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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).

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              (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

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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).

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       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

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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

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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

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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,

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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

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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—

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                    (a)                   Chapter 3 of this Part (acquisition by conversion),

 

 

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Schedule 22 — Employee securities and options

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                    (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

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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.

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              (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

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       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.

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              (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

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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”

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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

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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

 

 

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Schedule 22 — Employee securities and options

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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—equation: plus[times[char[U],char[M],cross[char[V],id[plus[times[char[I],char[U],char[P]],

minus[times[char[P],char[C],char[P]]],minus[times[char[O],char[P]]]]]]],minus[times[

char[C],char[E]]]]

              (2)             UMV is what would be the market value of the employment-related

securities immediately after the chargeable event but for any

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restrictions.

              (3)             IUP is—equation: over[plus[times[char[I],char[U],char[M],char[V]],minus[times[char[D],char[A]]]],

times[char[I],char[U],char[M],char[V]]]

      where—

                      IUMV is what would have been the market value of the

employment-related securities at the time of the acquisition

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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—equation: plus[times[char[I],char[U],char[P]],minus[times[char[P],char[C],char[P]]],minus[

times[char[O],char[P]]]]

on each previous event (if any) occurring since the acquisition that

was a chargeable event for the purposes of section 426 in relation to

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the employment-related securities (and so is nil if there has not been

such a previous event).

              (5)             OP is—equation: over[plus[times[char[U],char[M],char[V]],minus[times[char[A],char[M],char[V]]]],

times[char[U],char[M],char[V]]]

where AMV is the actual market value of the employment-related

securities immediately after the chargeable event.

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              (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-

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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

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be restricted securities or a restricted interest in securities or the

variation of a restriction relating to the employment-related

securities.

 

 

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Schedule 22 — Employee securities and options

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              (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

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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

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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.

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              (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—equation: over[times[char[C],char[D]],times[char[A],char[M],char[V]]]

                                                                              where—

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                                                                                                                      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

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              (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

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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

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employment-related securities, and

                    (d)                   subsection (3) or (4) is satisfied.

 

 

Finance Bill
Schedule 22 — Employee securities and options

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              (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,

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                    (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

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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

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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.

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              (3)             Such an agreement—

 

 

Finance Bill
Schedule 22 — Employee securities and options

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                    (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,

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                              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

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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,

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Schedule 22 — Employee securities and options

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                                      “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—

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                                      “associated company”, and

                                      “employee-controlled”,

                              have the meaning indicated in section 421H.

              (7)             In this Chapter—

                                      “restricted interest in securities”, and

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                                      “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).”.

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          (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)—

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              (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

 

 

 
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