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Finance Bill
Schedule 22 — Employee securities and options

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       442            Amount of consideration given for entitlement to convert

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

charge on occurrence of chargeable event).

              (2)             Consideration is to be regarded as given for the entitlement to

convert the employment-related securities (or the securities in which

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they are an interest) if (and only if) ACS exceeds NCMV.

              (3)             The amount of the consideration to be regarded as so given is the

amount of the excess.

              (4)             ACS is the amount of the consideration given for the acquisition of

the employment-related securities.

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              (5)             NCMV is the market value of the employment-related securities at

the time of the acquisition, determined as if they were not convertible

securities or an interest in convertible securities.

       443            Case outside charge under section 438

              (1)             Section 438 (charge on occurrence of chargeable event) does not

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apply if—

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

in shares) in a company of a class,

                    (b)                   all the company’s shares of the class are convertible

securities,

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                    (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

employment-related securities, and

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

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              (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 439(3)(a)

(conversion), if they are converted into securities of a

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different description,

                    (b)                   in the case of a chargeable event within section 439(3)(b)

(disposal), if they are disposed of,

                    (c)                   in the case of a chargeable event within section 439(3)(c)

(release of entitlement to convert), if the entitlement to

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convert them into securities of a different description is

released, or

                    (d)                   in the case of a chargeable event within section 439(3)(d)

(receipt of benefit), if a similar benefit is received in respect of

the entitlement to convert them.

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              (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.

              (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

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the benefit of any of the following—

 

 

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Schedule 22 — Employee securities and options

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                    (a)                   employees of the company,

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

                    (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

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associated company.

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

if—

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

opportunity available by reason of the employee’s

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employment, or

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

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

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who is related to the employee.

Supplementary

       444                        Definitions

              (1)             In this Chapter—

                                      “interest”, in relation to securities,

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                                      “securities”, and

                                      “shares”,

                              have the meaning indicated in section 420.

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

421(1).

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              (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.

              (4)             In this Chapter—

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                                      “the acquisition”,

                                      “the employee” (except in section 443), and

                                      “employment-related securities”,

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

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

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section 421C.

              (6)             In this Chapter—

                                      “associated company”, and

                                      “employee-controlled”,

                              have the meaning indicated in section 421H.

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              (7)             In this Chapter “convertible securities” has the meaning indicated in

section 436.”.

 

 

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Schedule 22 — Employee securities and options

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          (2)      Sub-paragraph (1) has effect on and after the day appointed under

paragraph 3(2) (so that, apart from section 437, the provisions of Chapter 3

of Part 7 as substituted by that sub-paragraph apply on and after that day in

relation to employment-related securities irrespective of the date of the

acquisition).

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  5       (1)      After Chapter 3 of Part 7 insert—

“Chapter 3A

Securities with artificially depressed market value

Introduction

       446A            Application of this Chapter

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              (1)             This Chapter applies in certain cases where the market value of

employment-related securities (or other relevant securities or

interests in securities) is reduced by things done otherwise than for

genuine commercial purposes.

              (2)             The following are among the things that are, for the purposes of this

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Chapter, done otherwise than for genuine commercial purposes—

                    (a)                   anything done as part of a scheme or arrangement the main

purpose, or one of the main purposes, of which is the

avoidance of tax or national insurance contributions, and

                    (b)                   any transaction between companies which are members of

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the same group on terms which are not such as might be

expected to be agreed between persons acting at arm’s length

(other than a payment for group relief).

              (3)             In subsection (2)(b)—

                    (a)                   “group” means a company and its 51% subsidiaries, and

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                    (b)                   “group relief” has the same meaning as in section 402(6) of

ICTA.

Tax charge on acquisition

       446B            Charge on acquisition

              (1)             This section applies where the market value of employment-related

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securities at the time of the acquisition has been reduced by at least

10% as a result of things done otherwise than for genuine

commercial purposes within the period of 7 years ending with the

acquisition.

              (2)             The taxable amount determined under section 446C counts as

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employment income of the employee for the tax year in which the

acquisition occurs.

