House of Commons portcullis
House of Commons
Session 2002 - 03
Internet Publications
Other Bills before Parliament

Finance Bill


Finance Bill
Schedule 22 — Employee securities and options

    297

 

       481            Deductible amount in respect of secondary Class 1 contributions met

by employee

              (1)             The amount calculated under subsection (2) is a deductible amount

if—

                    (a)                   an agreement having effect under paragraph 3A of Schedule

5

1 to the Contributions and Benefits Act has been entered into

allowing the secondary contributor to recover from the

employee the whole or part of any secondary Class 1

contributions in respect of the gain, or

                    (b)                   an election having effect under paragraph 3B of Schedule 1 to

10

that Act is in force which has the effect of transferring to the

employee the whole or part of the liability to pay secondary

Class 1 contributions in respect of the gain.

              (2)             The amount is the sum of—

                    (a)                   any amount that under the agreement referred to in

15

subsection (1)(a) is recovered in respect of the gain by the

secondary contributor before 5th June in the tax year

following that in which the gain is realised, and

                    (b)                   the amount of any liability in respect of the gain that, by

virtue of the election referred to in subsection (1)(b), has

20

become the employee’s liability.

              (3)             If notice of withdrawal of approval of the election is given, the

amount of any liability in respect of the gain for the purposes of

subsection (2)(b) is limited to the amount of the liability met before

5th June in the tax year following that in which the gain is realised.

25

              (4)             Subsection (1) does not apply in respect of a liability to pay Class 1

contributions which is prevented from arising by virtue of section

2(1)(a) of the Social Security Contributions (Share Options) Act 2001

(liability to pay Class 1 contributions in respect of gains replaced by

liability to pay special contribution).

30

              (5)             In this section—

                                      “approval”, in relation to an election, means approval by the

Board of Inland Revenue under paragraph 3B of Schedule 1

to the Contributions and Benefits Act, and

                                      “secondary contributor” has the same meaning as in that Act

35

(see section 7).

       482            Deductible amount in respect of special contribution met by employee

              (1)             The amount of the liability referred to in subsection (4) is a

deductible amount if conditions A to D are met.

              (2)             Condition A is that a notice in respect the employment-related

40

securities option was given to the Board of Inland Revenue in

accordance with section 1 of the Social Security Contributions (Share

Options) Act 2001 before 11th August 2001.

              (3)             Condition B is that the person, or one of the persons, who gave that

notice is a person who (apart from that Act) was liable, or would

45

have become liable, by virtue of an election under paragraph 3B of

Schedule 1 to the Contributions and Benefits Act, to pay secondary

 

 

Finance Bill
Schedule 22 — Employee securities and options

    298

 

Class 1 contributions in respect of an event which is a chargeable

event for the purposes of section 476.

              (4)             Condition C is that that person became liable to pay a special

contribution under section 2 of the Social Security Contributions

(Share Options) Act 2001 in respect of the employment-related

5

securities option.

              (5)             Condition D is that that person met that liability before 11th August

2001 or before the end of such further period as the Board of Inland

Revenue directed under section 2(5) of that Act.

Supplementary provisions

10

       483            Application of this Chapter where option exchanged for another

              (1)             This section applies if—

                    (a)                   the employment-related securities option (the “old option”)

is assigned or released, and

                    (b)                   the whole or part of the consideration for the assignment or

15

release consists of or includes another securities option (the

“new option”).

              (2)             For the purposes of section 479(5) (amount of gain realised by

assigning or releasing option) the new option is not to be treated as

consideration given for the assignment or release of the old option.

20

              (3)             This Chapter applies to the new option as it applies to the old option.

              (4)             For the purposes of section 480(2) (consideration for acquisition of

option) the amount of the consideration given for the acquisition of

the new option is to be treated as being the sum of—

                    (a)                   the amount by which the amount of the consideration given

25

for the acquisition of the old option exceeds the amount of

any consideration given for the assignment or release of the

old option, apart from the new option, and

                    (b)                   any valuable consideration given for the acquisition of the

new option, apart from the old option.

