Session 2010 - 11
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Finance (No. 3) Bill


Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties

67

 

(7)   

Subsection (8) applies if, at any time (“the relevant time”)—

(a)   

any of the earmarked shares cease to be held by or on behalf

of P solely on the basis mentioned in subsection (4)(a), but

(b)   

the shares continue to be held by or on behalf of P on the basis

mentioned in section 554B(1)(a) or (b).

5

(8)   

This Part has effect as if a relevant step within section 554B were

taken at the relevant time—

(a)   

the subject of which is—

(i)   

the shares mentioned in subsection (7), and

(ii)   

any relevant income in relation to those shares (see

10

subsection (14)), and

(b)   

by reason of which Chapter 2 is to apply (subject only to

section 554A(4)).

(9)   

Subsection (10) applies if—

(a)   

the relevant step mentioned in subsection (4) is taken in

15

relation to an award which has been made as mentioned in

subsection (4)(a)(i), or

(b)   

the relevant step mentioned in subsection (4) is taken in

relation to an expected award as mentioned in subsection

(4)(a)(ii) and the award is made before the end of the final

20

award date.

(10)   

This Part has effect as if a relevant step within section 554B were

taken at the end of the vesting date—

(a)   

the subject of which is—

(i)   

any of the earmarked shares to which none of

25

subsections (11) to (13) applies, and

(ii)   

any relevant income in relation to any of the

earmarked shares mentioned in sub-paragraph (i)

(see subsection (14)), and

(b)   

by reason of which Chapter 2 is to apply (subject only to

30

section 554A(4)).

(11)   

This subsection applies to any earmarked shares if—

(a)   

A receives the shares before the end of the vesting date, and

(b)   

the receipt of the shares by A gives rise to employment

income of A which is chargeable to income tax or which is

35

exempt income.

(12)   

This subsection applies to any earmarked shares if—

(a)   

the sum of money mentioned in subsection (1)(a)(ii) (or a part

of it) is paid to A before the end of the vesting date,

(b)   

the payment of the sum to A gives rise to employment

40

income of A which is chargeable to income tax or which is

exempt income, and

(c)   

the payment represents the proceeds of the disposal of the

shares or, if the payment is made from another source,

correspondingly, no further relevant step is or will be taken

45

by P or any other person in relation to the shares or to any

sum of money or asset which (directly or indirectly) may

arise or derive, or has arisen or derived, from the shares.

 
 

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties

68

 

(13)   

This subsection applies to any earmarked shares if—

(a)   

before the end of the vesting date, the award (or any part of

it) is revoked in accordance with the deferred award terms,

and

(b)   

correspondingly, no further relevant step is or will be taken

5

by P or any other person in relation to the shares or to any

sum of money or asset which (directly or indirectly) may

arise or derive, or has arisen or derived, from the shares.

(14)   

In subsections (6)(a)(ii), (8)(a)(ii) and (10)(a)(ii) “relevant income”, in

relation to any earmarked shares, means any income—

10

(a)   

which, before the relevant step is treated as being taken by

subsection (6), (8) or (10) (as the case may be)—

(i)   

arises (directly or indirectly) from the shares, and

(ii)   

is the subject of a relevant step within section 554B

taken by P by reason of which Chapter 2 would apply

15

apart from section 554P, and

(b)   

which, at the time the relevant step is treated as being taken,

continues to be held by or on behalf of P on the basis

mentioned in section 554B(1)(a) or (b).

554K    

Exclusions: earmarking for employee share schemes (2)

20

(1)   

This section applies if—

(a)   

there is an arrangement (“B’s employee share scheme”)

under which, in respect of A’s employment with B, B may

make to A an award of a sum of money the amount of which

is to be determined by reference to the market value of any

25

relevant shares at the time the sum is to be paid,

(b)   

the main purpose of the award would not be the provision of

relevant benefits,

(c)   

the award would be on terms (“the deferred award terms”)

under which the sum of money is to be paid only if a specified

30

exit event, or an exit event within a specified description,

occurs, and

(d)   

as at the time the award is made, there would be a reasonable

chance that the specified exit event, or an exit event within

the specified description, will occur.

