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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 5 — Share options

    238

 

           (b)           subject to subsection (3), any amount that is treated as earnings from

the employee’s employment under Chapter 10 of Part 3 (taxable

benefits: residual liability to charge) in respect of the receipt of the share

option, and

           (c)           any amount that is a deductible amount by virtue of section 481 or 482

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(deductible amounts in respect of secondary Class 1 contributions or

special contribution met by the employee).

     (3)    If—

           (a)           the taxable amount is being determined for the purposes of section 477,

and

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           (b)           section 476 or that section has already applied to the share option by

virtue of an earlier event,

            so much of the amounts in subsection (2)(a) or (b) as was deducted in

calculating the taxable amount on that occasion is not a deductible amount.

 479   Amount of gain realised by exercising option

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     (1)    The amount of the gain realised by exercising the share option is—equation: plus[times[char[M],char[V]],minus[times[char[D],char[C]]]]

            where—

                    MV is the amount that a person might reasonably expect to obtain from a

sale of the shares acquired in the open market at the time the option is

exercised, and

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                    DC is the total of any deductible costs.

     (2)    For the purposes of subsection (1) each of the following is a “deductible cost”—

           (a)           subject to subsection (3), the amount or value of any consideration

given for the grant of the share option;

           (b)           the amount or value of any consideration given for the shares acquired;

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           (c)           in a case within section 477(1)(b) or (c), the amount of any gain realised

by a previous holder on an assignment of the option; and

           (d)           if an amount counts as employment income of the employee under

section 526 (approved CSOP schemes: charge where option granted at

a discount) in respect of the share option, so much of that amount as is

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attributable to the shares in question.

     (3)    If section 476 or 477 has already applied to the share option by virtue of an

earlier event, so much of the consideration given for the grant of the share

option as was deducted in calculating the amount of the gain on that occasion

is not a deductible cost.

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     (4)    The amount of the gain is calculated in accordance with section 531 (enterprise

management incentives: limitation of charge on exercise of option to acquire

shares below market value) or 532 (enterprise management incentives:

modified tax consequences following disqualifying events) if—

           (a)           it is being calculated for the purposes of section 476 (charge on exercise

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etc. of option by employee), and

           (b)           section 531 or 532, as the case may be, applies.

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 5 — Share options

    239

 

 480   Amount of gain realised by assigning or releasing option

     (1)    The amount of the gain realised by assigning or releasing the share option is—equation: plus[char[C],minus[times[char[D],char[C]]]]

            where—

                    C is the amount or value of the consideration for the assignment or

release, and

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                    DC is the total of any deductible costs.

     (2)    For the purposes of subsection (1) each of the following is a “deductible cost”—

           (a)           subject to subsection (3), the amount or value of any consideration

given for the grant of the share option;

           (b)           in a case within section 477(1)(b) or (c), the amount of any gain realised

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by a previous holder on an assignment of the share option; and

           (c)           if an amount counts as employment income of the employee under

section 526 (approved CSOP schemes: charge where option granted at

a discount) in respect of the share option, so much of that amount as is

attributable to the shares in question.

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     (3)    If section 476 or 477 has already applied to the share option by virtue of an

earlier event, so much of the consideration given for the grant of the share

option as was deducted in calculating the amount of the gain on that occasion

is not a deductible cost.

 481   Deductible amount in respect of secondary Class 1 contributions met by

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employee

     (1)    The amount calculated under subsection (2) is a deductible amount for the

purposes of section 478(1) if—

           (a)           an agreement having effect under paragraph 3A of Schedule 1 to the

Contributions and Benefits Act has been entered into allowing the

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secondary contributor to recover from the employee the whole or part

of any secondary Class 1 contributions in respect of the gain, or

           (b)           an election having effect under paragraph 3B of Schedule 1 to that Act

is in force which has the effect of transferring to the employee the whole

or part of the liability to pay secondary Class 1 contributions in respect

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of the gain.

     (2)    The amount is the sum of—

           (a)           any amount that under the agreement referred to in subsection (1)(a) is

recovered in respect of the gain by the secondary contributor before 5th

June in the tax year following that in which the exercise, assignment or

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release of the share option occurred, and

           (b)           the amount of any liability in respect of the gain that, by virtue of the

election referred to in subsection (1)(b), has become the employee’s

liability.

