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Finance Bill
Schedule 22 — Employee securities and options

    271

 

              (b)             with the substitution in subsection (5)(b) for “the acquisition” of “the

day appointed under paragraph 3(2) of Schedule 22 to the Finance

Act 2003”.

          (4)      But sub-paragraph (3) does not apply where in relation to the securities or

interest in securities an amount counts as employment income of the

5

employee under section 427 or 449 of the Income Tax (Earnings and

Pensions) Act 2003 (c. 1) as originally enacted.

  4       (1)      For Chapter 3 of Part 7 substitute—

“Chapter 3

Convertible securities

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Introduction

       435            Application of this Chapter

      This Chapter applies to employment-related securities if they are—

                    (a)                      convertible securities, or

                    (b)                      an interest in convertible securities,

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            at the time of the acquisition.

       436            “Convertible securities”

      For the purposes of this Chapter securities are convertible securities

if—

                    (a)                      they confer on the holder an immediate or conditional

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entitlement to convert them into securities of a different

description,

                    (b)                      a contract, agreement, arrangement or condition authorises

or requires the grant of such an entitlement to the holder if

certain circumstances arise, or do not arise, or

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                    (c)                      a contract, agreement, arrangement or condition makes

provision for the conversion of the securities (otherwise than

by the holder) into securities of a different description.

Tax relief on acquisition

       437            Adjustment of charge

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      For the purposes of—

                    (a)                      any liability to tax under Chapter 1 of Part 3 (earnings),

Chapter 10 of Part 3 (taxable benefits: residual liability to

charge) or Chapter 5 of this Part (acquisition of securities

pursuant to securities option), and

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                    (b)                      the operation of Chapter 3C of this Part (acquisition of

securities for less than market value),

            the market value of the employment-related securities is to be

determined as if they were not convertible securities or an interest in

convertible securities.

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Schedule 22 — Employee securities and options

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Tax charge on post-acquisition chargeable events

       438            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 440 counts as

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employment income of the employee for the relevant tax year.

              (3)             The “relevant tax year” is the tax year in which the chargeable event

occurs.

              (4)             Section 439 explains what are chargeable events for the purposes of

this section.

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              (5)             This section is subject to section 443 (case outside charge under this

section).

       439            Chargeable events

              (1)             This section applies for the purposes of section 438 (charge on

occurrence of chargeable event).

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              (2)             Any of the events mentioned in subsection (3) is a “chargeable event”

in relation to the employment-related securities.

              (3)             The events are—

                    (a)                   the conversion of the employment-related securities (or the

securities in which they are an interest) into securities of a

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different description in circumstances in which an associated

person is beneficially entitled to the securities into which the

employment-related securities are converted,

                    (b)                   the disposal for consideration of the employment-related

securities, or any interest in them, by an associated person

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otherwise than to another associated person (at a time when

they are still convertible securities or an interest in

convertible securities),

                    (c)                   the release for consideration of the entitlement to convert the

employment-related securities (or the securities in which

30

they are an interest) into securities of a different description,

and

                    (d)                   the receipt by an associated person of a benefit in money or

money’s worth in connection with the entitlement to convert

(other than securities acquired on the conversion of the

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employment-related securities or consideration such as is

mentioned in paragraph (b) or (c)).

              (4)             A benefit received on account of any disability (within the meaning

of the Disability Discrimination Act 1995) of the employee is to be

disregarded for the purposes of subsection (3)(d).

40

       440            Amount of charge

              (1)             The taxable amount for the purposes of section 438 (charge on

occurrence of chargeable event) is—equation: plus[times[char[A],char[G]],minus[times[char[C],char[E]]]]

 

 

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Schedule 22 — Employee securities and options

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              (2)             AG is the amount of any gain realised on the occurrence of the

chargeable event.

              (3)             CE is the amount of any consideration given for the entitlement to

convert the employment-related securities or the securities in which

they are an interest together with the amount of any expenses

5

incurred by the holder of the employment-related securities in

connection with the conversion, disposal, release or receipt.

              (4)             Section 441 explains what is the amount of any gain realised on the

occurrence of a chargeable event.

              (5)             Section 442 explains whether consideration is given for the

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entitlement to convert the employment-related securities or the

securities in which they are an interest and, if it is, what is its amount.

