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House of Commons

Session 2002 - 03 Internet Publications Other Bills before Parliament

Finance Bill

Finance Bill Schedule 22 — Employee securities and options     264
(b)                   the right of that person to retain the employment-related
securities or proceeds of their sale, or
(c)                   any other right conferred by the employment-related
securities,
(not being provision to which subsection (2) applies).	5
(4)             This subsection applies to provision under which the disposal or
retention of the employment-related securities, or the exercise of a
right conferred by the employment-related securities, may result in
a disadvantage to—
(a)                   the person by whom the employment-related securities are	10
held,
(b)                   the employee (if not the person by whom they are held), or
(c)                   any person connected with the person by whom they are held
or with the employee,
(not being provision to which subsection (2) or (3) applies).	15
424            Exceptions
Employment-related securities are not restricted securities or a
restricted interest in securities by reason only that any one or more
of the following is the case—
(a)                      the employment-related securities (or the securities in which	20
they are an interest) are unpaid or partly paid shares which
may be forfeited for non-payment of calls and there is no
restriction on the meeting of calls by the person by whom
they are held,
(b)                      that person may be required to offer for sale or transfer the	25
employment-related securities on the employee ceasing, as a
result of misconduct, to be employed by the employer or a
person connected with the employer, or
(c)                      the employment-related securities (or the securities in which
they are an interest) may be redeemed on payment of any	30
amount.
Tax exemption on acquisition
425            No charge in respect of acquisition in certain cases
(1)             Subsection (2) applies if the employment-related securities—
(a)                   are restricted securities, or a restricted interest in securities,	35
by virtue of subsection (2) of section 423 (provision for
transfer, reversion or forfeiture) at the time of the acquisition,
and
(b)                   will cease to be restricted securities, or a restricted interest in
securities, by virtue of that subsection within 5 years after the	40
acquisition (whether or not they may remain restricted
securities or a restricted interest in securities by virtue of the
application of subsection (3) or (4) of that section).
(2)             No liability to income tax arises in respect of the acquisition, except
as provided by—	45
(a)                   Chapter 3 of this Part (acquisition by conversion),
Finance Bill Schedule 22 — Employee securities and options     265
(b)                   Chapter 3C of this Part (acquisition for less than market
value), or
(c)                   Chapter 5 of this Part (acquisition pursuant to securities
option).
(3)             But the employer and the employee may elect that subsection (2) is	5
not to apply to the employment-related securities.
(4)             An election under subsection (3)—
(a)                   is to be made by agreement by the employer and the
employee, and
(b)                   is irrevocable.	10
(5)             Such an agreement—
(a)                   must be made in a form approved by the Board of Inland
Revenue, and
(b)                   may not be made more than 14 days after the acquisition.
Tax charge on post-acquisition chargeable events	15
426            Charge on occurrence of chargeable event
(1)             This section applies if a chargeable event occurs in relation to the
employment-related securities.
(2)             The taxable amount determined under section 428 counts as
employment income of the employee for the relevant tax year.	20
(3)             The “relevant tax year” is the tax year in which the chargeable event
occurs.
(4)             Section 427 explains what are chargeable events for the purposes of
this section.
(5)             This section is subject to section 429 (case outside charge under this	25
section).
427            Chargeable events
(1)             This section applies for the purposes of section 426 (charge on
occurrence of chargeable event).
(2)             Any of the events mentioned in subsection (3) is a “chargeable event”	30
in relation to the employment-related securities.
(3)             The events are—
(a)                   the employment-related securities ceasing to be restricted
securities, or a restricted interest in securities, in
circumstances in which an associated person is beneficially	35
entitled to the employment-related securities after the event,
(b)                   the variation of any restriction relating to the employment-
related securities in such circumstances (without the
employment-related securities ceasing to be restricted
securities or a restricted interest in securities), and	40
(c)                   the disposal for consideration of the employment-related
securities, or any interest in them, by an associated person
otherwise than to another associated person (at a time when
Finance Bill Schedule 22 — Employee securities and options     266
they are still restricted securities or a restricted interest in
securities).
(4)             For the purposes of this Chapter there is a variation of a restriction
relating to the employment-related securities if any restriction in
relation to them is removed or varied.	5
428            Amount of charge
(1)             The taxable amount for the purposes of section 426 (charge on
occurrence of chargeable event) is—
(2)             UMV is what would be the market value of the employment-related
securities immediately after the chargeable event but for any	10
restrictions.