35

(2)   

For the purposes of this section an “exit event” occurs if—

(a)   

relevant shares are admitted to trading on a stock exchange,

or

(b)   

all the relevant shares, or a substantial proportion of them, in

a company are disposed of to persons none of whom are

40

connected with any of the persons making any disposal,

   

and in this section references to relevant shares are to be read as

references only to relevant shares in a company the business of

which consists wholly or mainly in the carrying on of a trade or

trades.

45

(3)   

For the purpose of determining whether the requirements of

subsection (1)(c) and (d) would be met, ignore any of the deferred

award terms which would deal with what is to happen if A dies after

the making of the award but before the specified exit event, or an exit

event within the specified description, occurs.

50

 
 

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties

69

 

(4)   

Chapter 2 does not apply by reason of a relevant step within section

554B (by reason of which it would otherwise apply) taken by a

person (“P”) if—

(a)   

the subject of the relevant step is relevant shares (“earmarked

shares”) which are earmarked, or otherwise start being held,

5

solely with a view to the meeting of—

(i)   

an award of a sum of money made to A under B’s

employee share scheme as mentioned in subsection

(1)(a) in relation to which the requirements of

subsection (1)(b) to (d) are met (subject to subsection

10

(3)), or

(ii)   

an award of a sum of money which is expected to be

made to A under B’s employee share scheme as

mentioned in subsection (1)(a) and in relation to

which the requirements of subsection (1)(b) to (d)

15

would be met (subject to subsection (3)),

(b)   

none of the earmarked shares are admitted to trading on a

stock exchange,

(c)   

the number of relevant shares of any type which are

earmarked shares does not exceed the maximum number of

20

relevant shares of that type which might reasonably be

expected to be needed for meeting the award or expected

award, and

(d)   

there is no connection (direct or indirect) between the

relevant step and a tax avoidance arrangement.

25

(5)   

If the relevant step mentioned in subsection (4) is taken in relation to

an expected award as mentioned in subsection (4)(a)(ii), subsection

(6) applies if—

(a)   

the award is not made before the end of the date (“the final

award date”) which is three months after the date on which P

30

takes the relevant step, and

(b)   

as at the end of the final award date, any of the earmarked

shares continue to be held by or on behalf of P solely on the

basis mentioned in subsection (4)(a).

(6)   

This Part has effect as if a relevant step within section 554B were

35

taken at the end of the final award date—

(a)   

the subject of which is—

(i)   

the shares which continue to be held as mentioned in

subsection (5)(b), and

(ii)   

any relevant income in relation to those shares (see

40

subsection (13)), and

(b)   

by reason of which Chapter 2 is to apply (subject only to

section 554A(4)).

(7)   

Subsection (8) applies if, at any time (“the relevant time”)—

(a)   

any of the earmarked shares cease to be held by or on behalf

45

of P solely on the basis mentioned in subsection (4)(a), but

(b)   

the shares continue to be held by or on behalf of P on the basis

mentioned in section 554B(1)(a) or (b).

(8)   

This Part has effect as if a relevant step within section 554B were

taken at the relevant time—

50

 
 

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties

70

 

(a)   

the subject of which is—

(i)   

the shares mentioned in subsection (7), and

(ii)   

any relevant income in relation to those shares (see

subsection (13)), and

(b)   

by reason of which Chapter 2 is to apply (subject only to

5

section 554A(4)).

(9)   

Subsection (10) applies if—

(a)   

the relevant step mentioned in subsection (4) is taken in

relation to an award which has been made as mentioned in

subsection (4)(a)(i), or

10

(b)   

the relevant step mentioned in subsection (4) is taken in

relation to an expected award as mentioned in subsection

(4)(a)(ii) and the award is made before the end of the final

award date,

   

and the specified exit event, or an exit event within the specified

15

description, occurs.

(10)   

This Part has effect as if a relevant step within section 554B were

taken at the end of the exit period—

(a)   

the subject of which is—

(i)   

any of the earmarked shares to which subsection (11)

20

does not apply, and

(ii)   

any relevant income in relation to any of the

earmarked shares mentioned in sub-paragraph (i)

(see subsection (13)), and

(b)   

by reason of which Chapter 2 is to apply (subject only to

25

section 554A(4)).