       441            Amount of gain realised on occurrence of chargeable event

              (1)             This section applies for the purposes of section 440 (amount of

charge on occurrence of chargeable event).

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              (2)             The amount of the gain realised on the occurrence of an event that is

a chargeable event by virtue of section 439(3)(a) (conversion) is—equation: plus[times[char[C],char[M],char[V],char[C],char[S]],minus[id[plus[times[char[C],

char[M],char[V],char[E],char[R],char[S]],times[char[C],char[C]]]]]]

              (3)             The amount of the gain realised on the occurrence of an event that is

a chargeable event by virtue of section 439(3)(b) (disposal) is—equation: plus[times[char[D],char[C]],minus[times[char[C],char[M],char[V],char[E],char[R],

char[S]]]]

              (4)             The amount of the gain realised on the occurrence of an event that is

20

a chargeable event by virtue of section 439(3)(c) (release of

entitlement to convert) is the amount of the consideration received

by an associated person in respect of the release.

              (5)             The amount of the gain realised on the occurrence of an event that is

a chargeable event by virtue of section 439(3)(d) (receipt of benefit) is

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the amount or market value of the benefit.

              (6)             CMVCS—

                    (a)                   if the employment-related securities are securities, is the

market value at the time of the chargeable event of the

securities into which they are converted (determined, where

30

those securities are themselves convertible securities, as if

they were not), or

                    (b)                   if the employment-related securities are an interest in

securities, is the same proportion of that market value as the

market value of the interest in the securities in which the

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employment-related securities are an interest bears to the

market value of those securities.

              (7)             CMVERS is the market value of the employment-related securities at

the time of the chargeable event determined as if they were not

convertible securities or an interest in convertible securities.

40

              (8)             CC is the amount of any consideration given for the conversion of the

employment-related securities.

              (9)             DC is the amount of the consideration given on the disposal.

 

 

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Schedule 22 — Employee securities and options

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       442            Amount of consideration given for entitlement to convert

              (1)             This section applies for the purposes of section 440 (amount of

charge on occurrence of chargeable event).

              (2)             Consideration is to be regarded as given for the entitlement to

convert the employment-related securities (or the securities in which

5

they are an interest) if (and only if) ACS exceeds NCMV.

              (3)             The amount of the consideration to be regarded as so given is the

amount of the excess.

              (4)             ACS is the amount of the consideration given for the acquisition of

the employment-related securities.

10

              (5)             NCMV is the market value of the employment-related securities at

the time of the acquisition, determined as if they were not convertible

securities or an interest in convertible securities.

       443            Case outside charge under section 438

              (1)             Section 438 (charge on occurrence of chargeable event) does not

15

apply if—

                    (a)                   the employment-related securities are shares (or an interest

in shares) in a company of a class,

                    (b)                   all the company’s shares of the class are convertible

securities,

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                    (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

employment-related securities, and

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

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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 439(3)(a)

(conversion), if they are converted into securities of a

30

different description,

                    (b)                   in the case of a chargeable event within section 439(3)(b)

(disposal), if they are disposed of,

                    (c)                   in the case of a chargeable event within section 439(3)(c)

(release of entitlement to convert), if the entitlement to

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convert them into securities of a different description is

released, or

                    (d)                   in the case of a chargeable event within section 439(3)(d)

(receipt of benefit), if a similar benefit is received in respect of

the entitlement to convert them.

40

              (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.

              (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

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the benefit of any of the following—

 

 

Finance Bill
Schedule 22 — Employee securities and options

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                    (a)                   employees of the company,

                    (b)                   persons who are related to an employee of the company,

                    (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

5

associated company.

              (5)             For the purposes of subsection (4) a person is related to an employee

if—

                    (a)                   the person acquired the shares pursuant to a right or

opportunity available by reason of the employee’s

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employment, or

                    (b)                   the person is connected with a person who so acquired the

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

15

who is related to the employee.

Supplementary

       444                        Definitions

              (1)             In this Chapter—

                                      “interest”, in relation to securities,

20

                                      “securities”, and

                                      “shares”,

                              have the meaning indicated in section 420.

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

421(1).