30

              (5)             Two or more transactions are to be treated for the purposes of

subsection (1) as a single transaction by which one option is assigned

for a consideration which consists of or includes another option if—

                    (a)                   the transactions result in—

                           (i)                          a person ceasing to hold an option, and

35

                           (ii)                         that person or a connected person coming to hold

another option, and

                    (b)                   one or more of the transactions is effected under

arrangements to which two or more persons holding options,

in respect of which there may be liability to tax under this

40

Chapter, are parties.

              (6)             Subsection (5) applies regardless of the order in which the

assignments and the acquisition occur.

 

 

Finance Bill
Schedule 22 — Employee securities and options

    299

 

       484            Definitions

              (1)             In this Chapter—

                                      “securities”, and

                                      “securities option”,

                              have the meaning indicated in section 420.

5

              (2)             In this Chapter “market value” has the meaning indicated in section

421(1).

              (3)             For the purposes of this Chapter sections 421(2) and 421A apply for

determining the amount of consideration given for anything.

              (4)             In this Chapter “employment-related securities” has the same

10

meaning as in Chapter 1 of this Part (see section 421B(8)).

              (5)             In this Chapter—

                                      “the acquisition”,

                                      “the employee”,

                                      “the employer”,

15

                                      “the employment”, and

                                      “employment-related securities option”,

                              have the meaning indicated in section 471(5).

              (6)             In this Chapter “associated person” has the meaning indicated in

section 472.

20

              (7)             In this Chapter—

                                      “secondary Class 1 contributions” has the same meaning as in

the Contributions and Benefits Act (see section 1), and

                                      “the Contributions and Benefits Act” means SSCBA 1992 or

SSCB(NI)A 1992.”.

25

          (2)      Sub-paragraph (1) has effect—

              (a)             on and after 16th April 2003 in relation to employment-related

securities options which are not share options, and

              (b)             on and after the day appointed under paragraph 3(2) in relation to

employment-related securities options which are share options;

30

                   and for this purpose “share options” means rights to acquire shares in a

company or securities as defined in section 254(1) of the Taxes Act 1988

issued by a company.

PAYE

  11      (1)      Section 509 (modification of section 696 where charge on shares ceasing to

35

be subject to plan) is amended as follows.

          (2)      In subsection (4), for “subsection (5)” substitute “subsections (5) and (6)”.

          (3)      After subsection (5) insert—

              “(6)                In determining for the purposes of this section (and of section 696 in

its application in accordance with this section) whether the shares are

40

readily convertible assets, section 702 has effect with the omission of

subsections (5A) to (5D).”.

  12      (1)      For sections 698 and 699 (PAYE: conditional interests in shares and

 

 

Finance Bill
Schedule 22 — Employee securities and options

    300

 

convertible shares) substitute—

       “698            PAYE: special charges on employment-related securities

              (1)             This section applies where by reason of the operation of—

                    (a)                   section 426 (chargeable events in relation to restricted

securities and restricted interests in securities),

5

                    (b)                   section 438 (chargeable events in relation to convertible

securities and interests in convertible securities),

                    (c)                   section 446B (charge on acquisition where market value of

securities or interest artificially depressed),

                    (d)                   section 446L (charge where market value of securities

10

artificially enhanced),

                    (e)                   section 446U (securities or interest acquired for less than

market value: charge on discharge of notional loan),

                    (f)                   section 446Y (charge where securities or interest disposed of

for more than market value), or

15

                    (g)                   section 447 (chargeable benefit from securities or interest,)

                              in relation to employment-related securities, an amount counts as

employment income of an employee.

              (2)             Sections 684 to 691 and 696 have effect as if—

                    (a)                   the employee were provided with PAYE income in the form

20

of the employment-related securities by the employer on the

relevant date, and

                    (b)                   the reference in subsection (2) of section 696 to the amount of

income likely to be PAYE income in respect of the provision

of the asset were to the amount likely to count as employment

25

income.

