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Finance Bill
Schedule 22 — Employee securities and options

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              (b)             sub-paragraphs (5) and (13) to (17) have effect on and after 16th April

2003,

              (c)             sub-paragraphs (6) to (8), (10), (11), (20), (23) and (24) have effect on

the day appointed under paragraph 3(2), and

              (d)             sub-paragraphs (21) and (22) have effect in accordance with the

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provision made for the substitution of Chapter 5 of Part 7.

Consequential amendments of other enactments

  47      (1)      In section 98 of the Taxes Management Act 1970 (c. 9) (penalties for failure

to furnish information etc)—

              (a)             in the first column of the Table, at the appropriate place insert

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“Section 421J(4) of ITEPA 2003.”, and

              (b)             in the second column of the Table, for the entries relating to sections

432, 433, 445, 465, 466 and 486 of the Income Tax (Earnings and

Pensions) Act 2003 (c. 1) substitute “Section 421J(3) of ITEPA 2003.”.

          (2)      Sub-paragraph (1) has effect in accordance with the provision made for the

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substitution of Chapter 1 of Part 7 of the Income Tax (Earnings and Pensions)

Act 2003.

  48      (1)      In section 4(4)(a) of—

              (a)             the Social Security Contributions and Benefits Act 1992 (c. 4)

(payments treated as earnings), and

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              (b)             the Social Security Contributions and Benefits (Northern Ireland)

Act 1992 (c. 7) (corresponding provision for Northern Ireland),

                   for the words after “479” substitute “of ITEPA 2003 in respect of which an

amount counts as employment income of the earner under section 476 of

that Act (charge on acquisition of securities pursuant to option etc), reduced

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by any amounts deducted under section 480(1) to (6) of that Act in arriving

at the amount counting as such employment income;”.

          (2)      Sub-paragraph (1) has effect in accordance with the provision made for the

substitution of Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions)

Act 2003.

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  49       The Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

  50      (1)      After section 119 insert—

       “119A                         Increase in expenditure by reference to tax charged in relation to

employment-related securities

              (1)             This section applies to a disposal of an asset consisting of

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employment-related securities if the disposal—

                    (a)                   is an event giving rise to a relevant income tax charge, or

                    (b)                   is the first disposal after an event, other than a disposal,

giving rise to a relevant income tax charge.

              (2)             Section 38(1)(a) applies as if the relevant amount had formed part of

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the consideration given by the person making the disposal for his

acquisition of the employment-related securities.

              (3)             For the purposes of this section an event gives rise to a relevant

income tax charge if it results in an amount counting as employment

income—

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Schedule 22 — Employee securities and options

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                    (a)                   under section 426 of ITEPA 2003 (restricted securities),

                    (b)                   under section 438 of ITEPA 2003 by virtue of section 439(3)(a)

of that Act (conversion of convertible securities),

                    (c)                   under section 446U of ITEPA 2003 (securities acquired for

less than market value: discharge of notional loan), or

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                    (d)                   under section 476 of ITEPA 2003 by virtue of section 477(3)(a)

of that Act (acquisition of securities pursuant to employment-

related securities option),

                              in respect of the employment-related securities.

              (4)             For the purposes of this section “the relevant amount” is the

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aggregate of the amounts counting as employment income as

mentioned in subsection (3) above by reason of events occurring—

                    (a)                   not later than the disposal, and

                    (b)                   where this section has applied to an earlier disposal of the

employment-related securities, after the last disposal to

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which this section applied.

              (5)             But where the relevant amount consists of or includes an amount

counting as employment income under section 476 of ITEPA 2003, it

is to be increased by the aggregate of any amounts deducted under

section 480(5)(a) or (b), 481 or 482 of that Act in arriving at the

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amount of that employment income.

              (6)             Where securities or interests in securities cease to be employment-

related securities—

                    (a)                   by reason of subsection (6) of section 421B of ITEPA 2003 in

circumstances in which, immediately before the employee’s

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death, the employment-related securities are held otherwise

than by the employee, or

                    (b)                   by reason of subsection (7) of that section,

                              they are to be regarded for the purposes of this section as remaining

employment-related securities until the next occasion on which they

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are disposed of.

