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Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 3 — Grant of option

    334

 

Timing of relief

  10      (1)      The relief is given for the accounting period in which the recipient acquires

the shares.

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

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

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conveyed or transferred.

Part 3

Grant of option

Introduction

  11      (1)      The provisions of this Part of this Schedule apply in the case of the grant of

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an option to acquire shares.

          (2)      Where the shares acquired in exercise of the option are subject to forfeiture,

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

this Schedule.

The company whose shares are acquired

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  12       The company whose shares are acquired in exercise of the option must be—

              (a)             the employing company; or

              (b)             a company that, at the time the option is granted, is a parent

company in relation to the employing company; or

              (c)             a company that, at that time, is a member of a consortium that owns

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the employing company or a company within paragraph (b); or

              (d)             where, at that time, the employing company or a company within

paragraph (b) is a member of a consortium that owns another

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

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

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relation to a member of the consortium, and

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

companies as C; or

              (e)             a qualifying successor company (see paragraph 13).

Takeover of company whose shares are subject of option

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  13      (1)      This paragraph applies where—

              (a)             there is a takeover of a company whose shares are the subject of a

qualifying option,

              (b)             the holder of the option, by agreement with the acquiring company,

releases his rights under that option (“the old option”) in

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consideration of the grant to him of another option (“the new

option”), and

              (c)             the new option relates to shares in a qualifying company.

          (2)      Where those conditions are met—

              (a)             the company whose shares are the subject of the new option is a

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qualifying successor company for the purposes of paragraph 12

(requirement as to company whose shares are acquired),

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 3 — Grant of option

    335

 

              (b)             shares acquired in exercise of the new option are treated for the

purposes of this Schedule as if they had been acquired in exercise of

the old option, and

              (c)             in determining the amount of relief any consideration given in

respect of the grant or exercise of the new option is treated as if it had

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been given in respect of the grant or exercise of the old option.

          (3)      For the purposes of this paragraph—

              (a)             there is a takeover of a company where another company (“the

acquiring company”) acquires control of it; and

              (b)             an option is a “qualifying option” if the requirements of paragraph

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12 would be met in relation to its exercise.

          (4)      The following are qualifying companies for the purposes of this

paragraph—

              (a)             the acquiring company;

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

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relation to the acquiring company;

              (c)             a company that, at that time, is a member of a consortium that owns

the acquiring company or a company within paragraph (b);

              (d)             where, at that time, the acquiring company or a company within

paragraph (b) is a member of a consortium that owns another

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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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Income tax position of the employee

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

              (a)             either—

                    (i)                   was subject to a charge to income tax under the Income Tax

(Earnings and Pensions) Act 2003 (c. 1) in respect of the grant

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of the option, or

                    (ii)                  is subject to a charge to income tax under that Act by virtue

of section 476 or 477 of that Act in respect of the gain realised

by the exercise of the option, or

              (b)             would be subject to such a charge as is mentioned in paragraph (a)(ii)

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but for a relevant exemption, or

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

sub-paragraph (3) were met.

          (2)      In sub-paragraph (1)(b) a “relevant exemption” means an exemption

under—

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              (a)             section 519, 520, 524 or 525 of the Income Tax (Earnings and

Pensions) Act 2003 (exercise of option under approved SAYE scheme

or approved CSOP scheme), or

              (b)             section 530 of that Act (exercise of qualifying option under EMI

code).

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          (3)      The conditions mentioned in sub-paragraph (1)(c) are—

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

Kingdom at all material times, and

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 3 — Grant of option

    336

 

              (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.

Amount of relief

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

              (a)             the market value of the shares at the time the option is exercised, and

5

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

or another, in respect of the grant or exercise of the option.

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

              (a)             the performance of any duties of, or in connection with, the

employee’s employment with the employing company, or

10

              (b)             any amount paid or payable by the employee in pursuance of—

                    (i)                   an agreement within paragraph 3A(2) of Schedule 1 to the

Contributions and Benefits Act (agreement for recovery from

earner of secondary Class 1 contributions in respect of share

option gain), or

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                    (ii)                  an election under paragraph 3B of that Schedule (election

transferring to earner liability for secondary Class 1

contributions in respect of share option gain).

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

paragraph of any consideration given partly in respect of the grant or

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exercise of the option and partly in respect of other matters.