              (3)             In a case in which the employment-related securities are not readily

convertible assets, if—

                    (a)                   the amount counts as income by virtue of section 427(3)(c),

439(3)(b), (c) or (d), 446Y or 447, and

30

                    (b)                   the whole or any part of the consideration or benefit

concerned takes the form of a payment or consists in the

provision of an asset,

                              subsection (4) applies.

              (4)             Sections 684 to 691 and 696 have effect —

35

                    (a)                   to the extent that the consideration or benefit takes the form

of a payment, as if it were a payment of PAYE income of the

employee by the employer, and

                    (b)                   to the extent that the consideration or benefit consists in the

provision of an asset, as if the provision of the asset were the

40

provision of PAYE income in the form of the asset by the

employer on the relevant date.

              (5)             Section 696 as applied by subsection (4)(b) has effect as if the

reference in subsection (2) of that section to the amount of income

likely to be PAYE income were to the same proportion of the amount

45

likely to count as employment income as so much of the

consideration or benefit as consists in the provision of the asset bears

to the whole of the consideration or benefit.

 

 

Finance Bill
Schedule 22 — Employee securities and options

    301

 

              (6)             In this section “the relevant date” means—

                    (a)                   in relation to an amount counting as employment income

under section 426 or 438, the date on which the chargeable

event in question occurs,

                    (b)                   in relation to an amount counting as employment income

5

under section 446B, the date of the acquisition of the

securities or interest in securities in question,

                    (c)                   in relation to an amount counting as employment income

under section 446L, the valuation date in question,

                    (d)                   in relation to an amount counting as employment income

10

under section 446U, the date on which the notional loan in

question is treated as discharged,

                    (e)                   in relation to an amount counting as employment income

under section 446Y, the date of the disposal of the securities

or interest in securities in question, and

15

                    (f)                   in relation to an amount counting as employment income

under section 447, the date on which the benefit in question

is received.

              (7)             In this section “employment-related securities” has the same

meaning as in Chapters 1 to 4 of Part 7.”.

20

          (2)      Sub-paragraph (1) has effect on and after the day appointed under

paragraph 3(2) but does not affect any securities, or interests in securities,

acquired before 16th April 2003.

  13      (1)      For section 700 (PAYE: gains from share options) substitute—

       “700            PAYE: gains from securities options

25

              (1)             This section applies where by reason of the operation of section 476

(acquisition of securities pursuant to securities option etc) in relation

to an employment-related securities option an amount counts as

employment income of an employee.

              (2)             In a case where the amount counts as employment income by virtue

30

of section 477(3)(a) (acquisition of securities), sections 684 to 691 and

696 have effect as if—

                    (a)                   the employee were provided with PAYE income in the form

of the securities by the employer on the relevant date, and

                    (b)                   the reference in subsection (2) of section 696 to the amount of

35

income likely to be PAYE income in respect of the provision

of the asset were to the amount likely to count as employment

income.

              (3)             In a case where the amount counts as income by virtue of section

477(3)(b) or (c) (assignment or release for consideration or receipt of

40

benefit), sections 684 to 691 and 696 have effect —

                    (a)                   to the extent that the consideration or benefit takes the form

of a payment, as if it were a payment of PAYE income of the

employee by the employer, and

                    (b)                   to the extent that the consideration or benefit consists in the

45

provision of an asset, as if the provision of the asset were the

provision of PAYE income in the form of the asset by the

employer on the relevant date.

 

 

Finance Bill
Schedule 22 — Employee securities and options

    302

 

              (4)             Section 696 as applied by subsection (3)(b) has effect as if the

reference in subsection (2) of that section to the amount of income

likely to be PAYE income were to the same proportion of the amount

likely to count as employment income as so much of the

consideration or benefit as consists in the provision of the asset bears

5

to the whole of the consideration or benefit.

              (5)             In this section “the relevant date” means the date on which the

chargeable event in question occurs.

              (6)             In this section—

                                      “employment-related securities option”, and

10

                                      “securities”,

                              have the same meaning as in Chapter 5 of Part 7.”.

          (2)      Sub-paragraph (1) has effect on and after the day appointed under

paragraph 3(2).

  14      (1)      In section 701(2)(b) (“asset” not to include vouchers or credit-tokens), omit

15

“subject to section 700(6),”.