     (3)    If notice of withdrawal of approval of the election is given, the amount of any

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liability in respect of the gain for the purposes of subsection (2)(b) is limited to

the amount of the liability met before 5th June in the tax year following that in

which the exercise, assignment or release of the share option occurred.

     (4)    Subsection (1) does not apply in respect of a liability to pay Class 1

contributions which is prevented from arising by virtue of section 2(1)(a) of the

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Social Security Contributions (Share Options) Act 2001 (c. 20) (liability to pay

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 5 — Share options

    240

 

     (4)    Class 1 contributions in respect of gain replaced by liability to pay special

contribution).

     (5)    In this section—

                    “approval”, in relation to an election, means approval by the Board of

Inland Revenue under paragraph 3B of Schedule 1 to the Contributions

5

and Benefits Act; and

                     “secondary contributor” has the same meaning as in that Act (see section

7).

 482   Deductible amount in respect of special contribution met by employee

     (1)    The amount of the liability referred to in subsection (4) is a deductible amount

10

for the purposes of section 478(1), if conditions A to D are met.

     (2)    Condition A is that a notice in respect of the share option was given to the

Board of Inland Revenue in accordance with section 1 of the Social Security

Contributions (Share Options) Act 2001 (c. 20) before 11th August 2001.

     (3)    Condition B is that the person or one of the persons who gave that notice is a

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person who (apart from that Act) was liable, or would have become liable, by

virtue of an election under paragraph 3B(1) of Schedule 1 to the Contributions

and Benefits Act, to pay secondary Class 1 contributions in respect of a gain

arising on the exercise, assignment or release of the share option.

     (4)    Condition C is that that person became liable to pay a special contribution

20

under section 2 of the Social Security Contributions (Share Options) Act 2001

in respect of the share option.

     (5)    Condition D is that that person met that liability before 11th August 2001 or

before the end of such further period as the Board of Inland Revenue directed

under section 2(5) of that Act.

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Supplementary provisions

 483   Extended meaning of “assign” and “release”

     (1)    For the purposes of this Chapter, a person who receives a benefit in money or

money’s worth in consideration for, or otherwise in connection with—

           (a)           failing or undertaking not to exercise a share option, or

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           (b)           granting or undertaking to grant to another person a right to acquire

shares which are subject to a share option or any interest in them,

            is to be treated as realising a gain by assigning or releasing the share option for

a consideration equal to the amount or value of the benefit.

     (2)    References in this Chapter to the release of a share option include agreeing to

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the restriction of the exercise of the option.

 484   Amount or value of consideration given for grant of share option

     (1)    This section applies for the purposes of sections 479 and 480 (amount of gain)

in determining the amount or value of any consideration given for the grant of

the share option.

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Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 5 — Share options

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     (2)    If any consideration is given partly in respect of the grant and partly in respect

of something else, the amount given in respect of the different things is to be

determined on a just and reasonable apportionment.

     (3)    The consideration given wholly or partly for the grant does not include the

performance of any duties of, or in connection with, the office or employment

5

by reason of which the share option was granted.

 485   Application of this Chapter where share option exchanged for another

     (1)    This section applies if—

           (a)           a share option (“the old option”) is assigned or released, and

           (b)           the whole or part of the consideration for the assignment or release

10

consists of or includes another share option (“the new option”).

     (2)    For the purposes of section 480 (amount of gain realised by assigning or

releasing option) the new option is not to be treated as consideration for the

assignment or release of the old option.

     (3)    This Chapter applies to the new option as it applies to the old option.

15

     (4)    For the purposes of sections 479 and 480 (amount of gain) the amount or value

of the consideration for the grant of the new option is to be treated as being the

sum of—

           (a)           the amount by which the amount or value of the consideration given

for the grant of the old option exceeds the amount or value of any

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consideration for the assignment or release of the old option, apart from

the new option, and

           (b)           any valuable consideration given for the grant of the new option, apart

from the old option.

     (5)    Two or more transactions are to be treated for the purposes of subsection (1) as

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a single transaction by which one share option is assigned for a consideration

which consists of or includes another share option if—

           (a)           the transactions result in—

                  (i)                 a person ceasing to hold a share option, and

                  (ii)                that person or a connected person coming to hold another share

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option, and

           (b)           one or more of the transactions is effected under arrangements to which

two or more persons holding share options, in respect of which there

may be liability to tax under this Chapter, are parties.

