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PART 7 continued CHAPTER 9 continued
(3) An employee’s “reckonable time in relevant employment” means the time which the employee in fact spent, as an employee in relevant employment—
(a) on the business of the relevant company, or
(b) if that company is a parent company, on the business of the group,
together with any time which the employee would, as such an employee, have spent on that business but for any of the reasons set out in paragraph 26(3)(a) to (d) of Schedule 5 (requirement as to commitment of working time).
(4) The “statutory threshold” means—
(a) 25 hours, or
(b) if less, 75% of the employee’s working time.
(5) For the purpose of applying subsection (2) to the tax year in which the option was granted, any part of that year which preceded the date on which it was granted is to be disregarded in calculating the average amount mentioned in that subsection.
(6) In this section—
(a) “relevant employment” means employment—
(i) by the relevant company, or
(ii) if that company is a parent company, by any member of the group;
(b) “working time” has the meaning given by paragraph 27 of Schedule 5 (meaning of “working time”).
(1) The following are also disqualifying events in relation to a qualifying option—
(a) any variation of the terms of the option whose effect is either—
(i) to increase the market value of the shares that are the subject of the option, or
(ii) that the requirements of Schedule 5 would no longer be met in relation to the option;
(b) any alteration to the share capital of the relevant company—
(i) to which subsection (2) (share values affected by alteration of rights or restrictions) of section 537 applies, and
(ii) whose effect is that the requirements of Schedule 5 would no longer be met in relation to the option;
(c) any alteration to the share capital of the relevant company to which—
(i) subsection (2) (share values affected by alteration of rights or restrictions), and
(ii) subsection (3) (alteration designed to increase share values),
of section 537 apply;
(d) a conversion of any of the shares to which the option relates into shares of a different class, except in a case within section 538(2); and
(e) the grant to the employee of a relevant CSOP option, if immediately after it is granted the employee holds unexercised employee options in respect of shares with a total value of more than £100,000.
(2) In subsection (1)(e)—
“relevant CSOP option”, and
“employee option”,
have the meaning given by section 539 (CSOP and other options relevant for purposes of this section); and sub-paragraphs (6) to (8) of paragraph 5 of Schedule 5 (determination of value of shares) apply for the purposes of subsection (1)(e) as they apply for the purposes of paragraph 5.
(1) This section has effect for the purposes of section 536(1)(b) and (c) (other disqualifying events: alterations of share capital of relevant company).
(2) This subsection applies to an alteration of the share capital of the relevant company if—
(a) the alteration affects (or but for the occurrence of some other event would affect) the value of the shares to which the option relates; and
(b) it consists of or includes—
(i) the creation, variation or removal of a right relating to any shares in the relevant company,
(ii) the imposition of a restriction relating to any such shares, or
(iii) the variation or removal of a restriction to which any such shares are subject.
(3) This subsection applies to an alteration of the share capital of the relevant company if the effect of the alteration is to increase the market value of the shares to which the option relates and either—
(a) it is not made by the relevant company for commercial reasons, or
(b) the main purpose (or one of the main purposes) for making it is to increase the market value of those shares.
(4) In this section any reference to—
(a) a restriction relating to shares or to which shares are subject, or
(b) a right relating to shares,
is a reference to such a restriction imposed or right conferred by any contract or arrangement or in any other way.
(1) This section has effect for the purposes of section 536(1)(d) (other disqualifying events: share conversions).
(2) A conversion of shares is not a disqualifying event if—
(a) it is a conversion of shares of one class only (“the original class”) into shares of one other class only (“the new class”);
(b) all the shares of the original class are converted into shares of the new class; and
(c) one of the conditions in subsection (3) is met.
(3) The conditions are—
(a) that immediately before the conversion the majority of the relevant company’s shares of the original class are held otherwise than by or for the benefit of—
(i) directors or employees of the relevant company,
(ii) an associated company of the relevant company, or
(iii) directors or employees of such an associated company;
(b) that immediately before the conversion the relevant company is employee-controlled as a result of holdings of shares of the original class.
