House of Lords portcullis
House of Lords
Session 2002 - 03
Internet Publications
Other Bills before Parliament

Finance Bill


Finance Bill
Schedule 22 — Employee securities and options

    268

 

                    (i)                   the receipt of a benefit in money or money’s worth which is

(or by virtue of section 477(6) is to be regarded as being)

received in connection with such a securities option.

       421L            Persons to whom section 421J applies

              (1)             This section applies for the purposes of section 421J (duty to provide

5

information).

              (2)             Each of the following persons is a responsible person in relation to a

reportable event.

              (3)             The persons are—

                    (a)                   the employer in question,

10

                    (b)                   any host employer of the employee in question,

                    (c)                   the person from whom the securities in question were, or

interest or option in question was, acquired, and

                    (d)                   in relation to a reportable event concerning securities or an

interest in securities which are not excluded securities, the

15

person by whom the securities were issued.

              (4)             In subsection (3)(b) “host employer” means a person other than the

employer in question—

                    (a)                   for whom the employee in question works at the time of the

reportable event, and

20

                    (b)                   who would, by virtue of subsection (2) of section 689

(employees of non-UK employers working for a person other

than the employer), be treated for the purposes of PAYE

regulations as making a payment of PAYE income of the

employee in question if a payment to which subsection (5)

25

would apply were made by the employer in question in

respect of the period during which the employee works for

the other person.

              (5)             For the purposes of subsection (4)(b) this subsection would apply to

a payment if—

30

                    (a)                   it were a payment of PAYE income of the employee, and

                    (b)                   the conditions in subsection (1)(c) and (d) of section 689 were

satisfied in relation to the payment.

              (6)             For the purposes of subsection (3)(d) securities are excluded

securities in relation to a reportable event if they are—

35

                    (a)                   loan stock, bonds or other instruments creating or

acknowledging indebtedness issued by or on behalf of any

national or regional government or local authority (in the

United Kingdom or elsewhere) or any body whose members

consists of states, national or regional governments or local

40

authorities, or

                    (b)                   securities which are issued by a person who, at the time of the

reportable event, is not connected with the employer in

question and which are listed or dealt in on a recognised

stock exchange.”.

45

          (2)      So far as relating to—

 

 

Finance Bill
Schedule 22 — Employee securities and options

    269

 

              (a)             each of the new Chapters substituted or inserted in Part 7 by the

following paragraphs, and

              (b)             each of the Chapters of that Part as originally enacted for which new

Chapters are substituted by the following paragraphs,

                   sub-paragraph (1) has effect in accordance with the provision made by the

5

following paragraphs for the taking effect of the substitution or insertion.

  3       (1)      For Chapter 2 of Part 7 substitute—

“Chapter 2

Restricted securities

Introduction

10

       422            Application of this Chapter

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

                    (a)                      restricted securities, or

                    (b)                      a restricted interest in securities,

            at the time of the acquisition.

15

       423            “Restricted securities” and “restricted interest in securities”

              (1)             For the purposes of this Chapter employment-related securities are

restricted securities or a restricted interest in securities if—

                    (a)                   there is any contract, agreement, arrangement or condition

which makes provision to which any of subsections (2) to (4)

20

applies, and

                    (b)                   the market value of the employment-related securities is less

than it would be but for that provision.

              (2)             This subsection applies to provision under which—

                    (a)                   there will be a transfer, reversion or forfeiture of the

25

employment-related securities, or (if the employment-related

securities are an interest in securities) of the interest or the

securities, if certain circumstances arise or do not arise,

                    (b)                   as a result of the transfer, reversion or forfeiture the person by

whom the employment-related securities are held will cease

30

to be beneficially entitled to the employment-related

securities, and

                    (c)                   that person will not be entitled on the transfer, reversion or

forfeiture to receive in respect of the employment-related

securities an amount of at least their market value

35

(determined as if there were no provision for transfer,

reversion or forfeiture) at the time of the transfer, reversion or

forfeiture.

              (3)             This subsection applies to provision under which there is a

restriction on—

40

                    (a)                   the freedom of the person by whom the employment-related

securities are held to dispose of the employment-related

securities or proceeds of their sale,

 

 

Finance Bill
Schedule 22 — Employee securities and options

    270

 

                    (b)                   the right of that person to retain the employment-related

securities or proceeds of their sale, or

                    (c)                   any other right conferred by the employment-related

securities,

                              (not being provision to which subsection (2) applies).