          (2)      Sub-paragraph (1) has effect on and after the day appointed under

paragraph 3(2).

  15      (1)      Section 702 (meaning of “readily convertible asset”) is amended as follows.

          (2)      After subsection (5) insert—

20

              “(5A)                An asset consisting in securities which is not a readily convertible

asset apart from this subsection is to be treated as a readily

convertible asset unless the securities are shares that are corporation

tax deductible.

              (5B)                For the purposes of subsection (5A) shares are corporation tax

25

deductible if they are acquired by a person—

                    (a)                   by reason of that, or another person’s, employment with a

company, or

                    (b)                   pursuant to an option granted by reason of that, or another

person’s, employment with a company,

30

                              and the company is entitled to corporation tax relief in respect of the

shares under Schedule 23 to the Finance Act 2003 (corporation tax

relief for employee share acquisition).

              (5C)                If a person acquires additional shares by virtue of holding shares that

are corporation tax deductible, the additional shares are to be treated

35

for the purposes of subsection (5A) as if they were corporation tax

deductible.

              (5D)                If—

                    (a)                   on a person ceasing to have a beneficial interest in shares that

are corporation tax deductible, that person acquires other

40

shares, and

                    (b)                   the circumstances are such that the shares in which the

person ceases to have a beneficial interest constitute “original

shares” and the other shares constitute a “new holding” for

the purposes of sections 127 to 130 of TCGA 1992,

45

 

 

Finance Bill
Schedule 22 — Employee securities and options

    303

 

                              the shares that constitute the new holding are to be treated for the

purposes of subsection (5A) as if they were corporation tax

deductible.”.

          (3)      In subsection (6), after the definition of “money debt” insert—

                                      ““securities” has the same meaning as in Chapters 1 to 5 of Part

5

7 (employment income from securities) (see section 420),

                                                          “shares” includes—

                           (a)                          an interest in shares, and

                           (b)                                                       stock or an interest in stock,”.

          (4)      For the purposes of section 702, shares are to be treated as corporation tax

10

deductible during an accounting period which began before 1st January

2003 if they would have been corporation tax deductible had the accounting

period begun on or after that date.

Consequential amendments

  16      (1)      In section 3(1) (structure of employment income Parts), in the entry relating

15

to Part 7, for “share-related income and exemptions” substitute “income and

exemptions relating to securities and securities options acquired in

connection with an employment”.

          (2)      Sub-paragraph (1) has effect on and after 16th April 2003.

  17      (1)      In section 7(6)(b) (employment income), for “(share-related income and

20

exemptions)” substitute “(income and exemptions relating to securities and

securities options)”.

          (2)      Sub-paragraph (1) has effect on and after 16th April 2003.

  18      (1)      In section 19(2) (year in which earnings treated as received), omit the entries

relating to Chapters 8 and 9 of Part 3.

25

          (2)      Sub-paragraph (1) has effect—

              (a)             so far as relating to Chapter 8 of Part 3, in accordance with the

provision made for the repeal of that Chapter, and

              (b)             so far as relating to Chapter 9 of Part 3, in accordance with the

provision made for the repeal of that Chapter.

30

  19      (1)      In section 32(2) (receipt of non-money earnings), omit the entries relating to

Chapters 8 and 9 of Part 3.

          (2)      Sub-paragraph (1) has effect—

              (a)             so far as relating to Chapter 8 of Part 3, in accordance with the

provision made for the repeal of that Chapter, and

35

              (b)             so far as relating to Chapter 9 of Part 3, in accordance with the

provision made for the repeal of that Chapter.

  20      (1)      In section 63(1) (the benefits code), omit the entries relating to Chapters 8

and 9 of Part 3.

          (2)      Sub-paragraph (1) has effect—

40

              (a)             so far as relating to Chapter 8 of Part 3, in accordance with the

provision made for the repeal of that Chapter, and

              (b)             so far as relating to Chapter 9 of Part 3, in accordance with the

provision made for the repeal of that Chapter.

 

 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2003
Revised 16 April 2003