              (7)             In this section—

                                      “employment-related securities”, and

                                      “employee”, in relation to employment-related securities,

                              have the same meaning as in Chapters 1 to 4 of Part 7 of ITEPA 2003.

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              (8)             References in this section to ITEPA 2003 are to that Act as amended

by Schedule 22 to the Finance Act 2003.”.

          (2)      Sub-paragraph (1) has effect in relation to disposals on or after 16th April

2003.

  51       In section 120 (increase in expenditure by reference to tax charged in relation

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to shares etc), after subsection (8) insert—

              “(9)                References in this section to ITEPA 2003 are to that Act as originally

enacted.”.

 

 

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Schedule 22 — Employee securities and options

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  52      (1)      After section 149A insert—

       “149AA             Restricted and convertible employment-related securities

              (1)             Where an individual has acquired an asset consisting of

employment-related securities which are—

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

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                    (b)                   convertible securities or an interest in convertible securities,

                              the consideration for the acquisition shall (subject to section 119A) be

taken to be equal to the aggregate of the actual amount or value

given for the employment-related securities and any amount that

constituted earnings under Chapter 1 of Part 3 of ITEPA 2003

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(earnings) in respect of the acquisition.

              (2)             Subsection (1) above applies only to the individual making the

acquisition and, accordingly, is to be disregarded in calculating the

consideration received by the person from whom the employment-

related securities are acquired.

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              (3)             This section has effect in relation to acquisitions on or after the day

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

2003.

              (4)             In this section “employment-related securities” has the same

meaning as in Chapters 1 to 4 of Part 7 of ITEPA 2003 (as substituted

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by Schedule 22 to the Finance Act 2003).

              (5)             In this section—

                                      “restricted interest in securities”, and

                                      “restricted securities”,

                              have the same meaning as in Chapter 2 of that Part of ITEPA 2003 (as

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so substituted).

              (6)             In this section “convertible securities” has the same meaning as in

Chapter 3 of that Part of ITEPA 2003 (as so substituted).”.

  53       In section 149B (employee incentive schemes: conditional interests in

shares), after subsection (4) insert—

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              “(5)                This section does not apply to acquisitions on or after the day

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

2003.

              (6)                References in this section to ITEPA 2003 are to that Act as originally

enacted.”.

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  54      (1)      In section 288 (interpretation), after subsection (1) insert—

              “(1A)                If any employment-related securities option would not otherwise be

regarded as an option for the purposes of this Act, it shall be so

regarded; and the acquisition of securities by an associated person

pursuant to an employment-related securities option is to be treated

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for the purposes of this Act as the exercise of the option.

                              Expressions used in this subsection and Chapter 5 of Part 7 of ITEPA                

2003 have the same meaning in this subsection as in that Chapter.”.

 

 

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Schedule 22 — Employee securities and options

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          (2)      Sub-paragraph (1) has effect in accordance with the provision made for the

substitution of Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions)

Act 2003 (c. 1).

  55      (1)      The Social Security Contributions (Share Options) Act 2001 (c. 20) is

amended as follows.

5

          (2)      The amendments of that Act have effect on and after the day appointed

under paragraph 3(2).

  56       In section 2(3)(b) (effect of notice under section 1), insert at the end “(less any

deductible amounts under section 480(1) to (6) of that Act).”.

  57      (1)      Section 3 (special provision for roll-overs) is amended as follows.

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          (2)      In subsection (4)—

              (a)             in paragraph (a), for “section 485(1) to (4)” substitute “section 483(1)

to (4)”, and

              (b)             insert at the end of paragraph (b)(i) “(less any deductible amounts

under section 480(1) to (6) of that Act).”.

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          (3)      In subsection (6), for “485(1) to (3)” substitute “483(1) to (3)”.

          (4)      In subsection (11)(a), insert at the end “(less any deductible amounts under

section 480(1) to (6));”.