(3)             IUP is—
where—
IUMV is what would have been the market value of the
employment-related securities at the time of the acquisition	15
but for any restrictions, and
DA is the total of any deductible amounts.
(4)             PCP is the aggregate of the result of the application of the formula—
on each previous event (if any) occurring since the acquisition that
was a chargeable event for the purposes of section 426 in relation to	20
the employment-related securities (and so is nil if there has not been
such a previous event).
(5)             OP is—
where AMV is the actual market value of the employment-related
securities immediately after the chargeable event.	25
(6)             CE is any expenses incurred by the holder of the employment-
related securities in connection with—
(a)                   the employment-related securities ceasing to be restricted
securities or a restricted interest in securities,
(b)                   the variation of a restriction relating to the employment-	30
related securities, or
(c)                   the disposal of the employment-related securities,
together (if the chargeable event is one within section 427(3)(a) or (b)
(lifting of restrictions and variation of restriction)) with any
consideration given for the employment-related securities ceasing to	35
be restricted securities or a restricted interest in securities or the
variation of a restriction relating to the employment-related
securities.
Finance Bill Schedule 22 — Employee securities and options     267
(7)             For the purposes of this section each of the following is a “deductible
amount”—
(a)                   the amount of any consideration given for the acquisition of
the employment-related securities,
(b)                   any amount that constituted earnings from the employee’s	5
employment under Chapter 1 of Part 3 (earnings) in respect
of the acquisition of the employment-related securities,
(c)                   any amount that counted as employment income in relation
to the employment-related securities under Chapter 2 or 4 of
this Part as originally enacted,	10
(d)                   if the employment-related securities were acquired on a
conversion of other employment-related securities, any
amount that counted as employment income of the employee
under Chapter 3 of this Part (including that Chapter as
originally enacted) (convertible securities) by reason of the	15
conversion, and
(e)                   if the acquisition of the employment-related securities was
pursuant to a securities option, any amount that counted as
employment income of the employee under section 476 (or
section 476 or 477 as originally enacted) (acquisition of	20
securities pursuant to securities option) by reason of the
acquisition.
(8)             If the employment-related securities are convertible securities, or an
interest in convertible securities, their market value is to be
determined for the purposes of this section as if they were not.	25
(9)             Where the chargeable event is one within section 427(3)(c) (disposal)
and CD is less than AMV, the taxable amount for the purposes of
section 426 is the amount determined under subsection (1)
multiplied by—
where—	30
CD is the consideration given for the employment-related
securities, and
AMV is the actual market value of the employment-related
securities immediately after the chargeable event.
429            Case outside charge under section 426	35
(1)             Section 426 (charge on occurrence of chargeable event) does not
apply if—
(a)                   the employment-related securities are shares (or an interest
in shares) in a company of a class,
(b)                   the provision by virtue of which the employment-related	40
securities are restricted securities, or a restricted interest in
securities, applies to all the company’s shares of the class,
(c)                   all the company’s shares of the class (other than the
employment-related securities) are affected by an event
similar to that which is a chargeable event in relation to the	45
employment-related securities, and
(d)                   subsection (3) or (4) is satisfied.
Finance Bill Schedule 22 — Employee securities and options     268
(2)             For the purposes of subsection (1)(c) shares are affected by an event
similar to that which is a chargeable event in relation to the
employment-related securities—
(a)                   in the case of a chargeable event within section 427(3)(a)
(lifting of restrictions), if the provision mentioned in	5
subsection (1)(b) ceases to apply to them,
(b)                   in the case of a chargeable event within section 427(3)(b)
(variation of restriction), if that provision is varied in relation
to them in the same way as in relation to the employment-
related securities, or	10
(c)                   in the case of a chargeable event within section 427(3)(c)
(disposal), if they are disposed of.
(3)             This subsection is satisfied if, immediately before the event that
would be a chargeable event, the company is employee-controlled
by virtue of holdings of shares of the class.	15
(4)             This subsection is satisfied if, immediately before that event, the
majority of the company’s shares of the class are not held by or for
the benefit of any of the following—
(a)                   employees of the company,
(b)                   persons who are related to an employee of the company,	20
(c)                   associated companies of the company,
(d)                   employees of any associated company of the company, or
(e)                   persons who are related to an employee of any such
associated company.
(5)             For the purposes of subsection (4) a person is related to an employee	25
if—
(a)                   the person acquired the shares pursuant to a right or
opportunity available by reason of the employee’s
employment, or
(b)                   the person is connected with a person who so acquired the	30
shares or with the employee and acquired the shares
otherwise than by or under a disposal made by way of a
bargain at arm’s length from the employee or another person
who is related to the employee.