              (3)             But this section does not apply if section 425(2) (no charge on

acquisition of certain restricted securities or restricted interests in

securities) applies in relation to the employment-related securities.

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              (4)             This section does not affect any liability to income tax arising in

respect of the acquisition of the employment-related securities

under—

                    (a)                   Chapter 1 of Part 3 (earnings),

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

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charge),

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

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

value), or

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

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option).

       446C            Amount of charge

              (1)             The taxable amount for the purposes of section 446B (charge on

acquisition) is—equation: plus[times[char[F],char[M],char[V]],minus[times[char[M],char[V]]]]

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

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securities at the time of the acquisition if the things mentioned in

section 446B(1) had not been done.

              (3)             MV is the actual market value of the employment-related securities

at the time of the acquisition.

              (4)             But where what would be MV is less than the amount of any

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consideration given for the acquisition of the employment-related

securities, MV is the amount of that consideration.

              (5)             This section is subject to section 446D (restricted securities and

convertible securities).

       446D            Restricted securities and convertible securities

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              (1)             Where the employment-related securities are restricted securities or

a restricted interest in securities, FMV (but not MV) is to be

determined as if the employment-related securities were not

restricted securities or a restricted interest in securities; and,

accordingly, sections 426 to 431 (post-acquisition charges on

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restricted securities) do not apply to the employment-related

securities.

              (2)             Where the employment-related securities are convertible securities

or an interest in convertible securities, FMV and MV are to be

determined as if they were not.

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Other tax charges

       446E                        Charge on restricted securities

              (1)             This section applies where the market value of employment-related

securities which are restricted securities or a restricted interest in

securities is artificially low—

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                    (a)                   immediately after an event which is a chargeable event in

relation to the employment-related securities for the

purposes of section 426 (charge on restricted securities), or

 

 

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Schedule 22 — Employee securities and options

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                    (b)                   on 5th April in any year.

              (2)             The market value of the employment-related securities is artificially

low where it has been reduced by at least 10% as a result of things

done otherwise than for genuine commercial purposes within the

relevant period.

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              (3)             The reference in subsection (2) of section 428 (amount of charge on

restricted securities) to what would be the market value of the

employment-related securities is, so far as it relates to subsection (1)

of that section, a reference to what would be the market value but for

the reduction as a result of the things done as mentioned in

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subsection (2) (and but for any restrictions).

              (4)             In a case within subsection (1)(b), there shall be treated as occurring

on the 5th April concerned a chargeable event within section

427(3)(a) (lifting of restrictions) in relation to the employment-

related securities.

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              (5)             “The relevant period” is the period of 7 years ending with—

                    (a)                   in a case within subsection (1)(a), the chargeable event

concerned, or

                    (b)                   in a case within subsection (1)(b), the 5th April concerned.

              (6)             But if section 425(2) (no charge on acquisition of certain restricted

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securities or restricted interests in securities) applied in relation to

the employment-related securities, the relevant period is the period

beginning 7 years before the acquisition.

       446F            Adjustment of market value: conditional interests

              (1)             This section applies where the market value of an employee’s

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interest in shares which is only conditional is artificially low

immediately after a chargeable event relating to the shares under

section 427 as originally enacted.

              (2)             The market value of the shares is artificially low where it has been

reduced by at least 10% as a result of things done otherwise than for

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genuine commercial purposes within the period beginning—

                    (a)                   7 years before the chargeable event, or

                    (b)                   with 16th April 2003,

                              whichever is later.

              (3)             There is a chargeable event in relation to shares if section 427 (as

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originally enacted) applies in relation to them.

              (4)             The reference in the definition of MV in section 428(1) (as originally

enacted) to the market value of the employee’s interest is to what

would be the market value but for the reduction as a result of the

things done as mentioned in subsection (2).

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              (5)             Expressions used in this section and in Chapter 2 of this Part as

originally enacted have the same meaning in this section as in that

Chapter.

 

 

 
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