(11)   

This subsection applies to any earmarked shares if—

(a)   

the sum of money mentioned in subsection (1)(a) (or a part of

it) is paid to A before the end of the exit period,

(b)   

the payment of the sum to A gives rise to employment

30

income of A which is chargeable to income tax or which is

exempt income, and

(c)   

the payment represents the proceeds of the disposal of the

shares or, if the payment is made from another source,

correspondingly, no further relevant step is or will be taken

35

by P or any other person in relation to the shares or to any

sum of money or asset which (directly or indirectly) may

arise or derive, or has arisen or derived, from the shares.

(12)   

In subsections (10) and (11)(a) “the exit period” means the period of

three months starting with the date on which the exit event occurs.

40

(13)   

In subsections (6)(a)(ii), (8)(a)(ii) and (10)(a)(ii) “relevant income”, in

relation to any earmarked shares, means any income—

(a)   

which, before the relevant step is treated as being taken by

subsection (6), (8) or (10) (as the case may be)—

(i)   

arises (directly or indirectly) from the shares, and

45

(ii)   

is the subject of a relevant step within section 554B

taken by P by reason of which Chapter 2 would apply

apart from section 554P, and

 
 

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties

71

 

(b)   

which, at the time the relevant step is treated as being taken,

continues to be held by or on behalf of P on the basis

mentioned in section 554B(1)(a) or (b).

554L    

Exclusions: earmarking for employee share schemes (3)

(1)   

This section applies if—

5

(a)   

there is an arrangement (“B’s employee share scheme”)

under which, in respect of A’s employment with B, B may

grant A a right (“a relevant share option”)—

(i)   

to acquire relevant shares, or

(ii)   

to receive a sum of money the amount of which is to

10

be determined by reference to the market value of any

relevant shares at the time the sum is to be paid,

(b)   

the main purpose of the grant of the relevant share option

would not be the provision of relevant benefits,

(c)   

the grant would be made on terms (“the deferred grant

15

terms”) under which—

(i)   

the relevant share option is not to be exercisable by A

before a specified date (“the vesting date”) which is

after the date (“the grant date”) on which the grant is

made, and

20

(ii)   

the relevant share option is not to be exercisable at all

by A if specified conditions are not met on or before

the vesting date,

(d)   

the vesting date would not be more than five years after the

grant date, and

25

(e)   

as at the grant date, there would be a reasonable chance that

the relevant share option will not be exercisable at all by A

because not all the specified conditions will be met on or

before the vesting date.

(2)   

For the purpose of determining whether the requirements of

30

subsection (1)(c)(i) and (ii) and (d) and (e) would be met, ignore any

of the deferred grant terms which would deal with what is to happen

if A dies after the making of the grant but before the end of the

vesting date.

(3)   

In addition to the provision mentioned in subsection (1)(c)(ii) (which

35

must be included), the deferred grant terms may also provide that

the relevant share option may be exercised by A only in part if

specified conditions are not met on or before the vesting date.

(4)   

Chapter 2 does not apply by reason of a relevant step within section

554B (by reason of which it would otherwise apply) taken by a

40

person (“P”) if—

(a)   

the subject of the relevant step is relevant shares (“earmarked

shares”) which are earmarked, or otherwise start being held,

solely with a view to providing shares, or paying a sum of

money, pursuant to—

45

(i)   

a relevant share option granted to A under B’s

employee share scheme as mentioned in subsection

(1)(a) in relation to which the requirements of

subsection (1)(b) to (e) are met (subject to subsection

(2)), or

50

 
 

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties

72

 

(ii)   

a relevant share option which is expected to be

granted to A under B’s employee share scheme as

mentioned in subsection (1)(a) and in relation to

which the requirements of subsection (1)(b) to (e)

would be met (subject to subsection (2)),

5

(b)   

the number of relevant shares of any type which are

earmarked shares does not exceed the maximum number of

relevant shares of that type which might reasonably be

expected to be needed for providing shares, or paying a sum

of money, pursuant to the relevant share option which is

10

granted or expected to be granted, and

(c)   

there is no connection (direct or indirect) between the

relevant step and a tax avoidance arrangement.

