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Finance Bill
Schedule 22 — Employee securities and options

    275

 

                    (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 chargeable

event.

Supplementary

5

       431            Election for full or partial disapplication of this Chapter

              (1)             The employer and the employee may elect in relation to

employment-related securities which are restricted securities or a

restricted interest in securities that—

                    (a)                   for the relevant tax purposes their market value at the time of

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the acquisition is to be calculated as if they were not, and

                    (b)                   sections 425 to 430 are not to apply to the employment-

related securities.

              (2)             Or the employer and the employee may elect in relation to

employment-related securities which are restricted securities or a

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restricted interest in securities that—

                    (a)                   for the relevant tax purposes their market value at the time of

the acquisition is to be calculated, and

                    (b)                   sections 425 to 430 are to apply to the employment-related

securities,

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                              as if any specified restriction did not apply to the employment-

related securities.

              (3)             For the purposes of subsections (1) and (2) “the relevant tax

purposes” are—

                    (a)                   determining any amount that is to constitute earnings from

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the employment under Chapter 1 of Part 3 (earnings),

                    (b)                   determining the amount of any gain realised on the

occurrence of an event that is a chargeable event by virtue of

section 439(3)(a) (conversion),

                    (c)                   operating Chapter 3C of this Part (acquisition of securities for

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less than market value), and

                    (d)                   determining any amount that counts as employment income

of the employee under Chapter 5 of this Part (securities

acquired pursuant to securities option).

              (4)             An election under this section—

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

employee, and

                    (b)                   is irrevocable.

              (5)             Such an agreement—

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

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Revenue, and

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

       432            Definitions

              (1)             In this Chapter—

                                      “interest”, in relation to securities,

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Finance Bill
Schedule 22 — Employee securities and options

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                                      “securities”,

                                      “securities option”, and

                                      “shares”,

                              have the meaning indicated in section 420.

              (2)             In this Chapter “market value” has the meaning indicated in section

5

421(1).

              (3)             For the purposes of this Chapter sections 421(2) and 421A apply for

determining the amount of the consideration given for anything and

section 421I applies for determining the amount of the consideration

given for the acquisition of employment-related securities.

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              (4)             In this Chapter—

                                      “the acquisition”,

                                      “the employee” (except in section 429),

                                      “the employer”,

                                      “the employment”, and

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                                      “employment-related securities”,

                              have the meaning indicated in section 421B(8).

              (5)             In this Chapter “associated person” has the meaning indicated in

section 421C.

              (6)             In this Chapter—

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                                      “associated company”, and

                                      “employee-controlled”,

                              have the meaning indicated in section 421H.

              (7)             In this Chapter—

                                      “restricted interest in securities”, and

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                                      “restricted securities”,

                              have the meaning indicated in sections 423 and 424.

              (8)             In this Chapter “restriction”, in relation to securities or an interest in

securities, means provision relating to the securities or interest which

is made by any contract, agreement, arrangement or condition and to

30

which any of subsections (2) to (4) of section 423 applies.

              (9)             In this Chapter “variation”, in relation to a restriction, has the

meaning indicated in section 427(4).

              (10)            In this Chapter “convertible securities” has the same meaning as in

Chapter 3 of this Part (see section 436).”.

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          (2)      Sub-paragraph (1) has effect on and after such day as the Treasury may by

order made by statutory instrument appoint but does not affect any

securities, or interests in securities, acquired before 16th April 2003.

          (3)      Section 431 has effect in relation to securities, or interests in securities,

acquired before the day appointed under sub-paragraph (2)—

40

              (a)             with the substitution in subsections (1)(b) and (2)(b) for “sections 425

to 430” of “section 426 as originally enacted and sections 426 to 430

as substituted by paragraph 3(1) of Schedule 22 to the Finance Act

2003”, and

 

 

Finance Bill
Schedule 22 — Employee securities and options

    277

 

              (b)             with the substitution in subsection (5)(b) for “the acquisition” of “the

day appointed under paragraph 3(2) of Schedule 22 to the Finance

Act 2003”.

          (4)      But sub-paragraph (3) does not apply where in relation to the securities or

interest in securities an amount counts as employment income of the

5

employee under section 427 or 449 of the Income Tax (Earnings and

Pensions) Act 2003 (c. 1) as originally enacted.

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

“Chapter 3

Convertible securities

10

Introduction

       435            Application of this Chapter

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

                    (a)                      convertible securities, or

                    (b)                      an interest in convertible securities,

15

            at the time of the acquisition.

       436            “Convertible securities”

      For the purposes of this Chapter securities are convertible securities

if—

                    (a)                      they confer on the holder an immediate or conditional

20

entitlement to convert them into securities of a different

description,

                    (b)                      a contract, agreement, arrangement or condition authorises

or requires the grant of such an entitlement to the holder if

certain circumstances arise, or do not arise, or

25

                    (c)                      a contract, agreement, arrangement or condition makes

provision for the conversion of the securities (otherwise than

by the holder) into securities of a different description.

