
there was an actual or contingent liability to make one or more
further payments equal to the amount initially outstanding for the
5employment-related securities.”

(4) In subsection (4), omit the “or” at the end of paragraph (a) and after that
paragraph insert—

“(aa) the employment-related securities, together with the liability
to make such further payment or payments, are disposed of
10otherwise than to an associated person and for consideration
of an amount that reflects the transfer of the liability, or”.

34 In section 554N (exclusions from Chapter 2 of Part 7A: other cases involving
employment related securities etc), in subsection (6), after “429,” insert
“430A(5)(b),”.

15Part 3 Corporation tax relief for employee share acquisitions

35 Part 12 of CTA 2009 (other relief for employee share acquisitions) is
amended as follows.

36 In Chapter 1 (introduction), in section 1002 (“employment”), after subsection
20(4) insert—

“(5) See also sections 1007A(2), 1015B(2), 1025B(2) and 1030B(2) (deemed
employment for the purposes of Chapters 2, 3, 4 and 5 of certain
employees of overseas companies who work for companies in the
UK).”

37 25In section 1005 (other definitions)—

(a) at the end of the definition of “the employee” insert “(see also
sections 1025A(7) and 1030A(8))”, and

(b) in the definition of “the qualifying business”, for “or 1015(1)(b)”
substitute “, 1015(1)(b), 1025A(1)(d)(i) or 1030A(1)(d)(ii)”.

38 30In Chapter 2 (corporation tax relief if shares are acquired by employee or
other person), after section 1007 insert—

“1007A Application of Chapter in relation to employees of overseas
companies who work for companies in the UK

(1) This section applies if—

(a) 35a person has an employment (“the actual employment”) with
a non-UK resident company not within the charge to
corporation tax (“the overseas employer”),

(b) in performing any of the duties of the actual employment, the
person works in the United Kingdom for, but is not
40employed by, another company (“the host employer”), and

(c) the host employer is—

(i) a UK resident company, or

(ii) a non-UK resident company within the charge to
corporation tax.

(2) For the purposes of this Chapter, the person is to be treated as having
an employment with the host employer (“the deemed
employment”), the duties of which consist of the work the person
does for the host employer.

(3) 5Subsection (4) applies if—

(a) shares (“relevant shares”) are acquired because of the actual
employment, and

(b) because of the work the person does for the host employer, an
amount of employment income of the person is charged to
10tax under ITEPA 2003 in relation to the acquisition of the
relevant shares.

(4) For the purposes of section 1007(1)(c) (requirement that shares are
acquired because of employment) the relevant shares are (regardless
of when the acquisition takes place) to be treated, so far as would not
15otherwise be the case, as if they are acquired because of the deemed
employment.

(5) In section 1008 (conditions relating to the shares acquired) references
to the employing company are to be read as including references to
the overseas employer.

(6) 20If, in relation to an acquisition of shares, the amount of relief would
otherwise be more than the total amount of employment income of
the person charged to tax under ITEPA 2003, the amount of relief is
(notwithstanding any other provision of this Chapter) limited to the
total amount of that income so charged.

(7) 25If relief is available to more than one company in respect of the same
acquisition of shares, relief may only be given to one of them in
respect of that acquisition.

(8) For the purposes of this section a person works for another person if
the person provides, and is obliged to provide, personal service to
30the other person.”

39 In Chapter 3 (corporation tax relief if employee or other person obtains
option to acquire shares), after section 1015 insert—

“1015A Application of Chapter: employees of overseas companies who take
up employment with a UK company

(1) 35This section applies if—

(a) a person (“E”) has, or had, an employment with a non-UK
resident company not within the charge to corporation tax
(“the overseas employment”),

(b) E or another person obtains an option to acquire shares
40because of the overseas employment,

(c) E has an employment (“the UK employment”) with a
company that is a UK resident company or a non-UK resident
company within the charge to corporation tax,

(d) the person who obtained the option acquires shares pursuant
45to it, and

(e) subsection (2) applies.

(2) This subsection applies if—

(a) an amount of employment income of E is charged to tax
under ITEPA 2003 in relation to the acquisition because of the
UK employment, or

(b) it is because of the UK employment that E or another person
5is able to acquire the shares pursuant to the option.

(3) For the purposes of section 1015(1)(c) (requirement that option is
obtained because of employment), the option is (regardless of when
it is obtained) to be treated as if it is obtained because of the UK
employment.

(4) 10In section 1016 (conditions relating to the shares acquired) references
to the employing company are to be read as including references to
the company mentioned in subsection (1)(a).

(5) If, in relation to the acquisition, an amount of relief would otherwise
be available that is more than the total amount of employment
15income of E charged to tax under ITEPA 2003, the amount of relief is
(notwithstanding any other provision of this Chapter) limited to the
total amount of that income so charged.

(6) If relief is available to more than one company in respect of the same
acquisition of shares pursuant to an option, relief may only be given
20to one of them in respect of that acquisition.