  58       In section 5(2)(c) (interpretation), for “483(1)” substitute “477(6)”.

  59       Schedule 23 to this Act (corporation tax relief for employee share

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acquisitions) is amended as follows.

  60      (1)      Paragraph 1 is amended as follows.

          (2)      In sub-paragraph (1)(b), for “in exercise of” substitute “pursuant to”.

          (3)      For sub-paragraph (2) substitute—

                           “(2)                  Part 4 of this Schedule makes further provision for cases where the

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shares acquired are restricted shares.

                           (2A)                  Part 4A of this Schedule makes further provision for cases where

the shares acquired are convertible shares.”.

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

paragraph 3(2).

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          (5)      Sub-paragraph (3) has effect in accordance with the provision made for the

substitution of Part 4 of, and the insertion of Part 4A in, Schedule 23.

  61      (1)      For paragraph 5(2) substitute—

                           “(2)                  Where the shares acquired are restricted shares, the provisions of

this Part have effect subject to the provisions of Part 4 of this

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Schedule.

                           (3)                  Where the shares acquired are convertible shares, the provisions

of this Part have effect subject to the provisions of Part 4A of this

Schedule.”.

          (2)      Sub-paragraph (1) has effect in accordance with the provision made for the

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substitution of Part 4 of, and the insertion of Part 4A in, Schedule 23.

 

 

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Schedule 22 — Employee securities and options

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  62      (1)      For paragraph 11(2) substitute—

                           “(2)                  Where the shares acquired pursuant to the option are restricted

shares, the provisions of this Part have effect subject to the

provisions of Part 4 of this Schedule.

                           (3)                  Where the shares acquired pursuant to the option are convertible

5

shares, the provisions of this Part have effect subject to the

provisions of Part 4A of this Schedule.”.

          (2)      Sub-paragraph (1) has effect in accordance with the provision made for the

substitution of Part 4 of, and the insertion of Part 4A in, Schedule 23.

  63      (1)      In paragraph 12, for “in exercise of” substitute “pursuant to”.

10

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

paragraph 3(2).

  64      (1)      Paragraph 13 is amended as follows.

          (2)      In sub-paragraph (2)(b), for “in exercise of” (in both places) substitute

“pursuant to”.

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          (3)      For sub-paragraph (2)(c) substitute—

                      “(c)                        in determining the amount of relief—

                             (i)                            any consideration given in respect of the grant of

the new option is treated as if it had been given in

respect of the grant of the old option, and

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                             (ii)                           any consideration given in respect of the

acquisition of shares pursuant to the new option is

treated as if it had been given in respect of the

acquisition of shares pursuant to the old option.”.

          (4)      In sub-paragraph (3)(b), for “its exercise” substitute “the shares acquired

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pursuant to it”.

          (5)      This paragraph has effect on and after the day appointed under paragraph

3(2).

  65      (1)      For paragraph 14 substitute—

“Income tax position of the employee

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          14                 (1)                  It must be the case that the acquisition of shares pursuant to the

option—

                      (a)                     is a chargeable event in relation to the employee for the

purposes of section 476 of the Income Tax (Earnings and

Pensions) Act 2003 (whether or not an amount counts as

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employment income by virtue of that event), or

                      (b)                     would be such a chargeable event in relation to the

employee if the conditions specified in sub-paragraph (2)

were met.

                           (2)                  The conditions mentioned in sub-paragraph (1)(b) are—

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                      (a)                     that the employee was resident and ordinarily resident in

the United Kingdom at all material times, and

                      (b)                     that the duties of the employment by reason of which the

option was granted were performed in the United

Kingdom at all material times.”.

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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).

  66      (1)      Paragraph 15 is amended as follows.

          (2)      In sub-paragraph (1)—

              (a)             for “the option is exercised” substitute “they are acquired pursuant

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to the option”, and

              (b)             for “or exercise of” substitute “of the option or the acquisition of the

shares pursuant to”.

          (3)      In sub-paragraph (3), for “or exercise of” substitute “of the option or the

acquisition of the shares pursuant to”.

