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Finance Bill
Schedule 22 — Employee securities and options

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       446G                        Adjustment of market value: consideration for entitlement to convert

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

securities which are convertible securities or an interest in

convertible securities (determined as if they were not) has been

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

5

genuine commercial purposes within the period of 7 years ending

with the acquisition.

              (2)             The reference to the market value of the employment-related

securities in the definition of NCMV in section 442(5) (value of

convertible securities at time of acquisition) is to what would be the

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market value but for the reduction as a result of the things done as

mentioned in subsection (1) (and but for the fact that they are

convertible securities or an interest in convertible securities).

       446H            Adjustment of market value: charge on conversion

              (1)             This section applies where the market value of securities (“the

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converted securities”) into which employment-related securities (or

securities in which employment-related securities are an interest) are

converted is artificially low at the time of an event which is a

chargeable event in relation to the employment-related securities by

virtue of section 439(3)(a) (conversion).

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              (2)             The market value of the converted 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 period

of 7 years ending with the chargeable event.

              (3)             The references to the market value of the converted securities in the

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definition of CMVCS in section 441(6) (amount of gain realised by

conversion) are to what would be the market value but for the

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

(2).

       446I            Adjustment of consideration or benefit received

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              (1)             This section applies where any consideration or benefit mentioned

in—

                    (a)                   section 428(9) (consideration on disposal of restricted

securities),

                    (b)                   section 441(4), (5) or (9) (consideration for disposal of

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convertible securities or release of entitlement to convert or

benefit received in respect of entitlement to convert),

                    (c)                   section 446C(4) (securities with artificially depressed market

value: MV to be amount of consideration),

                    (d)                   sections 446X and 446Y(3) (consideration for disposal of

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securities exceeding market value), or

                    (e)                   section 448 (securities benefit not otherwise subject to tax),

                              consists (in whole or in part) in the provision of securities or an

interest in securities the market value of which is artificially low.

              (2)             The market value of any securities or interest in securities is

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

of things done otherwise than for genuine commercial purposes

 

 

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Schedule 22 — Employee securities and options

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within the period of 7 years ending with the receipt of the

consideration or benefit.

              (3)             The market value of the consideration or benefit consisting in the

provision of the securities or interest in securities is for the purposes

of the provision or provisions concerned to be taken to be what it

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would be but for the reduction as a result of the things done as

mentioned in subsection (2).

Supplementary

       446J            Definitions

              (1)             In this Chapter—

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                                      “interest”, in relation to securities, and

                                      “securities”,

                              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”, and

                                      “employment-related securities”,

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

              (5)             In this Chapter—

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                                      “restricted interest in securities”, and

                                      “restricted securities”,

                              have the same meaning as in Chapter 2 of this Part (see sections 423

and 424).

              (6)             In this Chapter “restriction” has the same meaning as in Chapter 2 of

30

this Part (see section 432(8)).

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

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

          (2)      Sub-paragraph (1) has effect on and after 16th April 2003 (so that sections

446A, 446F to 446H, 446I(1)(b) to (e), (2) and (3) and 446J apply on and after

35

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

of the acquisition).

          (3)      Sections 446E and 446I(1)(a) do not affect any securities, or interests in

securities, acquired before 16th April 2003; and, in relation to any securities

or interests in securities acquired on or after that date but before the day

40

appointed under paragraph 3(2), those provisions apply only on or after that

appointed day.

          (4)      Section 446F—

 

 

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              (a)             applies in relation to conditional interests in shares acquired before

16th April 2003, and

              (b)             applies during the period beginning with that date and ending with

the day preceding that appointed day in relation to conditional

interests in shares acquired during that period.

5

  6       (1)      After Chapter 3A of Part 7 (inserted by paragraph 5(1)) insert—

“Chapter 3B

Securities with artificially enhanced market value

Introduction

       446K            Application of this Chapter

10

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

employment-related securities is increased by things done otherwise

than for genuine commercial purposes.