     (6)    Subsection (5) applies regardless of the order in which the assignment and the

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acquisition occur.

 486   Duty to notify matters relating to share options

     (1)    Subsection (2) applies if in a tax year a company—

           (a)           grants a share option,

           (b)           allots or transfers shares on the exercise of a share option,

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           (c)           receives notice of the assignment of a share option, or

           (d)           provides a benefit in money or money’s worth—

                  (i)                 for the assignment of a share option,

                  (ii)                for the release in whole or in part of a share option,

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 5 — Share options

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                  (iii)               for or in connection with a failure, or undertaking not, to

exercise a share option, or

                  (iv)                for or in connection with the grant of, or an undertaking to

grant, a right to acquire shares or an interest in shares to which

a share option relates.

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     (2)    The company must provide the Inland Revenue with particulars in writing of

the matter.

     (3)    The particulars must be provided before 7th July in the tax year following that

in which the matter occurred.

     (4)    The particulars of any matter must include particulars of any secondary Class

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1 contributions payable in connection with the matter which are—

           (a)           recovered as mentioned in section 481(2)(a) (agreement for secondary

contributor to recover secondary Class 1 contributions in respect of

gain from the employee), or

           (b)           met as mentioned in section 481(3) (liability for secondary Class 1

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contributions in respect of gain transferred to the employee).

     (5)    A company need not deliver particulars under subsection (1) if it has already

given them in a notice under paragraph 44 of Schedule 5 (enterprise

management incentives: notice of option to be given to Inland Revenue).

            In other respects the obligations imposed by subsection (1) and by that

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paragraph are independent of each other.

 487   Minor definitions

     (1)    In this Chapter—

                    “company” means a body corporate;

                    “director”—

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                  (a)                 in the case of a company whose affairs are managed by a board

of directors or similar body, means a member of that board or

similar body,

                  (b)                                     in the case of a company whose affairs are managed by a single

director or similar person, means that director or person,

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                  (c)                 in the case of a company whose affairs are managed by its

members, means a member,

                         and includes a person who is to be or has been a director;

                    “employee” includes—

                  (a)                                     in relation to a company, a person taking part in the

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management of the affairs of the company who is not a director,

and

                  (b)                                     a person who is to be or has been an employee;

                    “secondary Class 1 contributions” has the same meaning as in the

Contributions and Benefits Act (see section 1);

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                    “shares” includes—

                  (a)                 stock, and

                  (b)                 any securities as defined in section 254(1) of ICTA issued by a

company;

                    “the Contributions and Benefits Act” means SSCBA 1992 or SSCB(NI)A

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1992.

     (2)    In this Chapter—

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 6 — Approved share incentive plans

    243

 

                    “share option”,

                    “the employee”, and

                    “the share option”,

            have the meaning indicated in section 471(4).

Chapter 6

5

Approved share incentive plans

Introduction

 488   Approved share incentive plans (SIPs)

     (1)    This Chapter provides—

           (a)           for the approval of share incentive plans (“SIPs”) by the Inland

10

Revenue,

           (b)           for exemptions from income tax in connection with shares obtained

under those plans,

           (c)           for amounts to count as employment income in certain circumstances

in connection with such plans, and

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           (d)           for the making of PAYE deductions in connection with such amounts.

     (2)    Schedule 2 contains the requirements that have to be met for a SIP to be

approved, together with—

           (a)           the approval procedure, and

           (b)           provisions relating to the administration and operation of a SIP.

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     (3)    The provisions of—

           (a)           this and the following sections of this Chapter,

           (b)           Schedule 2, and

           (c)           the provisions mentioned in section 515 (tax advantages and charges

under other Acts),

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            together constitute “the SIP code”.

     (4)    In the SIP code—

                    “approved” means approved by the Inland Revenue under Schedule 2,

and “approval” has a corresponding meaning;

                    “PAYE deduction” means a deduction required by PAYE regulations;

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                    a “share incentive plan” (or “SIP” for short) means a plan established by a

company providing—

                  (a)                 for shares to be appropriated to employees without payment

(“free shares”), or

                  (b)                 for shares to be acquired on behalf of employees out of sums

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deducted from their salary (“partnership shares”).

     (5)    Other expressions used in the SIP code and contained in the index at the end of

Schedule 2 have the meaning indicated by the index.

 

 

 
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