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
88

(b)
if the overlap covers only part of sum or asset Q, by the part
of the value of the earlier relevant step which corresponds to
the part of sum or asset Q covered by the overlap as
determined on a just and reasonable basis.
(3)
In subsection (2) references to the value of the earlier relevant step
5
are to that value—
(a)
after any reductions made to it under section 554Z3 or this
section, but
(b)
before any reductions made to it under sections 554Z5 to
554Z7.
10
(4)
For the purposes of this section there is overlap between sum or asset
P and sum or asset Q so far as—
(a)
they are the same sum of money or asset, or
(b)
sum or asset P, essentially, replaces sum or asset Q.
(5)
Further, if any reductions were made under this section to the value
15
of the earlier relevant step, sum or asset P is treated as overlapping
with any other sum of money or asset so far as the other sum of
money or asset was treated as overlapping with sum or asset Q for
the purposes of this section.
554Z5
Overlap with certain earnings
20
(1)
This section applies if the relevant step gives rise to relevant earnings
of A from A’s employment with B—
(a)
which are, in accordance with section 16 and (if applicable)
section 17, “for” a tax year in which A is UK resident, or
(b)
which are, in accordance with section 29 and (if applicable)
25
section 30, “for” a tax year in which A is non-UK resident but
which are in respect of duties performed in the United
Kingdom for the purposes of section 27(1)(a).
(2)
The value of the relevant step (after any reductions under section
554Z3 or 554Z4) is reduced (but not below nil) by the amount of the
30
relevant earnings.
(3)
For the purposes of this section the following are “relevant”
earnings—
(a)
earnings within Chapter 1 of Part 3,
(b)
amounts treated as earnings under Chapter 12 of Part 3, and
35
(c)
a deemed employment payment under section 50 or any part
of such a payment.
(4)
But anything which is exempt income, or which falls within Chapter
3 of Part 4 of ITTOIA 2005, is not “relevant”.
554Z6
Exercise price of share options
40
(1)
Subsection (3) applies if—
(a)
the relevant step is a step within section 554B (other than one
treated as being taken by section 554L(6), (8) or (10)),
(b)
B is a company,

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(c)
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
5
be determined by reference to the market value of any
relevant shares at the time the sum is to be paid,
(d)
in order to exercise the relevant share option so as to—
(i)
acquire the relevant shares, or
(ii)
to receive the sum of money,
10

A would, under the terms of the option, have to pay a sum of
money the amount of which can be determined at the time of
the grant of the option,
(e)
the subject of the relevant step is relevant shares (“earmarked
shares”) which are earmarked, or otherwise start being held,
15
solely with a view to providing shares, or paying a sum of
money, pursuant to—
(i)
a relevant share option granted to A under B’s
employee share scheme as mentioned in paragraph
(c) in relation to which the requirements of paragraph
20
(d) are met, or
(ii)
a relevant share option which is expected to be
granted to A under B’s employee share scheme as
mentioned in paragraph (c) and in relation to which
the requirements of paragraph (d) would be met,
25
(f)
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
30
granted or expected to be granted, and
(g)
there is no connection (direct or indirect) between the
relevant step and a tax avoidance arrangement.
(2)
Subsection (3) also applies if—
(a)
the relevant step is a step treated as being taken by section
35
554L(10), and
(b)
in order to exercise the relevant share option to which the
step relates so as to—
(i)
acquire the shares which are the subject of the
relevant step, or
40
(ii)
to receive the sum of money determined by reference
to the market value of those shares,

A would, under the terms of the option, have to pay a sum of
money the amount of which can be determined at the time
the option is granted.
45
(3)
The value of the relevant step (after any reductions under sections
554Z3 to 554Z5) is to be reduced (but not below nil) by—
(a)
the amount of the sum of money which A would have to pay
as mentioned in subsection (1)(d) or (2)(b), or
(b)
if the value of the relevant step was reduced under section
50
554Z3, X% of the amount of that sum of money.