430            Election for outstanding restrictions to be ignored	35
(1)             The employer and the employee may elect that—
(a)                   on a chargeable event the taxable amount for the purposes of
section 426 is to be determined by applying section 428(1) as
if it did not include a reference to OP, and
(b)                   sections 426 to 429 are not to apply to the employment-	40
related securities after that chargeable event.
(2)             An election under this section—
(a)                   is to be made by agreement by the employer and the
employee, and
(b)                   is irrevocable.	45
(3)             Such an agreement—
Finance Bill Schedule 22 — Employee securities and options     269
(a)                   must be made in a form approved by the Board of Inland
Revenue, and
(b)                   may not be made more than 14 days after the chargeable
event.
Supplementary	5
431            Election for full or partial disapplication of this Chapter
(1)             The employer and the employee may elect in relation to
employment-related securities which are restricted securities or a
restricted interest in securities that—
(a)                   for the relevant tax purposes their market value at the time of	10
the acquisition is to be calculated as if they were not, and
(b)                   sections 425 to 430 are not to apply to the employment-
related securities.
(2)             Or the employer and the employee may elect in relation to
employment-related securities which are restricted securities or a	15
restricted interest in securities that—
(a)                   for the relevant tax purposes their market value at the time of
the acquisition is to be calculated, and
(b)                   sections 425 to 430 are to apply to the employment-related
securities,	20
as if any specified restriction did not apply to the employment-
related securities.
(3)             For the purposes of subsections (1) and (2) “the relevant tax
purposes” are—
(a)                   determining any amount that is to constitute earnings from	25
the employment under Chapter 1 of Part 3 (earnings),
(b)                   determining the amount of any gain realised on the
occurrence of an event that is a chargeable event by virtue of
section 439(3)(a) (conversion),
(c)                   operating Chapter 3C of this Part (acquisition of securities for	30
less than market value), and
(d)                   determining any amount that counts as employment income
of the employee under Chapter 5 of this Part (securities
acquired pursuant to securities option).
(4)             An election under this section—	35
(a)                   is to be made by agreement by the employer and the
employee, and
(b)                   is irrevocable.
(5)             Such an agreement—
(a)                   must be made in a form approved by the Board of Inland	40
Revenue, and
(b)                   may not be made more than 14 days after the acquisition.
432            Definitions
(1)             In this Chapter—
“interest”, in relation to securities,	45
Finance Bill Schedule 22 — Employee securities and options     270
“securities”,
“securities option”, and
“shares”,
have the meaning indicated in section 420.
(2)             In this Chapter “market value” has the meaning indicated in section	5
421(1).
(3)             For the purposes of this Chapter sections 421(2) and 421A apply for
determining the amount of the consideration given for anything and
section 421I applies for determining the amount of the consideration
given for the acquisition of employment-related securities.	10
(4)             In this Chapter—
“the acquisition”,
“the employee” (except in section 429),
“the employer”,
“the employment”, and	15
“employment-related securities”,
have the meaning indicated in section 421B(8).
(5)             In this Chapter “associated person” has the meaning indicated in
section 421C.
(6)             In this Chapter—	20
“associated company”, and
“employee-controlled”,
have the meaning indicated in section 421H.
(7)             In this Chapter—
“restricted interest in securities”, and	25
“restricted securities”,
have the meaning indicated in sections 423 and 424.
(8)             In this Chapter “restriction”, in relation to securities or an interest in
securities, means provision relating to the securities or interest which
is made by any contract, agreement, arrangement or condition and to	30
which any of subsections (2) to (4) of section 423 applies.
(9)             In this Chapter “variation”, in relation to a restriction, has the
meaning indicated in section 427(4).
(10)            In this Chapter “convertible securities” has the same meaning as in
Chapter 3 of this Part (see section 436).”.	35
(2)      Sub-paragraph (1) has effect on and after such day as the Treasury may by
order made by statutory instrument appoint but does not affect any
securities, or interests in securities, acquired before 16th April 2003.
(3)      Section 431 has effect in relation to securities, or interests in securities,
acquired before the day appointed under sub-paragraph (2)—	40
(a)             with the substitution in subsections (1)(b) and (2)(b) for “sections 425
to 430” of “section 426 as originally enacted and sections 426 to 430
as substituted by paragraph 3(1) of Schedule 22 to the Finance Act
2003”, and

© Parliamentary copyright 2003	Revised 19 June 2003