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

Chapter, done otherwise than for genuine commercial purposes—

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                    (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

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

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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

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

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ICTA.

              (4)             In this Chapter, in relation to the market value of the employment-

related securities—

                                      “non-commercial increase” means an increase in the market

value as a result of anything done otherwise than for genuine

30

commercial purposes, and

                                      “non-commercial reduction” means a reduction in the market

value as a result of anything done otherwise than for genuine

commercial purposes.

Charge on non-commercial increases

35

       446L                        Charge on non-commercial increases

              (1)             This section applies in relation to employment-related securities

where on a date that is the valuation date in relation to a relevant

period IMV is at least 10% greater than MV.

              (2)             The taxable amount determined under subsection (4) counts as

40

employment income of the employee for the relevant tax year (but

subject to sections 446M and 446N).

 

 

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Schedule 22 — Employee securities and options

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              (3)             The “relevant tax year” is the tax year in which the valuation date

falls.

              (4)             The taxable amount is—equation: plus[times[char[I],char[M],char[V]],minus[times[char[M],char[V]]]]

              (5)             IMV is the market value of the employment-related securities on the

valuation date.

5

              (6)             MV is the amount that would be the market value of the

employment-related securities on the valuation date if any non-

commercial increases during the relevant period were disregarded.

              (7)             For the purposes of subsections (5) and (6)—

                    (a)                   any restrictions having effect in relation to the employment-

10

related securities on the valuation date, and

                    (b)                   any non-commercial reductions during the relevant period,

                              are to be disregarded.

       446M            Securities subject to restriction on valuation date

              (1)             This section applies where on the valuation date the employment-

15

related securities are relevant restricted securities.

              (2)             The amount determined under section 446L(4) is to be multiplied by

CP.

              (3)             CP is—equation: plus[num[1.00000000,"1"],minus[times[char[O],char[P]]]]

where OP is the amount that would be determined under section

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428(5) (amount of charge on chargeable event in relation to restricted

securities) on the valuation date if there were on that date a

chargeable event (resulting in no tax charge).

              (4)             For the purposes of this section the employment-related securities

are relevant restricted securities if they are restricted securities or a

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restricted interest in securities but are not subject to—

                    (a)                   an election under section 430 (election to ignore outstanding

restrictions) in relation to a chargeable event which occurred

before the valuation date, or

                    (b)                   an election under section 431(1) (election to treat securities as

30

not subject to restrictions).

              (5)             If sections 425 to 430 apply to the employment-related securities in

accordance with section 431(2) (election to treat securities as not

subject to specified restrictions), the reference in subsection (3) to the

amount that would be determined under section 428(5) is to the

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amount that would be so determined in accordance with section

431(2).

       446N            Securities subject to restriction during relevant period

              (1)             This section applies where the employment-related securities have

been restricted securities or a restricted interest in securities at any

40

time during the relevant period.

 

 

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              (2)             DA is to be deducted from the amount determined under section

446L(4) (or, where section 446M applies, the amount determined

under sections 446L(4) and 446M).

              (3)             DA is the aggregate of the amounts arrived at under subsection (4) in

relation to each event occurring during the relevant period that is a

5

chargeable event in relation to the employment-related securities.

              (4)             The amount is—equation: plus[times[char[T],char[A]],minus[times[char[A],char[R],char[T],char[A]]]]

              (5)             TA is the taxable amount actually determined under section 428 in

relation to the chargeable event.

              (6)             ARTA is the taxable amount which would have been determined

10

under section 428 in relation to the chargeable event if any non-

commercial increases during the period—

                    (a)                   beginning at the same time as the relevant period, and

                    (b)                   ending immediately before the chargeable event,

                              had been disregarded.

15

Supplementary

       446O            “Relevant period” and “valuation date”

              (1)             This section explains what is meant by “relevant period” and

“valuation date” in this Chapter.

              (2)             The first relevant period in relation to employment-related securities

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is the period beginning with the date of the acquisition and ending

with the following 5th April.