          (4)      If the option was granted 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 not met, the amount of the relief shall be

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reduced to such extent as is just and reasonable.

How relief is given

  16      (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

which the option was granted.

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          (2)      If the company carrying on the 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 the business is an insurance company carrying

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

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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 option was granted for the purposes of more than one business within

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

apportioned between them on a just and reasonable basis.

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Timing of relief

  17      (1)      The relief is given for the accounting period in which the shares are acquired

in exercise of the option.

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 4 — Provisions applying in case of shares subject to forfeiture

    337

 

          (2)      The time when the 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.

Part 4

Provisions applying in case of shares subject to forfeiture

5

Introduction

  18       In the case of—

              (a)             an award of shares that are subject to forfeiture, or

              (b)             the acquisition in exercise of an option of shares that are subject to

forfeiture,

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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 shares being “subject to forfeiture”

  19      (1)      This paragraph explains what is meant in this Schedule by shares being

“subject to forfeiture”.

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          (2)      Subject to the following provisions of this paragraph, shares are “subject to

forfeiture” for so long as the terms on which the recipient is entitled to

them—

              (a)             provide that if certain circumstances arise, or do not arise, there will

be a transfer, reversion or forfeiture as a result of which the recipient

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will cease to be entitled to any beneficial interest in the shares, and

              (b)             are not such that, in that event, he will be entitled to receive an

amount that is equal to or more than the market value of the shares

at that time.

          (3)      In sub-paragraph (2)—

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              (a)             the reference to circumstances arising includes—

                    (i)                   the expiry of a period specified in, or determined under, the

terms on which the recipient is entitled to the shares,

                    (ii)                  the exercise by any person of a power conferred on him by or

under those terms, or

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                    (iii)                 the death of any person; and

              (b)             the reference to the market value of the shares is to the market value

determined as if there were no provision for transfer, reversion or

forfeiture.

          (4)      Shares are not “subject to forfeiture”—

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              (a)             because they are unpaid or partly paid and may be forfeited for non-

payment of calls, provided there is no restriction on the meeting of

calls by the recipient, or

              (b)             because the articles of association of the company require the shares

to be offered for sale or transferred if the employee ceases to hold

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specified employment, or

              (c)             because the recipient may be required to offer the shares for sale or

transfer them on the employee ceasing, as a result of misconduct, to

hold specified employment.

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 4 — Provisions applying in case of shares subject to forfeiture

    338

 

          (5)      In sub-paragraph (4)—

              (a)             “articles of association” includes, in the case of a company

incorporated under the law of a country outside the United

Kingdom, any equivalent document;

              (b)             the references to the employee ceasing to hold specified employment

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are to his ceasing—

                    (i)                   to be an employee of the employing company, or

                    (ii)                  to be an employee of one or more group companies, or

                    (iii)                 to be an employee of any group company,

                              as specified by the terms on which he is entitled to the shares.

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          (6)      References in this section to the terms on which the recipient is entitled to

shares include terms imposed by any contract or arrangement or in any

other way.

Income tax position of the employee in case of shares subject to forfeiture

  20      (1)      Where the recipient acquires shares that are subject to forfeiture, this

15

paragraph applies in place of paragraph 7 or 14 (income tax position of the

employee).

          (2)      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) by virtue of section 427 of that Act—

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                    (i)                   on the shares ceasing to be subject to forfeiture, or

                    (ii)                  on the recipient disposing of the shares, or dying, without the

shares having ceased to be subject to forfeiture, or

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

(3) were met.

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          (3)      The conditions mentioned in sub-paragraph (2)(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

made or the option was granted were performed in the United

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Kingdom at all material times.

Amount of relief in case of shares subject to forfeiture

  21      (1)      Where the recipient acquires shares that are subject to forfeiture, this

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

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

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

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

or another—

                    (i)                   in respect of the shares or, as the case may be, in respect of the

grant or exercise of the option, or

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                    (ii)                  in respect of the shares ceasing to be subject to forfeiture.

          (3)      For the purposes of sub-paragraph (2)(a)—

              (a)             the “relevant time” is the time at which the shares cease to be subject

to forfeiture or, where the recipient disposes of the shares, or dies,

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 5 — Supplementary provisions

    339

 

without the shares having ceased to be subject to forfeiture, the time

of the disposal or death; and

              (b)             the market value of the shares at that time is their market value

immediately after they cease to be subject to forfeiture or, where the

recipient disposes of the shares, or dies, without the shares having

5

ceased to be subject to forfeiture, at the time of the disposal or death.