(4) In this section “associated company”, “director”, “employee” and “employee-controlled” have the same meaning as in section 440 (exception from tax charge where conversion of entire class of shares).
(1) This section has effect for the purposes of section 536(1)(e) (other disqualifying events: grant of CSOP option).
(2) A “relevant CSOP option” means a CSOP option granted to the employee by reason of the employee’s employment—
(a) with the employer company, or
(b) if it is a member of a group of companies, with any member of that group.
(3) A share option is an “employee option” if it is—
(a) the qualifying option mentioned in section 536(1), or
(b) another qualifying option granted to the employee by reason of the employee’s employment as mentioned in subsection (2)(a) or (b) above, or
(c) a relevant CSOP option.
(4) In this section a “CSOP option” means an option to acquire shares under a scheme approved under Schedule 4 (CSOP schemes).
(1) In its application in relation to a UK resident employee, Chapter 8 of Part 3 (taxable benefits: notional loans in respect of acquisitions of shares) does not apply in relation to the acquisition of shares by the exercise of a qualifying option.
(2) An employee is a “UK resident employee” if—
(a) at the time when the option is granted, or
(b) at the time when it is exercised,
the earnings from the employment are (or would be if there were any) general earnings to which section 15 or 21 applies (earnings for year when employee resident and ordinarily resident in the United Kingdom).
(1) Nothing in the EMI code affects—
(a) any liability to income tax arising by virtue of section 199 (charge on disposal of employment-related shares for more than market value) in respect of shares acquired under a qualifying option;
(b) any liability to income tax arising by virtue of section 476 (charge on exercise etc. of option by employee) in respect of the release of rights conferred by a qualifying option;
(c) any liability to income tax arising by virtue of section 449, 453 or 457 (charge on post-acquisition benefits relating to shares) in respect of shares acquired under a qualifying option; or
(d) subject to subsection (2), any liability to income tax arising by virtue of—
(i) section 427 (charge on interest in shares ceasing to be only conditional), or
(ii) section 438 (charge on conversion of shares),
in respect of shares acquired under a qualifying option.
(2) If section 427 or 438 applies in respect of shares acquired under a qualifying option, the amount of relief on the exercise of the option is to be regarded as a deductible amount for the purposes of section 428(1) or 439(1) (amount of charge), as appropriate.
(3) “The amount of relief on the exercise of the option” means the difference between—
(a) the amount that would have counted as employment income by virtue of section 476 in respect of the exercise of the option apart from the EMI code, and
(b) the amount (if any) that in fact counts as such income in accordance with the EMI code.
(1) This section applies if—
(a) there is a genuine offer to the public of shares in a company at a fixed price or by tender,
(b) a director or employee of the company, or of another company or person, is entitled by reason of the office or employment to an allocation of the shares in priority to members of the public, and
(c) conditions A to C are met.
(2) No liability to income tax in respect of earnings arises by virtue of any benefit derived by the director or employee from the entitlement.
(3) Condition A is that the aggregate number of shares subject to the offer that may be allocated as mentioned in subsection (1)(b) (“priority shares”) does not exceed—
(a) if the offer is part of arrangements which include one or more other offers to the public of shares of the same class, either of the limits in subsection (4), or
(b) in any other case, 10% of the shares subject to the offer (including the priority shares).
(4) The limits referred to in subsection (3)(a) are—
(a) 40% of the shares subject to the offer (including the priority shares), and
(b) 10% of all the shares of the class in question that are subject to any of the offers forming part of the arrangements (including the priority shares).
(5) Condition B is that all the persons entitled to an allocation of priority shares are entitled to it on similar terms (see section 546).
(6) Condition C is that those persons are not restricted wholly or mainly to directors or to those whose remuneration exceeds a particular level.