5

              (4)             This subsection applies to provision under which the disposal or

retention of the employment-related securities, or the exercise of a

right conferred by the employment-related securities, may result in

a disadvantage to—

                    (a)                   the person by whom the employment-related securities are

10

held,

                    (b)                   the employee (if not the person by whom they are held), or

                    (c)                   any person connected with the person by whom they are held

or with the employee,

                              (not being provision to which subsection (2) or (3) applies).

15

       424            Exceptions

      Employment-related securities are not restricted securities or a

restricted interest in securities by reason only that any one or more

of the following is the case—

                    (a)                      the employment-related securities (or the securities in which

20

they are an interest) are unpaid or partly paid shares which

may be forfeited for non-payment of calls and there is no

restriction on the meeting of calls by the person by whom

they are held,

                    (b)                      that person may be required to offer for sale or transfer the

25

employment-related securities on the employee ceasing, as a

result of misconduct, to be employed by the employer or a

person connected with the employer, or

                    (c)                      the employment-related securities (or the securities in which

they are an interest) may be redeemed on payment of any

30

amount.

Tax exemption on acquisition

       425            No charge in respect of acquisition in certain cases

              (1)             Subsection (2) applies if the employment-related securities—

                    (a)                   are restricted securities, or a restricted interest in securities,

35

by virtue of subsection (2) of section 423 (provision for

transfer, reversion or forfeiture) at the time of the acquisition,

and

                    (b)                   will cease to be restricted securities, or a restricted interest in

securities, by virtue of that subsection within 5 years after the

40

acquisition (whether or not they may remain restricted

securities or a restricted interest in securities by virtue of the

application of subsection (3) or (4) of that section).

              (2)             No liability to income tax arises in respect of the acquisition, except

as provided by—

45

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

 

 

Finance Bill
Schedule 22 — Employee securities and options

    271

 

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

value), or

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

option).

              (3)             But the employer and the employee may elect that subsection (2) is

5

not to apply to the employment-related securities.

              (4)             An election under subsection (3)—

                    (a)                   is to be made by agreement by the employer and the

employee, and

                    (b)                   is irrevocable.

10

              (5)             Such an agreement—

                    (a)                   must be made in a form approved by the Board of Inland

Revenue, and

                    (b)                   may not be made more than 14 days after the acquisition.

Tax charge on post-acquisition chargeable events

15

       426            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 428 counts as

employment income of the employee for the relevant tax year.

20

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

occurs.

              (4)             Section 427 explains what are chargeable events for the purposes of

this section.

              (5)             This section is subject to section 429 (case outside charge under this

25

section).

       427            Chargeable events

              (1)             This section applies for the purposes of section 426 (charge on

occurrence of chargeable event).

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

30

in relation to the employment-related securities.

              (3)             The events are—

                    (a)                   the employment-related securities ceasing to be restricted

securities, or a restricted interest in securities, in

circumstances in which an associated person is beneficially

35

entitled to the employment-related securities after the event,

                    (b)                   the variation of any restriction relating to the employment-

related securities in such circumstances (without the

employment-related securities ceasing to be restricted

securities or a restricted interest in securities), and

40

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

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

otherwise than to another associated person (at a time when

 

 

Finance Bill
Schedule 22 — Employee securities and options

    272

 

they are still restricted securities or a restricted interest in

securities).

              (4)             For the purposes of this Chapter there is a variation of a restriction

relating to the employment-related securities if any restriction in

relation to them is removed or varied.

5

       428            Amount of charge

              (1)             The taxable amount for the purposes of section 426 (charge on

occurrence of chargeable event) is—equation: plus[times[char[U],char[M],cross[char[V],id[plus[times[char[I],char[U],char[P]],

minus[times[char[P],char[C],char[P]]],minus[times[char[O],char[P]]]]]]],minus[times[

char[C],char[E]]]]

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

securities immediately after the chargeable event but for any

10

restrictions.

              (3)             IUP is—equation: over[plus[times[char[I],char[U],char[M],char[V]],minus[times[char[D],char[A]]]],

times[char[I],char[U],char[M],char[V]]]

      where—

                      IUMV is what would have been the market value of the

employment-related securities at the time of the acquisition

15

but for any restrictions, and

                      DA is the total of any deductible amounts.

              (4)             PCP is the aggregate of the result of the application of the formula—equation: plus[times[char[I],char[U],char[P]],minus[times[char[P],char[C],char[P]]],minus[

times[char[O],char[P]]]]

on each previous event (if any) occurring since the acquisition that

was a chargeable event for the purposes of section 426 in relation to

20

the employment-related securities (and so is nil if there has not been

such a previous event).