(5)   

If the relevant step mentioned in subsection (4) is taken in relation to

an expected grant of a relevant share option as mentioned in

15

subsection (4)(a)(ii), subsection (6) applies if—

(a)   

the grant is not made before the end of the date (“the final

grant date”) which is three months after the date on which P

takes the relevant step, and

(b)   

as at the final grant date, any of the earmarked shares

20

continue to be held by or on behalf of P solely on the basis

mentioned in subsection (4)(a).

(6)   

This Part has effect as if a relevant step within section 554B were

taken at the end of the final grant date—

(a)   

the subject of which is—

25

(i)   

the shares which continue to be held as mentioned in

subsection (5)(b), and

(ii)   

any relevant income in relation to those shares (see

subsection (16)), and

(b)   

by reason of which Chapter 2 is to apply (subject only to

30

section 554A(4)).

(7)   

Subsection (8) applies if, at any time (“the relevant time”)—

(a)   

any of the earmarked shares cease to be held by or on behalf

of P solely on the basis mentioned in subsection (4)(a), but

(b)   

the shares continue to be held by or on behalf of P on the basis

35

mentioned in section 554B(1)(a) or (b).

(8)   

This Part has effect as if a relevant step within section 554B were

taken at the relevant time—

(a)   

the subject of which is—

(i)   

the shares mentioned in subsection (7), and

40

(ii)   

any relevant income in relation to those shares (see

subsection (16)), and

(b)   

by reason of which Chapter 2 is to apply (subject only to

section 554A(4)).

(9)   

Subsection (10) applies if—

45

(a)   

the relevant step mentioned in subsection (4) is taken in

relation to a grant of a relevant share option made as

mentioned in subsection (4)(a)(i), or

 
 

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties

73

 

(b)   

the relevant step mentioned in subsection (4) is taken in

relation to an expected grant of a relevant share option as

mentioned in subsection (4)(a)(ii) and the grant is made

before the final grant date.

(10)   

This Part has effect as if a relevant step within section 554B were

5

taken at the end of the final exercise date—

(a)   

the subject of which is—

(i)   

any of the earmarked shares to which none of

subsections (11) to (14) applies, and

(ii)   

any relevant income in relation to any of the

10

earmarked shares mentioned in sub-paragraph (i)

(see subsection (16)), and

(b)   

by reason of which Chapter 2 is to apply (subject only to

section 554A(4)).

(11)   

This subsection applies to any earmarked shares if—

15

(a)   

the relevant share option becomes exercisable (in whole or in

part) by A before the end of the vesting date,

(b)   

A exercises the option (wholly or partly) before the end of the

final exercise date and, as a result, receives the shares, and

(c)   

the receipt of the shares gives rise to employment income of

20

A which is chargeable to income tax or which is exempt

income.

(12)   

This subsection applies to any earmarked shares if—

(a)   

the relevant share option becomes exercisable (in whole or in

part) by A before the end of the vesting date,

25

(b)   

A exercises the option (wholly or partly) before the end of the

final exercise date and, as a result, a sum of money is paid to

A as mentioned in subsection (1)(a)(ii),

(c)   

the payment of the sum gives rise to employment income of

A which is chargeable to income tax or which is exempt

30

income, and

(d)   

the payment represents the proceeds of the disposal of the

shares or, if the payment is made from another source,

correspondingly, no further relevant step is or will be taken

by P or any other person in relation to the shares or to any

35

sum of money or asset which (directly or indirectly) may

arise or derive, or has arisen or derived, from the shares.

(13)   

This subsection applies to any earmarked shares if—

(a)   

in accordance with the deferred grant terms, before the end

of the vesting date, the relevant share option ceases to be

40

exercisable by A (in whole or in part), and

(b)   

correspondingly, no further relevant step is or will be taken

by P or any other person in relation to the shares or to any

sum of money or asset which (directly or indirectly) may

arise or derive, or has arisen or derived, from the shares.

45

(14)   

This subsection applies to any earmarked shares if—

(a)   

the relevant share option becomes exercisable by A (in whole

or in part) before the end of the vesting date but the option

 
 

 
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Revised 31 March 2011