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Finance Bill
Schedule 22 — Employee securities and options

    327

 

                           (7)                  The amount of the relief on the death of the employee is equal to

the amount that (disregarding section 428(6) and (9) of the Income

Tax (Earnings and Pensions) Act 2003) would count as

employment income of the employee if there were a chargeable

event within section 427(3)(c) of that Act immediately before the

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restricted shares ceased to be employment-related securities by

virtue of the employee’s death.

                           (8)                  Section 446E(3) of the Income Tax (Earnings and Pensions) Act

2003 is to be disregarded in determining the amounts of the reliefs

given by sub-paragraphs (6) and (7).

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                           (9)                  The amount of any non-commercial increase in the market value

of the restricted shares since the time of the acquisition is to be

disregarded for the purpose of determining the amounts of the

reliefs given by sub-paragraphs (6) and (7).

                                             “Non-commercial increase” has the same meaning as in Chapter

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3B of Part 7 of the Income Tax (Earnings and Pensions) Act 2003.

                           (10)                  If the award or grant was made partly for the purposes of a

business meeting the requirements of paragraph 3 (business must

be within the charge to corporation tax) and partly for the

purposes of a business in relation to which those requirements are

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not met, the amount of the relief shall be reduced to such extent as

is just and reasonable.

                           (11)                  Where the employee—

                      (a)                     is not subject to a charge to income tax mentioned in sub-

paragraph (3), (4) or (6), or would not be subject to the

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charge to income tax mentioned in sub-paragraph (7), but

                      (b)                     would be subject to such a charge if the conditions

specified in paragraph 20(4) were met,

                                             the amount of the relief is to be taken to be the amount that would

be the amount of the relief if those conditions were met.

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Timing of relief in case of restricted shares

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

applies in place of paragraph 10 or 17 (timing of relief).

                           (2)                  The relief mentioned in paragraph 21(3) is given for the

accounting period in which the recipient acquires the restricted

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shares pursuant to the award.

                           (3)                  The relief mentioned in paragraph 21(4) is given for the

accounting period in which the recipient acquires the restricted

shares pursuant to the option.

                           (4)                  The time when the shares are acquired is when the recipient

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acquires a beneficial interest in the shares and not, if different, the

time the shares are conveyed or transferred.

                           (5)                  The relief mentioned in paragraph 21(6) is given for the

accounting period in which the chargeable event takes place.

                           (6)                  The relief mentioned in paragraph 21(7) is given for the

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accounting period in which the employee dies.”.

 

 

Finance Bill
Schedule 22 — Employee securities and options

    328

 

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

paragraph 3(2) but does not affect any restricted shares acquired before 16th

April 2003.

  69      (1)      After Part 4 insert—

“Part 4A

5

Provisions applying in case of convertible shares

Introduction

          22A                  In the case of—

                      (a)                     an award of convertible shares, or

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

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

this Part of this Schedule.

Meaning of “convertible shares”

          22B                 (1)                  Shares are “convertible shares” for the purposes of this Schedule if

they are convertible securities, or an interest in convertible

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securities.

                           (2)                  But convertible securities which are not shares, or an interest in

convertible securities which are not shares, are to be taken to be

convertible shares for the purposes of this Schedule as it applies in

relation to the reliefs given by paragraph 22C(6) and (7).

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                           (3)                  In this paragraph “convertible securities” has the same meaning as

in Chapter 3 of Part 7 of the Income Tax (Earnings and Pensions)

Act 2003 (see section 436 of that Act).

Amount of relief in case of convertible shares

          22C                 (1)                  Where the recipient acquires convertible shares, this paragraph

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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

pursuant to an option, on that acquisition,

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

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convertible shares,

                      (c)                     on the death of the employee.

                           (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

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(Earnings and Pensions) Act 2003 (as modified by section 437 of

that Act) in respect of the award.

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

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

income of the employee under section 476 of the Income Tax

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(Earnings and Pensions) Act 2003 (as modified by section 437 of

that Act) in respect of the acquisition, increased by any amounts

deducted under sections 481 and 482 of that Act.

 

 

Finance Bill
Schedule 22 — Employee securities and options

    329

 

                           (5)                  Where convertible shares acquired as mentioned in sub-

paragraph (3) or (4) are also restricted 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

5

in sub-paragraph (3) and paragraph 21(3), and

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

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

paragraph 21(4).

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

10

relation to the convertible shares is equal to the amount that

counts as employment income of the employee in respect of that

event.