          (4)      The consideration mentioned in sub-paragraph (2)(b) does not include—

              (a)             the performance of any duties of, or in connection with, the

employee’s employment with the employing company, or

              (b)             any amount paid or payable by the employee in pursuance of—

10

                    (i)                   an agreement within paragraph 3A(2) of Schedule 1 to the

Contributions and Benefits Act (agreement for recovery from

earner of secondary Class 1 contributions in respect of share

option gain), or

                    (ii)                  an election under paragraph 3B of that Schedule (election

15

transferring to earner liability for secondary Class 1

contributions in respect of share option gain).

          (5)      For the purposes of this paragraph a just and reasonable apportionment

shall be made of any consideration given partly in respect of the matters

mentioned in sub-paragraph (2)(b) and partly in respect of other matters.

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          (6)      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 not met, the amount of the relief shall be

reduced to such extent as is just and reasonable.

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Timing of relief in case of shares subject to forfeiture

  22      (1)      Where the recipient acquires shares that are subject to forfeiture, this

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

          (2)      The relief is given for the accounting period in which—

              (a)             the shares cease to be subject to forfeiture, or

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              (b)             the recipient disposes of the shares, or dies, without the shares

having ceased to be subject to forfeiture.

Part 5

Supplementary provisions

Transfer of business within a group

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  23      (1)      This paragraph applies where—

              (a)             between the time when an award of shares, or the grant of an option

to acquire shares, is made and the time of the relief-triggering event

for those shares, there is a transfer of the whole, or substantially the

whole, of the business for the purposes of which the award or grant

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was made (“the relevant business”),

              (b)             the transfer, or each of them if there is more than one, is a qualifying

transfer, and

              (c)             as a result of the transfer or transfers, the whole or substantially the

whole of the relevant business is carried on at the time of the relief-

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Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 5 — Supplementary provisions

    340

 

triggering event by a different company (“the successor company”)

or by different companies (“the successor companies”) from the one

by which it was carried on at the time of the award or grant.

          (2)      For the purposes of sub-paragraph (1)—

              (a)             the “relief-triggering event” for shares is the event that, in accordance

5

with paragraph 10, 17 or 22, determines the accounting period for

which relief under this Schedule is given in respect of them;

              (b)             there is a “qualifying transfer” of a business (or a part of one) where

the business (or part) is transferred from one company to another

company that is, or to two or more companies that are, members of

10

the same group.

          (3)      Where this paragraph applies—

              (a)             relief under this Schedule in respect of the shares is given to the

successor company or, as the case may be, to whichever one of the

successor companies is jointly nominated by them, and

15

              (b)             the reference in paragraph 1(1)(a) or (b) to “that company” shall be

read as a reference to the company by which the relevant business

was carried on at the time of the award or grant.

Relationship between relief and other deductions: priority of deductions under SIP code

  24      (1)      Deductions available under any of the following provisions of Schedule

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4AA to the Taxes Act 1988 (share incentive plans) are to be given in priority

to relief under this Schedule—

              (a)             paragraph 2 (deduction for providing free or matching shares);

              (b)             paragraph 3 (deduction for expenses in providing partnership

shares);

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              (c)             paragraph 9 or 10(3) (deduction for contribution to plan trust).

          (2)      No relief is available under this Schedule in respect of shares in relation to

which a deduction is allowable, or has been made, under any of those

provisions.

Relationship between relief and other deductions: exclusion of other deductions

30

  25      (1)      Where relief under this Schedule is available for any accounting period, no

other deduction is allowed for any corporation tax purposes (whether for

that or any other period) in respect of the cost of providing the shares.

                   This applies to any deduction, whether by the employing company or any

other company, in computing chargeable profits for the purposes of

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corporation tax.

          (2)      For this purpose the cost of providing the shares—

              (a)             means expenses directly related to the provision of the shares, and

              (b)             includes, in a case where the shares are acquired under an employee

share scheme, any amount paid or payable by the employing

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company in respect of the participation of the employee in that

scheme.

          (3)      The following are not regarded as part of the cost of providing the shares—

              (a)             expenses incurred in establishing the employee share scheme under

which the recipient acquires the shares;

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