(7) This section has effect subject to section 543 (discount not covered by exemption in this section).
(1) This section applies if the total of—
(a) the price payable by the director or employee for the shares of the company allocated to the director or employee under the offer, and
(b) the amount or value of any registrant discount made to the director or employee in respect of the shares,
is less than the fixed price or the lowest price successfully tendered.
(2) Section 542(2) (exemption: offer made to public and employees) does not apply to the benefit (if any) represented by the difference.
(1) This section applies if—
(a) there is a genuine offer to the public of a combination of shares in two or more companies at a fixed price or by tender (“the public offer”),
(b) there is at the same time an offer (“the employee offer”) of shares, or of a combination of shares, in one or more, but not all, of those companies—
(i) to directors or employees of any of those companies, or of any other company or person, or
(ii) to those directors or employees and to other persons,
(c) any of those directors or employees is entitled by reason of the office or employment to an allocation of shares under the employee offer in priority to any allocation to members of the public under the public offer, and
(d) conditions A to C are met.
(2) No liability to income tax in respect of earnings arises by virtue of any benefit derived by the director or employee from the entitlement.
(3) Condition A is that for each company whose shares are subject to the employee offer, the aggregate number of shares subject to that offer that may be allocated as mentioned in subsection (1)(c) (“priority shares”) does not exceed—
(a) if the public offer and the employee offer are part of arrangements which include one or more other offers to the public of shares in the company of the same class, either of the limits in subsection (4), or
(b) in any other case, 10% of the shares in the company that are subject to the public offer or the employee offer (including the priority shares).
(4) The limits referred to in subsection (3)(a) are—
(a) 40% of the shares in the company that are subject to the public offer or the employee offer (including the priority shares), and
(b) 10% of all the shares in the company of the class in question that are subject to any of the offers forming part of the arrangements (including the priority shares).
(5) Condition B is that all the persons entitled to an allocation of priority shares are entitled to it on similar terms (see section 546).
(6) Condition C is that those persons are not restricted wholly or mainly to directors or to those whose remuneration exceeds a particular level.
(7) This section has effect subject to section 545 (discount not covered by exemption in this section).
(1) This section applies if the total of—
(a) the price payable by the director or employee for the shares of a company allocated to the director or employee under the employee offer, and
(b) the amount or value of any registrant discount made to the director or employee in respect of the shares,
is not the same as, or as near as reasonably practicable to, the appropriate notional price for the shares of the company.
(2) Section 544(2) (exemption: different offers made to public and employees) does not apply to the benefit (if any) represented by the amount by which the appropriate notional price exceeds the total referred to in subsection (1).
(3) The “appropriate notional price” for the shares of a company is—
(a) if subsection (4) applies, the amount given by the formula in subsection (6), and
(b) in any other case, the notional price.
(4) This subsection applies if shares of the company are subject to the public offer and there is a difference between CP and AFP—
(a) CP being the price for the combination of shares subject to the public offer determined by aggregating the notional prices for each one of the shares comprised in the combination, and
(b) AFP being the actual fixed price or (as the case may be) the lowest successfully tendered price for that combination of shares.
(5) The “notional price” for the shares of a company is the price that might reasonably have been expected to be the fixed price for the shares of the company under a separate offer of those shares if—
(a) the shares of the company, and of each of the other companies had, instead of being subject to the public offer and the employee offer, been subject to separate offers to the public in respect of each company at fixed prices, and
(b) those separate offers had been made at the time at which the public offer was in fact made.
(6) The formula referred to in subsection (3)(a) is—
where—
NP is the notional price for the shares of the company, and
AFP and CP have the same meanings as in subsection (4).
(1) This section applies for the purposes of sections 542(5) and 544(5) (condition that entitlements to allocation of priority shares must be on similar terms).
(2) The fact that different provision is made for persons according to—
(a) the levels of their remuneration,
(b) the length of their service, or
(c) similar factors,
does not mean that they are not entitled to an allocation on similar terms.