                           (7)                  The amount of the relief on the death of the employee is equal to

the amount that would have counted as employment income of

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the employee in relation to the first event following the

employee’s death which would have been a chargeable event

were the employee still alive.

                           (8)                  Sections 446G and 446H of the Income Tax (Earnings and

Pensions) Act 2003 are to be disregarded in determining the

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amounts of the reliefs given by sub-paragraphs (6) and (7).

                           (9)                  If the award or grant was made partly for the purposes of a

business meeting the requirements of paragraph 3 (business must

be within the charge to corporation tax) and partly for the

purposes of a business in relation to which those requirements are

25

not met, the amount of the relief shall be reduced to such extent as

is just and reasonable.

                           (10)                  Where the employee—

                      (a)                     is not subject to a charge to income tax mentioned in sub-

paragraph (3), (4) or (6), or would not be subject to the

30

charge to income tax mentioned in sub-paragraph (7), but

                      (b)                     would be subject to such a charge if the conditions

specified in paragraph 7(2) or 14(2) were met,

                                             the amount of the relief is to be taken to be the amount that would

be the amount of the relief if those conditions were met.

35

                           (11)                  In this paragraph and paragraph 22D “chargeable event” means

an event that is a chargeable event in relation to the convertible

shares within section 439(3)(a) of the Income Tax (Employment

and Pensions) Act 2003; but a conversion of the convertible shares

into anything other than shares which—

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                      (a)                     meet the requirements of paragraph 4, and

                      (b)                     would meet the requirements of paragraph 6 if they had

been acquired by an award of shares,

                                             is not a chargeable event for the purposes of this paragraph.

Timing of relief in case of convertible shares

45

          22D                 (1)                  Where the recipient acquires convertible shares, this paragraph

applies in place of paragraph 10 or 17 (timing of relief).

 

 

Finance Bill
Schedule 22 — Employee securities and options

    330

 

                           (2)                  The relief mentioned in paragraph 22C(3) is given for the

accounting period in which the recipient acquires the convertible

shares under the award.

                           (3)                  The relief mentioned in paragraph 22C(4) is given for the

accounting period in which the recipient acquires the convertible

5

shares pursuant to the option.

                           (4)                  The time when shares are acquired is when the recipient acquires

a beneficial interest in the shares and not, if different, the time the

shares are conveyed or transferred.

                           (5)                  The relief mentioned in paragraph 22C(6) is given for the

10

accounting period in which the chargeable event takes place.

                           (6)                  The relief mentioned in paragraph 22C(7) is given for the

accounting period in which the event takes place which would

have been a chargeable event but for the death of the employee.”.

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

15

paragraph 3(2) (so that, apart from paragraph 22C(2)(a) and (3) to (5) and

paragraph 22D(2) to (4), the provisions of Part 4A of Schedule 23 as inserted

by that sub-paragraph apply on and after that day in relation to convertible

shares irrespective of the time of the acquisition).

  70      (1)      In paragraph 23(2)(a), for “or 22” substitute “, 22 or 22D”.

20

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

paragraph 3(2).

  71      (1)      In paragraph 26 before paragraph (a) insert—

                      “(za)                        “employment” includes a former or prospective

employment,”.

25

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

  72      (1)      For paragraph 27 substitute—

“Acquisition of shares pursuant to option after death of employee or recipient

          27                 (1)                  Where after the employee’s death shares are acquired by the

recipient pursuant to an option obtained by reason of the

30

employee’s employment, the condition in paragraph 14 (income

tax position of the employee) is treated as met if it would be met

were the employee still alive.

                           (2)                  Where after the death of the recipient shares are acquired

pursuant to an option obtained by reason of the employee’s

35

employment, paragraph 1(1)(b) and Parts 3, 4 and 4A of this

Schedule, and sub-paragraph (1) above, apply as if the recipient

were still alive and the shares were acquired by him.”.

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

paragraph 3(2).

40

  73      (1)      Paragraph 31 is amended as follows.

          (2)      Omit the entry relating to “subject to forfeiture”.

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 1 — General provisions

    331

 

          (3)      At the appropriate places insert—

 

“restricted shares

paragraph 19”,

 
 

“convertible shares

paragraph 22B”.

 

          (4)      This paragraph has effect in accordance with the provision made for the

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

5

Schedule 23

Section 141

 

Corporation tax relief for employee share acquisition

Part 1

General provisions

Introduction

10

  1       (1)      This Schedule provides for corporation tax relief for a company where a

person—

              (a)             acquires shares by reason of his, or another person’s, employment

with that company (an “award of shares”: see Part 2 of this Schedule),

or

15

              (b)             obtains by reason of his, or another person’s, employment with that

company an option to acquire shares and acquires shares in exercise

of that option (the “grant of an option”: see Part 3 of this Schedule).

