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Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 2 — Award of shares

    325

 

Part 2

Award of shares

Introduction

  5       (1)      The provisions of this Part of this Schedule apply in the case of an award of

shares.

5

          (2)      Where the shares acquired are subject to forfeiture, the provisions of this

Part have effect subject to the provisions of Part 4 of this Schedule.

The company whose shares are acquired

  6       (1)      The shares acquired must be shares in—

              (a)             the employing company; or

10

              (b)             a company that, at the time of the award, is a parent company in

relation to the employing company; or

              (c)             a company that, at the time of the award, is a member of a

consortium that owns the employing company or a company within

paragraph (b); or

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              (d)             where at the time of the award the employing company or a

company within paragraph (b) is a member of a consortium that

owns another company (C), a company that at that time—

                    (i)                   is a member of the consortium or a parent company in

relation to a member of the consortium, and

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                    (ii)                  is also a member of the same commercial association of

companies as C.

Income tax position of employee

  7       (1)      It must be the case that the employee—

              (a)             is subject to a charge to income tax under the Income Tax (Earnings

25

and Pensions) Act 2003 (c. 1) in respect of the award, or

              (b)             would be subject to such a charge if the conditions specified in sub-

paragraph (2) were met.

          (2)      The conditions mentioned in sub-paragraph (1)(b) are—

              (a)             that the employee was resident and ordinarily resident in the United

30

Kingdom at all material times, and

              (b)             that the duties of the employment by reason of which the award was

made were performed in the United Kingdom at all material times.

Amount of relief

  8       (1)      The amount of the relief is equal to the difference between—

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              (a)             the market value of the shares at the time of the award, and

              (b)             the total amount or value of any consideration given, by the recipient

or another, in respect of the shares.

          (2)      The consideration mentioned in sub-paragraph (1)(b) does not include the

performance of any duties of, or in connection with, the employee’s

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employment with the employing company.

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 3 — Grant of option

    326

 

          (3)      A just and reasonable apportionment shall be made for the purposes of this

paragraph of any consideration given partly in respect of the shares and

partly in respect of other matters.

          (4)      If the award was made partly for the purposes of a business meeting the

requirements of paragraph 3 (business must be within the charge to

5

corporation tax) and partly for the purposes of a business in relation to

which those requirements are not met, the amount of the relief shall be

reduced to such extent as is just and reasonable.

How relief is given

  9       (1)      The amount of the relief is allowed as a deduction in computing for the

10

purposes of corporation tax the profits of the business for the purposes of

which the award was made.

          (2)      If the company carrying on that business is an investment company, the

amount of the relief is treated as disbursed as expenses of management for

the purposes of section 75 of the Taxes Act 1988.

15

          (3)      If the company carrying on that business is an insurance company carrying

on life assurance business, the amount of the relief is included among the

amounts the company may treat as part of its expenses of management for

the purposes of section 76 of the Taxes Act 1988.

          (4)      If the award was made for the purposes of more than one business within

20

the charge to corporation tax, the amount of the deduction must be

apportioned between them on a just and reasonable basis.

Timing of relief

  10      (1)      The relief is given for the accounting period in which the recipient acquires

the shares.

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          (2)      The time when the shares are acquired is when the recipient acquires a

beneficial interest in the shares and not, if different, the time the shares are

conveyed or transferred.

Part 3

Grant of option

30

Introduction

  11      (1)      The provisions of this Part of this Schedule apply in the case of the grant of

an option to acquire shares.

          (2)      Where the shares acquired in exercise of the option are subject to forfeiture,

the provisions of this Part have effect subject to the provisions of Part 4 of

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this Schedule.