              (3)             After the first relevant period, each period beginning with 6th April

and ending with the following 5th April is a relevant period in

relation to the employment-related securities.

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              (4)             But if this Chapter ceases to apply to the employment-related

securities during a relevant period, the relevant period ends with the

date on which this Chapter ceases to apply to them.

              (5)             And if this Chapter ceases to apply to an interest in the employment-

related securities during a relevant period, the relevant period ends

30

in relation to that interest with the date on which this Chapter ceases

to apply to that interest.

              (6)             In a case where subsection (5) applies, this Chapter has effect

separately in relation to that interest and the remainder of the

employment-related securities.

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              (7)             In this Chapter “valuation date”, in relation to a relevant period,

means the date with which the relevant period ends.

       446P            Definitions

              (1)             In this Chapter “interest”, in relation to securities, has the meaning

indicated in section 420.

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

421(1).

              (3)             In this Chapter—

                                      “the acquisition”,

                                      “the employee”, and

5

                                      “employment-related securities”,

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

              (4)             In this Chapter—

                                      “restricted interest in securities”, and

                                      “restricted securities”,

10

                              have the same meaning as in Chapter 2 of this Part (see sections 423

and 424).

              (5)             In this Chapter “chargeable event” means an event which is a

chargeable event for the purposes of section 426.

              (6)             In this Chapter “restriction” has the same meaning as in Chapter 2 of

15

this Part (see section 432(8)).

              (7)             In this Chapter—

                                      “non-commercial increase”, and

                                      “non-commercial reduction”,

                              have the meaning indicated in section 446K(4).

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              (8)             In this Chapter—

                                      “relevant period”, and

                                      “valuation date”,

                              have the meaning indicated in section 446O.”.

          (2)      Subject as follows, sub-paragraph (1) has effect on and after 16th April 2003

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(so that it applies on and after that date in relation to employment-related

securities irrespective of the date of the acquisition).

          (3)      Sections 446M and 446N do not affect any securities, or interests in

securities, acquired before 16th April 2003; and, in relation to any securities

or interests in securities acquired on or after that date but before the day

30

appointed under paragraph 3(2), those sections apply only on and after that

appointed day.

          (4)      For the purposes of section 446O          employment-related securities acquired

before 16th April 2003 are to be treated as acquired on that date.

  7       (1)      After Chapter 3B of Part 7 (inserted by paragraph 6(1)) insert—

35

“Chapter 3C

Securities acquired for less than market value

       446Q            Application of this Chapter

              (1)             This Chapter applies if—

                    (a)                   no payment is made for employment-related securities at or

40

before the time of the acquisition, or

 

 

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                    (b)                   the payment made for employment-related securities at or

before that time is less than their market value.

              (2)             For the purposes of subsection (1) any obligation to make a payment

or further payment after the time of the acquisition is to be

disregarded.

5

              (3)             Where the employment-related securities are, or are an interest in,

securities which are not fully paid up, the reference in subsection (1)

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

it would be if the securities were fully paid up.

              (4)             If section 425(2) (no charge on acquisition of certain restricted

10

securities or restricted interests in securities) applies in relation to the

employment-related securities, this Chapter has effect as if the

employment-related securities were not acquired until the

occurrence of the first event which is a chargeable event for the

purposes of section 426 in relation to the employment-related

15

securities.

              (5)             This section is subject to section 446R (case outside this Chapter).

       446R            Case outside this Chapter

              (1)             This Chapter does not apply if—

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

20

in shares) in a company of a class,

                    (b)                   all the company’s shares of the class are acquired either for

no payment or for a payment less than their market value,

and

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

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              (2)             Where the company’s shares of the class are not fully paid up, the

reference in subsection (1) to their market value is to what it would

be if they were fully paid up.

              (3)             This subsection is satisfied if, at the time of the acquisition of the

employment-related securities, the company is employee-controlled

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by virtue of holdings of shares of the class.

              (4)             This subsection is satisfied if, at that time, 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,

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                    (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

associated company.

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              (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

employment, or

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