1015B Application of Chapter in relation to employees of overseas
companies who work for companies in the UK

(1) This section applies if—

(a) a person has an employment (“the actual employment”) with
25a non-UK resident company not within the charge to
corporation tax (“the overseas employer”),

(b) in performing any of the duties of the actual employment, the
person works in the United Kingdom for, but is not
employed by, another company (“the host employer”), and

(c) 30the host employer is—

(i) a UK resident company, or

(ii) a non-UK resident company within the charge to
corporation tax.

(2) For the purposes of this Chapter, the person is to be treated as having
35an employment (“the deemed employment”) with the host
employer, the duties of which consist of the work the person does for
the host employer.

(3) Subsection (4) applies if—

(a) an option to acquire shares (“the relevant option”) is obtained
40because of the actual employment,

(b) shares are acquired pursuant to the relevant option, and

(c) because of the work the person does for the host employer, an
amount of employment income of the person is charged to
tax under ITEPA 2003 in relation to the acquisition of the
45shares.

(4) For the purposes of section 1015(1)(c) (requirement that option is
obtained because of employment), the relevant option is (regardless

of when it is obtained) to be treated, so far as would not otherwise be
the case, as if it is obtained because of the deemed employment.

(5) In section 1016 (conditions relating to the shares acquired) references
to the employing company are to be read as including references to
the overseas employer.

(6) 5If, in relation to an acquisition of shares pursuant to an option, the
amount of relief would otherwise be more than the total amount of
employment income of the person charged to tax under ITEPA 2003,
the amount of relief is (notwithstanding any other provision of this
Chapter) limited to the total amount of that income so charged.

(7) 10If relief is available to more than one company in respect of the same
acquisition of shares pursuant to an option, relief may only be given
to one of them in respect of that acquisition.

(8) For the purposes of this section a person works for another person if
the person provides, and is obliged to provide, personal service to
15the other person.”

40 (1) Section 1016 (conditions relating to shares acquired) is amended as follows.

(2) In subsection (1), omit the “or” at the end of paragraph (b) of Condition 2 and
after paragraph (c) of that Condition insert “, or

“(d) shares within subsection (1A)”.

(3) 20After subsection (1) insert—

“(1A) Shares are within this subsection if—

(a) after the option is obtained, the company in which the shares
are to be acquired (“the relevant company”) comes to be
controlled by another company (“the takeover”),

(b) 25immediately before the takeover, the shares were within any
of paragraphs (a) to (c) of Condition 2,

(c) as a result of the takeover, the shares cease to be within any
of those paragraphs,

(d) the shares are acquired pursuant to the option within the
30period of 90 days beginning with the day of the takeover, and

(e) the avoidance of tax is not the main purpose (or one of the
main purposes) of the takeover.”

41 In Chapter 4 (additional corporation tax relief in cases involving restricted
shares), after section 1025 insert—

“1025A 35 Application of Chapter: employees of overseas companies who take
up employment with, or work for, a UK company

(1) This section applies if—

(a) a person (“E”) has, or had, an employment (“the overseas
employment”) with a non-UK resident company not within
40the charge to corporation tax (“the overseas company”),

(b) E or another person acquired restricted shares because of the
overseas employment (whether or not pursuant to an
option),

(c) the case is not within section 1025(1)(a),

(d) relief under Chapter 2 or 3 would have been available to the
overseas company in relation to the acquisition if, at all
material times—

(i) the overseas company had carried on a business
5within subsection (2) (“a qualifying business”), and

(ii) the overseas employment had related to that
business,

(e) E has a UK employment with a UK company (see subsections
(3) and (4)),

(f) 10the UK employment is in relation to a qualifying business
carried on by the UK company,

(g) an event occurs that is a chargeable event in relation to the
restricted shares for the purposes of section 426 of ITEPA
2003, and

(h) 15because of the UK employment, an amount of employment
income of E is charged to tax under ITEPA 2003 in relation to
the chargeable event.

For the purposes of paragraph (d) it does not matter if the amount of
the relief would have been calculated as nil.

(2) 20A business is within this subsection so far as—

(a) it is carried on by a company, and

(b) the company is within the charge to corporation tax in
relation to the profits of the business or would be but for
section 18A.

(3) 25A company is a “UK company” if it is a UK resident company or a
non-UK resident company within the charge to corporation tax.

(4) E has a “UK employment” with a UK company if—

(a) E is employed by the UK company, or

(b) E is not employed by the UK company but provides, and is
30obliged to provide, personal service to the UK company, in
the course of performing the duties of the overseas
employment (in which case, references to the UK
employment are to the personal service E provides).

(5) Relief under this Chapter is available to the UK company as a result
35of the chargeable event.

(6) References in this Chapter to the original relief (other than in section
1025B) are to be treated as references to the relief that would have
been available as mentioned in subsection (1)(d).

(7) In section 1026(3) (amount of relief on occurrence of chargeable
40event), the reference to the employee is to be read as a reference to E.

(8) For the purposes of section 1028(2) (giving relief), as that provision
has effect by virtue of subsection (6), in section 1013(2) to (5) or (as
the case may be) 1021(2) to (5)—

(a) references to the employing company are to be treated as
45references to the UK company,

(b) the reference to the relevant employment is to be treated as a
reference to the UK employment, and