The company whose shares are acquired

  12       The company whose shares are acquired in exercise of the option must be—

              (a)             the employing company; or

              (b)             a company that, at the time the option is granted, is a parent

40

company in relation to the employing company; or

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 3 — Grant of option

    327

 

              (c)             a company that, at that time, is a member of a consortium that owns

the employing company or a company within paragraph (b); or

              (d)             where, at that time, the employing company or a company within

paragraph (b) is a member of a consortium that owns another

company (C), a company that, at that time—

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                    (i)                   is a member of the consortium or a parent company in

relation to a member of the consortium, and

                    (ii)                  is also a member of the same commercial association of

companies as C; or

              (e)             a qualifying successor company (see paragraph 13).

10

Takeover of company whose shares are subject of option

  13      (1)      This paragraph applies where—

              (a)             there is a takeover of a company whose shares are the subject of a

qualifying option,

              (b)             the holder of the option, by agreement with the acquiring company,

15

releases his rights under that option (“the old option”) in

consideration of the grant to him of another option (“the new

option”), and

              (c)             the new option relates to shares in a qualifying company.

          (2)      Where those conditions are met—

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              (a)             the company whose shares are the subject of the new option is a

qualifying successor company for the purposes of paragraph 12

(requirement as to company whose shares are acquired),

              (b)             shares acquired in exercise of the new option are treated for the

purposes of this Schedule as if they had been acquired in exercise of

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the old option, and

              (c)             in determining the amount of relief any consideration given in

respect of the grant or exercise of the new option is treated as if it had

been given in respect of the grant or exercise of the old option.

          (3)      For the purposes of this paragraph—

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              (a)             there is a takeover of a company where another company (“the

acquiring company”) acquires control of it; and

              (b)             an option is a “qualifying option” if the requirements of paragraph

12 would be met in relation to its exercise.

          (4)      The following are qualifying companies for the purposes of this

35

paragraph—

              (a)             the acquiring company;

              (b)             a company that, at the time of the takeover, is a parent company in

relation to the acquiring company;

              (c)             a company that, at that time, is a member of a consortium that owns

40

the acquiring company or a company within paragraph (b);

              (d)             where, at that time, the acquiring company or a company within

paragraph (b) is a member of a consortium that owns another

company (C), a company that, at that time—

                    (i)                   is a member of the consortium or a parent company in

45

relation to a member of the consortium, and

                    (ii)                  is also a member of the same commercial association of

companies as C.

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 3 — Grant of option

    328

 

Income tax position of the employee

  14      (1)      It must be the case that the employee—

              (a)             either—

                    (i)                   was subject to a charge to income tax under the Income Tax

(Earnings and Pensions) Act 2003 (c. 1) in respect of the grant

5

of the option, or

                    (ii)                  is subject to a charge to income tax under that Act by virtue

of section 476 or 477 of that Act in respect of the gain realised

by the exercise of the option, or

              (b)             would be subject to such a charge as is mentioned in paragraph (a)(ii)

10

but for a relevant exemption, or

              (c)             would be within paragraph (a) or (b) if the conditions specified in

sub-paragraph (3) were met.

          (2)      In sub-paragraph (1)(b) a “relevant exemption” means an exemption

under—

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              (a)             section 519, 520, 524 or 525 of the Income Tax (Earnings and

Pensions) Act 2003 (exercise of option under approved SAYE scheme

or approved CSOP scheme), or

              (b)             section 530 of that Act (exercise of qualifying option under EMI

code).

20

          (3)      The conditions mentioned in sub-paragraph (1)(c) are—

              (a)             that the employee was resident and ordinarily resident in the United

Kingdom at all material times, and

              (b)             that the duties of the employment by reason of which the option was

granted were performed in the United Kingdom at all material times.

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Amount of relief

  15      (1)      The amount of the relief is equal to the difference between—

              (a)             the market value of the shares at the time the option is exercised, and

              (b)             the total amount or value of any consideration given, by the recipient

or another, in respect of the grant or exercise of the option.