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(4)
In subsection (3)(b) “X%” means the proportion of the value of the
relevant step (as determined under section 554Z2) left after the
reduction under section 554Z3.
(5)
If subsection (3) applies by virtue of subsection (1) and the relevant
step is taken in relation to an expected grant of a relevant share
5
option as mentioned in subsection (1)(e)(ii), subsection (7) 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 the
relevant step is taken, and
10
(b)
as at the final grant date, any of the earmarked shares
continue to be held by or on behalf of P solely on the basis
mentioned in subsection (1)(e).
(6)
If subsection (3) applies by virtue of subsection (1), subsection (7)
also applies if at any time after the taking of the relevant step—
15
(a)
any of the earmarked shares cease to be held by or on behalf
of P solely on the basis mentioned in subsection (1)(e), 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).
(7)
This Part has effect as if a relevant step within section 554B were
20
taken at the end of the final grant date or when the shares cease to be
held as mentioned in subsection (6)—
(a)
the subject of which is the earmarked shares mentioned in
subsection (5)(b) or (6), and
(b)
by reason of which this Chapter is to apply (subject only to
25
section 554A(4)).
(8)
In this section “relevant shares” has the meaning given by section
554I(4).
554Z7
Cases where consideration given for relevant step
(1)
Subsection (2) applies if—
30
(a)
the relevant step is a step within section 554C(1)(a) to (c),
(b)
the relevant step is for consideration given by A in the form
of the transfer of an asset to P from A,
(c)
the transfer by A of the asset is made before, or at or about,
the time the relevant step is taken and is not by way of a loan,
35
and
(d)
there is no connection (direct or indirect) between the transfer
by A of the asset and a tax avoidance arrangement.
(2)
The value of the relevant step (after any reductions under sections
554Z3 to 554Z5) is reduced (but not below nil) by—
40
(a)
the market value of the asset transferred by A at the time of
its transfer, or
(b)
if the value of the relevant step was reduced under section
554Z3, X% of that market value.
(3)
For the purposes of subsection (1)(d) it is (in particular) to be
45
assumed that the transfer by A of the asset is connected with a tax
avoidance arrangement if—

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(a)
before the transfer, the asset was transferred to A by another
person by way of a loan, or
(b)
the asset is, or carries with it, any rights or interests under the
relevant arrangement or any arrangement which is
connected (directly or indirectly) with the relevant
5
arrangement.
(4)
In subsection (3)(b) “the relevant arrangement” has the meaning
given by section 554A(1)(b).
(5)
Subsection (6) applies if—
(a)
the relevant step is a step within section 554C(1)(b) or (c) or
10
(e) or 554D and does not also involve a sum of money,
(b)
the relevant step is for consideration given by A in the form
of the payment of a sum of money to P by A, and
(c)
the payment is made before, or at or about, the time the
relevant step is taken.
15
(6)
The value of the relevant step (after any reductions under sections
554Z3 to 554Z5) is reduced (but not below nil) by—
(a)
the amount of the consideration given, or
(b)
if the value of the relevant step was reduced under section
554Z3, X% of the amount of that consideration.
20
(7)
In subsections (2)(b) and (6)(b) “X%” means the proportion of the
value of the relevant step (as determined under section 554Z2) left
after the reduction under section 554Z3.
(8)
In this section references to A includes a reference to any person
linked with A.
25
Remittance basis
554Z8
Remittance basis: A is ordinarily UK resident
(1)
Subsection (2) applies if—
(a)
the value of the relevant step, or a part of it, is “for” a tax year
(“the relevant tax year”) as determined under section 554Z3,
30
(b)
section 809B, 809D or 809E of ITA 2007 (remittance basis)
applies to A for the relevant tax year,
(c)
A is ordinarily UK resident in the relevant tax year,
(d)
A’s employment with B in the relevant tax year is
employment with a foreign employer, and
35
(e)
the duties of A’s employment with B in the relevant tax year
are performed wholly outside the United Kingdom.
(2)
A’s employment income by virtue of section 554Z1(1), or the relevant
part of it, is “taxable specific income” in a tax year so far as it is
remitted to the United Kingdom in that year.
40
(3)
For this purpose, any income which is remitted before A’s
employment with B starts is treated as being remitted in the tax year
in which the employment starts.
(4)
Subsection (5) applies if in the relevant tax year—
(a)
A has associated employments, and
45

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(b)
the duties of the associated employments are not performed
wholly outside the United Kingdom.
(5)
The amount of A’s employment income to which subsection (2)
applies is limited to such amount as is just and reasonable, having
regard to—
5
(a)
A’s employment income for the relevant tax year from all
associated employments, together with A’s employment
with B,
(b)
the proportion of that income which is general earnings to
which section 22 applies or is employment income to which
10
section 41A applies,
(c)
the nature of and time devoted to the duties performed
outside the United Kingdom, and those performed in the
United Kingdom, in the relevant tax year, and
(d)
all other relevant circumstances,
15

and, if the amount of A’s employment income to which subsection
(2) would otherwise apply exceeds that limit, the amount of A’s
employment income to which that subsection applies is instead to be
such amount as is just and reasonable.
(6)
In this section “associated employments” means employments with
20
B or with employers associated with B; and section 24(5) and (6)
applies for the purposes of this subsection.
554Z9
Remittance basis: A is not ordinarily resident
(1)
Subsection (2) applies if—
(a)
the value of the relevant step, or a part of it—
25
(i)
is “for” a tax year (“the relevant tax year”) as
determined under section 554Z3, and
(ii)
is not in respect of duties performed in the United
Kingdom,
(b)
section 809B, 809D or 809E of ITA 2007 (remittance basis)
30
applies to A for the relevant tax year, and
(c)
A is not ordinarily UK resident in the relevant tax year.
(2)
A’s employment income by virtue of section 554Z1(1), or the relevant
part of it, is “taxable specific income” in a tax year so far as it is
remitted to the United Kingdom in that year.
35
(3)
For this purpose, any income which is remitted before A’s
employment with B starts is treated as being remitted in the tax year
in which the employment starts.
(4)
The question of the extent to which the value of the relevant step, or
any part of it, is not in respect of duties performed in the United
40
Kingdom is to be determined on a just and reasonable basis.
554Z10
Remittance basis: supplementary
(1)
Subsection (2) applies if section 554Z8(1)(a) or 554Z9(1)(a) applies to
a part (“the relevant part”) of the value of the relevant step.
(2)
Any reduction to the value of the relevant step to be made under any
45
of sections 554Z4 to 554Z7 is to be made so that X% of the reduction
is made by way of reducing the relevant part.