              (5)             OP is—equation: over[plus[times[char[U],char[M],char[V]],minus[times[char[A],char[M],char[V]]]],

times[char[U],char[M],char[V]]]

where AMV is the actual market value of the employment-related

securities immediately after the chargeable event.

25

              (6)             CE is any expenses incurred by the holder of the employment-

related securities in connection with—

                    (a)                   the employment-related securities ceasing to be restricted

securities or a restricted interest in securities,

                    (b)                   the variation of a restriction relating to the employment-

30

related securities, or

                    (c)                   the disposal of the employment-related securities,

                              together (if the chargeable event is one within section 427(3)(a) or (b)

(lifting of restrictions and variation of restriction)) with any

consideration given for the employment-related securities ceasing to

35

be restricted securities or a restricted interest in securities or the

variation of a restriction relating to the employment-related

securities.

 

 

Finance Bill
Schedule 22 — Employee securities and options

    273

 

              (7)             For the purposes of this section each of the following is a “deductible

amount”—

                    (a)                   the amount of any consideration given for the acquisition of

the employment-related securities,

                    (b)                   any amount that constituted earnings from the employee’s

5

employment under Chapter 1 of Part 3 (earnings) in respect

of the acquisition of the employment-related securities,

                    (c)                   any amount that counted as employment income in relation

to the employment-related securities under Chapter 2 or 4 of

this Part as originally enacted,

10

                    (d)                   if the employment-related securities were acquired on a

conversion of other employment-related securities, any

amount that counted as employment income of the employee

under Chapter 3 of this Part (including that Chapter as

originally enacted) (convertible securities) by reason of the

15

conversion, and

                    (e)                   if the acquisition of the employment-related securities was

pursuant to a securities option, any amount that counted as

employment income of the employee under section 476 (or

section 476 or 477 as originally enacted) (acquisition of

20

securities pursuant to securities option) by reason of the

acquisition.

              (8)             If the employment-related securities are convertible securities, or an

interest in convertible securities, their market value is to be

determined for the purposes of this section as if they were not.

25

              (9)             Where the chargeable event is one within section 427(3)(c) (disposal)

and CD is less than AMV, the taxable amount for the purposes of

section 426 is the amount determined under subsection (1)

multiplied by—equation: over[times[char[C],char[D]],times[char[A],char[M],char[V]]]

                                                                              where—

30

                                                                                                                      CD is the consideration given for the employment-related

securities, and

                                                                              AMV is the actual market value of the employment-related

securities immediately after the chargeable event.

       429            Case outside charge under section 426

35

              (1)             Section 426 (charge on occurrence of chargeable event) does not

apply if—

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

in shares) in a company of a class,

                    (b)                   the provision by virtue of which the employment-related

40

securities are restricted securities, or a restricted interest in

securities, applies to all the company’s shares of the class,

                    (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

45

employment-related securities, and

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

 

 

Finance Bill
Schedule 22 — Employee securities and options

    274

 

              (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 427(3)(a)

(lifting of restrictions), if the provision mentioned in

5

subsection (1)(b) ceases to apply to them,

                    (b)                   in the case of a chargeable event within section 427(3)(b)

(variation of restriction), if that provision is varied in relation

to them in the same way as in relation to the employment-

related securities, or

10

                    (c)                   in the case of a chargeable event within section 427(3)(c)

(disposal), if they are disposed of.

              (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.

15

              (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

the benefit of any of the following—

                    (a)                   employees of the company,

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

20

                    (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

associated company.

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

25

if—

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

opportunity available by reason of the employee’s

employment, or

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

30

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

who is related to the employee.

       430            Election for outstanding restrictions to be ignored

35

              (1)             The employer and the employee may elect that—

                    (a)                   on a chargeable event the taxable amount for the purposes of

section 426 is to be determined by applying section 428(1) as

if it did not include a reference to OP, and

                    (b)                   sections 426 to 429 are not to apply to the employment-

40

related securities after that chargeable event.

              (2)             An election under this section—

                    (a)                   is to be made by agreement by the employer and the

employee, and

                    (b)                   is irrevocable.

45

              (3)             Such an agreement—

 

 

 
previous section contents continue
 
House of Lords home page Houses of Parliament home page House of Commons home page search page enquiries

© Parliamentary copyright 2003
Revised 2 July 2003