30

          (2)      The consideration mentioned in sub-paragraph (1)(b) does not include—

              (a)             the performance of any duties of, or in connection with, the

employee’s employment with the employing company, or

              (b)             any amount paid or payable by the employee in pursuance of—

                    (i)                   an agreement within paragraph 3A(2) of Schedule 1 to the

35

Contributions and Benefits Act (agreement for recovery from

earner of secondary Class 1 contributions in respect of share

option gain), or

                    (ii)                  an election under paragraph 3B of that Schedule (election

transferring to earner liability for secondary Class 1

40

contributions in respect of share option gain).

          (3)      A just and reasonable apportionment shall be made for the purposes of this

paragraph of any consideration given partly in respect of the grant or

exercise of the option and partly in respect of other matters.

          (4)      If the option was granted partly for the purposes of a business meeting the

45

requirements of paragraph 3 (business must be within the charge to

corporation tax) and partly for the purposes of a business in relation to

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 4 — Provisions applying in case of shares subject to forfeiture

    329

 

which those requirements are not met, the amount of the relief shall be

reduced to such extent as is just and reasonable.

How relief is given

  16      (1)      The amount of the relief is allowed as a deduction in computing for the

purposes of corporation tax the profits of the business for the purposes of

5

which the option was granted.

          (2)      If the company carrying on the business is an investment company, the

amount of the relief is treated as disbursed as expenses of management for

the purposes of section 75 of the Taxes Act 1988.

          (3)      If the company carrying on the business is an insurance company carrying

10

on life assurance business, the amount of the relief is included among the

amounts the company may treat as part of its expenses of management for

the purposes of section 76 of the Taxes Act 1988.

          (4)      If the option was granted for the purposes of more than one business within

the charge to corporation tax, the amount of the deduction must be

15

apportioned between them on a just and reasonable basis.

Timing of relief

  17      (1)      The relief is given for the accounting period in which the shares are acquired

in exercise of the option.

          (2)      The time when the shares are acquired is when the recipient acquires a

20

beneficial interest in the shares and not, if different, the time the shares are

conveyed or transferred.

Part 4

Provisions applying in case of shares subject to forfeiture

Introduction

25

  18       In the case of—

              (a)             an award of shares that are subject to forfeiture, or

              (b)             the acquisition in exercise of an option of shares that are subject to

forfeiture,

           the provisions of Part 2 or 3 have effect subject to the provisions of this Part

30

of this Schedule.

Meaning of shares being “subject to forfeiture”

  19      (1)      This paragraph explains what is meant in this Schedule by shares being

“subject to forfeiture”.

          (2)      Subject to the following provisions of this paragraph, shares are “subject to

35

forfeiture” for so long as the terms on which the recipient is entitled to

them—

              (a)             provide that if certain circumstances arise, or do not arise, there will

be a transfer, reversion or forfeiture as a result of which the recipient

will cease to be entitled to any beneficial interest in the shares, and

40

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 4 — Provisions applying in case of shares subject to forfeiture

    330

 

              (b)             are not such that, in that event, he will be entitled to receive an

amount that is equal to or more than the market value of the shares

at that time.

          (3)      In sub-paragraph (2)—

              (a)             the reference to circumstances arising includes—

5

                    (i)                   the expiry of a period specified in, or determined under, the

terms on which the recipient is entitled to the shares,

                    (ii)                  the exercise by any person of a power conferred on him by or

under those terms, or

                    (iii)                 the death of any person; and

10

              (b)             the reference to the market value of the shares is to the market value

determined as if there were no provision for transfer, reversion or

forfeiture.

          (4)      Shares are not “subject to forfeiture”—

              (a)             because they are unpaid or partly paid and may be forfeited for non-

15

payment of calls, provided there is no restriction on the meeting of

calls by the recipient, or

              (b)             because the articles of association of the company require the shares

to be offered for sale or transferred if the employee ceases to hold

specified employment, or

20

              (c)             because the recipient may be required to offer the shares for sale or

transfer them on the employee ceasing, as a result of misconduct, to

hold specified employment.

