Finance (No. 3) Bill

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
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(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
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(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

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Schedule 2 — Employment income provided through third parties
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(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
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(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

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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