Tax relief on acquisition

       437            Adjustment of charge

30

      For the purposes of—

                    (a)                      any liability to tax under Chapter 1 of Part 3 (earnings),

Chapter 10 of Part 3 (taxable benefits: residual liability to

charge) or Chapter 5 of this Part (acquisition of securities

pursuant to securities option), and

35

                    (b)                      the operation of Chapter 3C of this Part (acquisition of

securities for less than market value),

            the market value of the employment-related securities is to be

determined as if they were not convertible securities or an interest in

convertible securities.

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Finance Bill
Schedule 22 — Employee securities and options

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Tax charge on post-acquisition chargeable events

       438            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 440 counts as

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employment income of the employee for the relevant tax year.

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

occurs.

              (4)             Section 439 explains what are chargeable events for the purposes of

this section.

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              (5)             This section is subject to section 443 (case outside charge under this

section).

       439            Chargeable events

              (1)             This section applies for the purposes of section 438 (charge on

occurrence of chargeable event).

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

in relation to the employment-related securities.

              (3)             The events are—

                    (a)                   the conversion of the employment-related securities (or the

securities in which they are an interest) into securities of a

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different description in circumstances in which an associated

person is beneficially entitled to the securities into which the

employment-related securities are converted,

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

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

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otherwise than to another associated person (at a time when

they are still convertible securities or an interest in

convertible securities),

                    (c)                   the release for consideration of the entitlement to convert the

employment-related securities (or the securities in which

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they are an interest) into securities of a different description,

and

                    (d)                   the receipt by an associated person of a benefit in money or

money’s worth in connection with the entitlement to convert

(other than securities acquired on the conversion of the

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employment-related securities or consideration such as is

mentioned in paragraph (b) or (c)).

              (4)             A benefit received on account of any disability (within the meaning

of the Disability Discrimination Act 1995) of the employee is to be

disregarded for the purposes of subsection (3)(d).

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       440            Amount of charge

              (1)             The taxable amount for the purposes of section 438 (charge on

occurrence of chargeable event) is—equation: plus[times[char[A],char[G]],minus[times[char[C],char[E]]]]

 

 

Finance Bill
Schedule 22 — Employee securities and options

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              (2)             AG is the amount of any gain realised on the occurrence of the

chargeable event.

              (3)             CE is the amount of any consideration given for the entitlement to

convert the employment-related securities or the securities in which

they are an interest together with the amount of any expenses

5

incurred by the holder of the employment-related securities in

connection with the conversion, disposal, release or receipt.

              (4)             Section 441 explains what is the amount of any gain realised on the

occurrence of a chargeable event.

              (5)             Section 442 explains whether consideration is given for the

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entitlement to convert the employment-related securities or the

securities in which they are an interest and, if it is, what is its amount.

       441            Amount of gain realised on occurrence of chargeable event

              (1)             This section applies for the purposes of section 440 (amount of

charge on occurrence of chargeable event).

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              (2)             The amount of the gain realised on the occurrence of an event that is

a chargeable event by virtue of section 439(3)(a) (conversion) is—equation: plus[times[char[C],char[M],char[V],char[C],char[S]],minus[id[plus[times[char[C],

char[M],char[V],char[E],char[R],char[S]],times[char[C],char[C]]]]]]

              (3)             The amount of the gain realised on the occurrence of an event that is

a chargeable event by virtue of section 439(3)(b) (disposal) is—equation: plus[times[char[D],char[C]],minus[times[char[C],char[M],char[V],char[E],char[R],

char[S]]]]

              (4)             The amount of the gain realised on the occurrence of an event that is

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a chargeable event by virtue of section 439(3)(c) (release of

entitlement to convert) is the amount of the consideration received

by an associated person in respect of the release.

              (5)             The amount of the gain realised on the occurrence of an event that is

a chargeable event by virtue of section 439(3)(d) (receipt of benefit) is

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the amount or market value of the benefit.

              (6)             CMVCS—

                    (a)                   if the employment-related securities are securities, is the

market value at the time of the chargeable event of the

securities into which they are converted (determined, where

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those securities are themselves convertible securities, as if

they were not), or

                    (b)                   if the employment-related securities are an interest in

securities, is the same proportion of that market value as the

market value of the interest in the securities in which the

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employment-related securities are an interest bears to the

market value of those securities.

              (7)             CMVERS is the market value of the employment-related securities at

the time of the chargeable event determined as if they were not

convertible securities or an interest in convertible securities.

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              (8)             CC is the amount of any consideration given for the conversion of the

employment-related securities.

              (9)             DC is the amount of the consideration given on the disposal.

 

 

 
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