          (5)      In sub-paragraph (4)—

              (a)             “articles of association” includes, in the case of a company

25

incorporated under the law of a country outside the United

Kingdom, any equivalent document;

              (b)             the references to the employee ceasing to hold specified employment

are to his ceasing—

                    (i)                   to be an employee of the employing company, or

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                    (ii)                  to be an employee of one or more group companies, or

                    (iii)                 to be an employee of any group company,

                              as specified by the terms on which he is entitled to the shares.

          (6)      References in this section to the terms on which the recipient is entitled to

shares include terms imposed by any contract or arrangement or in any

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other way.

Income tax position of the employee in case of shares subject to forfeiture

  20      (1)      Where the recipient acquires shares that are subject to forfeiture, this

paragraph applies in place of paragraph 7 or 14 (income tax position of the

employee).

40

          (2)      It must be the case that the employee—

              (a)             is subject to a charge to income tax under the Income Tax (Earnings

and Pensions) Act 2003 (c. 1) by virtue of section 427 of that Act—

                    (i)                   on the shares ceasing to be subject to forfeiture, or

                    (ii)                  on the recipient disposing of the shares, or dying, without the

45

shares having ceased to be subject to forfeiture, or

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 4 — Provisions applying in case of shares subject to forfeiture

    331

 

              (b)             would be subject to such a charge if the conditions in sub-paragraph

(3) were met.

          (3)      The conditions mentioned in sub-paragraph (2)(b) are—

              (a)             that the employee was resident and ordinarily resident in the United

Kingdom at all material times, and

5

              (b)             that the duties of the employment by reason of which the award was

made or the option was granted were performed in the United

Kingdom at all material times.

Amount of relief in case of shares subject to forfeiture

  21      (1)      Where the recipient acquires shares that are subject to forfeiture, this

10

paragraph applies in place of paragraph 8 or 15 (amount of relief).

          (2)      The amount of the relief is equal to the difference between—

              (a)             the market value of the shares at the relevant time, and

              (b)             the total amount or value of any consideration given, by the recipient

or another—

15

                    (i)                   in respect of the shares or, as the case may be, in respect of the

grant or exercise of the option, or

                    (ii)                  in respect of the shares ceasing to be subject to forfeiture.

          (3)      For the purposes of sub-paragraph (2)(a)—

              (a)             the “relevant time” is the time at which the shares cease to be subject

20

to forfeiture or, where the recipient disposes of the shares, or dies,

without the shares having ceased to be subject to forfeiture, the time

of the disposal or death; and

              (b)             the market value of the shares at that time is their market value

immediately after they cease to be subject to forfeiture or, where the

25

recipient disposes of the shares, or dies, without the shares having

ceased to be subject to forfeiture, at the time of the disposal or death.

          (4)      The consideration mentioned in sub-paragraph (2)(b) does not include—

              (a)             the performance of any duties of, or in connection with, the

employee’s employment with the employing company, or

30

              (b)             any amount paid or payable by the employee in pursuance of—

                    (i)                   an agreement within paragraph 3A(2) of Schedule 1 to the

Contributions and Benefits Act (agreement for recovery from

earner of secondary Class 1 contributions in respect of share

option gain), or

35

                    (ii)                  an election under paragraph 3B of that Schedule (election

transferring to earner liability for secondary Class 1

contributions in respect of share option gain).

          (5)      For the purposes of this paragraph a just and reasonable apportionment

shall be made of any consideration given partly in respect of the matters

40

mentioned in sub-paragraph (2)(b) and partly in respect of other matters.

          (6)      If the award or grant was made partly for the purposes of a business meeting

the requirements of paragraph 3 (business must be within the charge to

corporation tax) and partly for the purposes of a business in relation to

which those requirements are not met, the amount of the relief shall be

45

reduced to such extent as is just and reasonable.

 

 

 
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