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          (4)      This paragraph has effect on and after the day appointed under paragraph

3(2).

  67      (1)      In paragraph 17(1), for “in exercise of” substitute “pursuant to”.

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

paragraph 3(2).

15

  68      (1)      For Part 4 substitute—

“Part 4

Provisions applying in case of restricted shares

Introduction

          18                  In the case of—

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                      (a)                     an award of restricted shares, or

                      (b)                     the acquisition pursuant to an option of restricted shares,

                            the provisions of Part 2 or 3 have effect subject to the provisions of

this Part of this Schedule.

Meaning of “restricted shares”

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          19                                    Shares are “restricted shares” for the purposes of this Schedule if

they are restricted securities, or a restricted interest in securities,

for the purposes of Chapter 2 of Part 7 of the Income Tax (Earnings

and Pensions) Act 2003 (see sections 423 and 424 of that Act).

Income tax position of employee in case of restricted shares

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          20                 (1)                  Where the recipient acquires restricted shares, this paragraph

applies in place of paragraph 7 (income tax position of the

employee).

                           (2)                  It must be the case that the employee —

                      (a)                     either—

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                             (i)                            is subject to a charge to income tax under Chapter

1 of Part 3 of the Income Tax (Earnings and

Pensions) Act 2003 in respect of the award, or

                             (ii)                           is not subject to such a charge but will be subject to

a charge to income tax under the Income Tax

40

(Earnings and Pensions) Act 2003 by virtue of

 

 

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Schedule 22 — Employee securities and options

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section 426 of that Act on the occurrence of an event

in relation to the shares that is a chargeable event

for the purposes of that section, or

                      (b)                     would be within paragraph (a) if the conditions specified

in sub-paragraph (4) were met.

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                           (3)                  Where but for the death of the employee sub-paragraph (2)(a)(ii)

would apply in relation to restricted shares acquired under an

award of shares, it is to be treated as applying in relation to the

restricted shares.

                           (4)                  The conditions mentioned in sub-paragraph (2)(b) are—

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                      (a)                     that the employee was resident and ordinarily resident in

the United Kingdom at all material times, and

                      (b)                     that the duties of the employment by reason of which the

award was made or the option was granted were

performed in the United Kingdom at all material times.

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Amount of relief in case of restricted shares

          21                 (1)                  Where the recipient acquires restricted shares, this paragraph

applies in place of paragraph 8 or 15 (amount of relief).

                           (2)                  Relief is available—

                      (a)                     on the award of the shares or, where they are acquired

20

pursuant to an option, on that acquisition,

                      (b)                     on any event that is a chargeable event in relation to the

shares for the purposes of section 426 of the Income Tax

(Earnings and Pensions) Act 2003,

                      (c)                     on the death of the employee.

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                           (3)                  The amount of the relief on the award of the shares is equal to the

amount that constitutes earnings from the employee’s

employment under Chapter 1 of Part 3 of the Income Tax

(Earnings and Pensions) Act 2003 in respect of the award.

                           (4)                  The amount of the relief on the acquisition of the shares pursuant

30

to the option is equal to the amount that counts as employment

income of the employee under section 476 of the Income Tax

(Earnings and Pensions) Act 2003 in respect of the acquisition,

increased by any amounts deducted under sections 481 and 482 of

that Act.

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                           (5)                  Where restricted shares acquired as mentioned in sub-paragraph

(3) or (4) are also convertible shares, the total amount of the relief

in respect of the acquisition is whichever is the greater of—

                      (a)                     in the case of an award of shares, the amounts mentioned

in sub-paragraph (3) and paragraph 22C(3), and

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                      (b)                     in the case of an acquisition of shares pursuant to an

option, the amounts mentioned in sub-paragraph (4) and

paragraph 22C(4).

                           (6)                  The amount of the relief on an event that is a chargeable event for

the purposes of section 426 of the Income Tax (Earnings and

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Pensions) Act 2003 is equal to the amount that counts as

employment income of the employee under that section in respect

of that event.

 

 

 
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