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(3)
In subsection (2) “X%” means the proportion of the value of the
relevant step represented by the relevant part before any reductions
under any of sections 554Z4 to 554Z7.
(4)
For the purpose of applying section 554Z8(2) or 554Z9(2), see
Chapter A1 of Part 14 of ITA 2007 for the meaning of “remitted to the
5
United Kingdom” etc.
(5)
If the relevant step involves a sum of money, for the purposes of that
Chapter the sum of money is treated as deriving from A’s
employment income (or the relevant part of it) to which section
554Z8(2) or 554Z9(2) applies.
10
(6)
In any other case, for the purposes of that Chapter the asset which is
the subject of the relevant step is treated as deriving from A’s
employment income (or the relevant part of it) to which section
554Z8(2) or 554Z9(2) applies.
(7)
Subsection (8) applies if—
15
(a)
after the relevant step is taken, there is another relevant step
(“the later relevant step”) by reason of which this Chapter
applies in respect of A’s employment with B, and
(b)
within the meaning of section 554Z4, there is overlap
between the sum of money or asset (“sum or asset R”) which
20
is the subject of the relevant step and the sum of money or
asset (“sum or asset S”) which is the subject of the later
relevant step.
(8)
Except so far as, in any event—
(a)
sum or asset S and sum or asset R are the same sum of money
25
or asset, or
(b)
sum or asset S derives from sum or asset R,

for the purposes of Chapter A1 of Part 14 of ITA 2007 sum or asset S
is treated, to the extent of the overlap, as deriving from sum or asset
R.
30
(9)
Subsections (10) and (11) apply if—
(a)
the relevant tax year within the meaning of section 554Z8 or
554Z9 is the tax year 2007-08 or any earlier tax year, and
(b)
A—
(i)
was UK resident in that year, but
35
(ii)
was not domiciled in the United Kingdom, or was not
ordinarily UK resident, in that year.
(10)
Section 554Z8 or 554Z9 (as the case may be) applies as if section 809B
of ITA 2007 applied to A for the relevant tax year.
(11)
In section 554Z8(1)(d) the reference to a foreign employer is to be
40
read as not including a person resident in the Republic of Ireland.
Supplementary
554Z11
Relevant step taken after A’s death etc
(1)
Subsection (3), (4) or (5) (as the case may be) applies if the relevant
step is a step within section 554C or 554D and—
45

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(a)
the relevant step is taken on or after A’s death, or
(b)
if relevant, any of A’s employment income by virtue of
section 554Z1(1) is remitted to the United Kingdom on or
after A’s death.

But none of those subsections applies if A’s employment with B
5
never started before A’s death.
(2)
In subsections (3) to (5) “the relevant person” means the relevant
person (within the meaning of section 554C(1) or 554D(1) or (2)) in
relation to the relevant step.
(3)
If the relevant person is A, A’s personal representatives are liable for,
10
as the case may be—
(a)
the income tax on A’s employment income by virtue of
section 554Z1(1), or
(b)
so much of that income as is remitted.
(4)
If the relevant person is an individual other than A, the amount
15
which, as the case may be—
(a)
counts as employment income of A, or
(b)
is remitted,

is to count as an amount of employment income of the relevant
person for the tax year in which the relevant step is taken or the
20
income is remitted.
(5)
If the relevant person is not an individual, the relevant taxable
person is chargeable to income tax on the amount which, as the case
may be—
(a)
counts as employment income of A, or
25
(b)
is remitted.
(6)
In subsection (5) “the relevant taxable person” is to be read as
follows—
(a)
if the person (or any of the persons) who took the relevant
step is UK resident, “the relevant taxable person” is the
30
person (or each of the UK resident persons) who took the
relevant step,
(b)
if paragraph (a) does not apply and B is still alive or in
existence when the relevant step is taken, “the relevant
taxable person” is B, or
35
(c)
if neither paragraph (a) nor paragraph (b) applies, “the
relevant taxable person” is the non-UK resident person (or
each of the non-UK resident persons) who took the relevant
step.
(7)
For the purposes of subsection (5)—
40
(a)
the rate of tax is the amount applying for the purposes of
section 394(2) (see section 394(4)) at the time of the relevant
step or remittance of income, and
(b)
the tax is charged for the tax year in which the relevant step
is taken or the income is remitted.
45
(8)
If there is more than one relevant person in relation to the relevant
step, the amount which, as the case may be—
(a)
counts as employment income of A, or