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

acquired are subject to forfeiture.

20

          (3)      In this Schedule—

               “the employing company” means the company mentioned in sub-

paragraph (1);

               “the recipient” means the person acquiring the shares or obtaining the

option; and

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               “the employee” means the person by reason of whose employment the

shares are acquired or the option is granted.

Requirements for relief

  2        Relief under this Schedule is available only if the requirements of this

Schedule are met as to—

30

              (a)             the business for the purposes of which the award or grant is made

(paragraph 3);

              (b)             the kind of shares acquired (paragraph 4);

              (c)             the company whose shares are acquired (paragraph 6 or 12); and

              (d)             the income tax position of the employee (paragraph 7, 14 or 20).

35

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 2 — Award of shares

    332

 

Business must be within the charge to corporation tax

  3       (1)      The business for the purposes of which the award or grant is made must—

              (a)             be carried on by the employing company, and

              (b)             be within the charge to corporation tax.

          (2)      A business is within the charge to corporation tax if, or to the extent that, it

5

is carried on by a company that is within the charge to corporation tax in

respect of the profits of the business.

Kind of shares acquired

  4       (1)      The shares acquired must meet the following requirements.

          (2)      They must be ordinary shares that are fully paid-up and not redeemable.

10

          (3)      They must be—

              (a)             shares of a class listed on a recognised stock exchange, or

              (b)             shares in a company that is not under the control of another

company, or

              (c)             shares in a company that is under the control of a company (other

15

than a close company or a company that if resident in the United

Kingdom would be a close company) whose shares are listed on a

recognised stock exchange.

Part 2

Award of shares

20

Introduction

  5       (1)      The provisions of this Part of this Schedule apply in the case of an award of

shares.

          (2)      Where the shares acquired are subject to forfeiture, the provisions of this

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

25

The company whose shares are acquired

  6       (1)      The shares acquired must be shares in—

              (a)             the employing company; or

              (b)             a company that, at the time of the award, is a parent company in

relation to the employing company; or

30

              (c)             a company that, at the time of the award, is a member of a

consortium that owns the employing company or a company within

paragraph (b); or

              (d)             where at the time of the award the employing company or a

company within paragraph (b) is a member of a consortium that

35

owns another company (C), a company that at that time—

                    (i)                   is a member of the consortium or a parent company in

relation to a member of the consortium, and

                    (ii)                  is also a member of the same commercial association of

companies as C.

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Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 2 — Award of shares

    333

 

Income tax position of employee

  7       (1)      It must be the case that the employee—

              (a)             is subject to a charge to income tax under the Income Tax (Earnings

and Pensions) Act 2003 (c. 1) in respect of the award, or

              (b)             would be subject to such a charge if the conditions specified in sub-

5

paragraph (2) were met.

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

              (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

10

made were performed in the United Kingdom at all material times.

Amount of relief

  8       (1)      The amount of the relief is equal to the difference between—

              (a)             the market value of the shares at the time of the award, and

              (b)             the total amount or value of any consideration given, by the recipient

15

or another, in respect of the shares.

          (2)      The consideration mentioned in sub-paragraph (1)(b) does not include the

performance of any duties of, or in connection with, the employee’s

employment with the employing company.

          (3)      A just and reasonable apportionment shall be made for the purposes of this

20

paragraph of any consideration given partly in respect of the shares and

partly in respect of other matters.

          (4)      If the award was made partly for the purposes of a business meeting the

requirements of paragraph 3 (business must be within the charge to

corporation tax) and partly for the purposes of a business in relation to

25

which those requirements are not met, the amount of the relief shall be

reduced to such extent as is just and reasonable.

How relief is given

  9       (1)      The amount of the relief is allowed as a deduction in computing for the

purposes of corporation tax the profits of the business for the purposes of

30

which the award was made.

          (2)      If the company carrying on that business is an investment company, the

amount of the relief is treated as disbursed as expenses of management for

the purposes of section 75 of the Taxes Act 1988.

          (3)      If the company carrying on that business is an insurance company carrying

35

on life assurance business, the amount of the relief is included among the

amounts the company may treat as part of its expenses of management for

the purposes of section 76 of the Taxes Act 1988.

          (4)      If the award was made for the purposes of more than one business within

the charge to corporation tax, the amount of the deduction must be

40

apportioned between them on a just and reasonable basis.

 

 

 
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