25

              (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.

              (4)             In this Chapter—

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                                      “the acquisition”,

                                      “the employee” (except in section 443), and

                                      “employment-related securities”,

                              have the meaning indicated in section 421B(8).

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

35

section 421C.

              (6)             In this Chapter—

                                      “associated company”, and

                                      “employee-controlled”,

                              have the meaning indicated in section 421H.

40

              (7)             In this Chapter “convertible securities” has the meaning indicated in

section 436.”.

 

 

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Schedule 22 — Employee securities and options

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

paragraph 3(2) (so that, apart from section 437, the provisions of Chapter 3

of Part 7 as substituted by that sub-paragraph apply on and after that day in

relation to employment-related securities irrespective of the date of the

acquisition).

5

  5       (1)      After Chapter 3 of Part 7 insert—

“Chapter 3A

Securities with artificially depressed market value

Introduction

       446A            Application of this Chapter

10

              (1)             This Chapter applies in certain cases where the market value of

employment-related securities (or other relevant securities or

interests in securities) is reduced by things done otherwise than for

genuine commercial purposes.

              (2)             The following are among the things that are, for the purposes of this

15

Chapter, done otherwise than for genuine commercial purposes—

                    (a)                   anything done as part of a scheme or arrangement the main

purpose, or one of the main purposes, of which is the

avoidance of tax or national insurance contributions, and

                    (b)                   any transaction between companies which are members of

20

the same group on terms which are not such as might be

expected to be agreed between persons acting at arm’s length

(other than a payment for group relief).

              (3)             In subsection (2)(b)—

                    (a)                   “group” means a company and its 51% subsidiaries, and

25

                    (b)                   “group relief” has the same meaning as in section 402(6) of

ICTA.

Tax charge on acquisition

       446B            Charge on acquisition

              (1)             This section applies where the market value of employment-related

30

securities at the time of the acquisition has been reduced by at least

10% as a result of things done otherwise than for genuine

commercial purposes within the period of 7 years ending with the

acquisition.

              (2)             The taxable amount determined under section 446C counts as

35

employment income of the employee for the tax year in which the

acquisition occurs.

              (3)             But this section does not apply if section 425(2) (no charge on

acquisition of certain restricted securities or restricted interests in

securities) applies in relation to the employment-related securities.

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Schedule 22 — Employee securities and options

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              (4)             This section does not affect any liability to income tax arising in

respect of the acquisition of the employment-related securities

under—

                    (a)                   Chapter 1 of Part 3 (earnings),

                    (b)                   Chapter 10 of Part 3 (taxable benefits: residual liability to

5

charge),

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

                    (d)                   Chapter 3C of this Part (acquisition for less than market

value), or

                    (e)                   Chapter 5 of this Part (acquisition pursuant to securities

10

option).

       446C            Amount of charge

              (1)             The taxable amount for the purposes of section 446B (charge on

acquisition) is—equation: plus[times[char[F],char[M],char[V]],minus[times[char[M],char[V]]]]

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

15

securities at the time of the acquisition if the things mentioned in

section 446B(1) had not been done.

              (3)             MV is the actual market value of the employment-related securities

at the time of the acquisition.

              (4)             But where what would be MV is less than the amount of any

20

consideration given for the acquisition of the employment-related

securities, MV is the amount of that consideration.

              (5)             This section is subject to section 446D (restricted securities and

convertible securities).

       446D            Restricted securities and convertible securities

25

              (1)             Where the employment-related securities are restricted securities or

a restricted interest in securities, FMV (but not MV) is to be

determined as if the employment-related securities were not

restricted securities or a restricted interest in securities; and,

accordingly, sections 426 to 431 (post-acquisition charges on

30

restricted securities) do not apply to the employment-related

securities.

              (2)             Where the employment-related securities are convertible securities

or an interest in convertible securities, FMV and MV are to be

determined as if they were not.

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Other tax charges

       446E                        Charge on restricted securities

              (1)             This section applies where the market value of employment-related

securities which are restricted securities or a restricted interest in

securities is artificially low—

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                    (a)                   immediately after an event which is a chargeable event in

relation to the employment-related securities for the

purposes of section 426 (charge on restricted securities), or

 

 

 
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