(3) The fact that the allocations of shares in a company to which non-company employees are entitled are smaller than those to which company employees are entitled does not mean that they are not entitled on similar terms, if conditions A and B are met.
(4) Condition A is that each non-company employee is also entitled by reason of the office or employment and in priority to members of the public, to an allocation of shares in another company or companies which are offered to the public at a fixed price or by tender at the same time as the shares in the company.
(5) Condition B is that in the case of each non-company employee the aggregate value of all the shares included in the allocations to which the non-company employee is entitled is the same, or as nearly the same as is reasonably practicable, as that of the shares in the company included in the entitlement of a comparable company employee.
(6) For the purposes of subsection (5), the value of shares is to be measured by reference to the fixed price or the lowest price successfully tendered.
(7) In this section—
“company employee”, in relation to a company, means a director or employee of the company, and
“non-company employee”, in relation to a company, means a director or employee of another company or person.
(1) For the purposes of this Chapter there is a “registrant discount” in respect of the shares of a company if conditions A to C are met.
(2) Condition A is that members of the public who comply with such requirements as may be imposed in connection with the offer or, if section 544 applies, the public offer are, or may become, entitled to a discount in respect of the whole or part of the shares of the company allocated to them.
(3) Condition B is that at least 40% of the shares of the company allocated to members of the public are allocated to individuals who are or become entitled to—
(a) the discount, or
(b) some other benefit of similar value for which they may elect as an alternative to the discount.
(4) Directors and employees who are entitled by reason of their office or employment to an allocation of the shares in priority to members of the public are not to be treated as members of the public for the purposes of subsection (3).
(5) Condition C is that subscribing employees are, or may become, entitled to the same discount in respect of the shares of the company as any other members of the public to whom shares of the company are allocated under the offer.
(6) In subsection (5) a “subscribing employee” means a director or employee who—
(a) subscribes for shares—
(i) if section 542 (offer made to public and employees) applies, under the offer as a member of the public, or
(ii) if section 544 (different offers made to public and employees) applies, under the public offer as a member of the public or under the employee offer as a director or employee, and
(b) complies (or, in the case of a requirement to register, is taken under the terms of the offer to comply) with the requirements mentioned in subsection (2).
(7) For the purposes of this Chapter, the “amount or value” of any registrant discount made to a director or employee means—
(a) the amount of any such discount made to the director or employee as is mentioned in subsection (5), or
(b) the value of any such other benefit as is mentioned in subsection (3)(b) which is conferred on the director or employee as an alternative to the discount.
(1) In this Chapter—
“director” means—
in relation to a company whose affairs are managed by a board of directors or similar body, a member of that body,
in relation to a company whose affairs are managed by a single director or similar person, that director or person, and
in relation to a company whose affairs are managed by the members themselves, a member of the company, and
includes any person in accordance with whose directions or instructions the directors of the company (as defined in paragraphs (a) to (c)) are accustomed to act and a person who is to be, or has ceased to be, a director (as so defined);
“employee” includes a person who is to be or has been an employee;
“shares” includes stock;
“the employee offer” and “the public offer” have the meanings given by section 544(1).
(2) For the purposes of subsection (1) a person is not to be regarded as a person in accordance with whose directions or instructions the directors of the company are accustomed to act merely because the directors act on advice given by that person in a professional capacity.
(3) References in this Chapter—
(a) to the employment, in relation to an employee, are to the employment of that employee, and
(b) to the office, in relation to a director, are to the office of that director.
(1) This Chapter applies for the purposes of any listed provision in circumstances where—
(a) an individual (“B”) is interested as a beneficiary of an employee benefit trust in shares or obligations of a particular company (“the company”), and
(b) the question arises under that provision whether the trustees of the trust are, as a result of B’s being so interested, to be regarded as associates of B’s for the relevant purposes.
The relevant purposes are those of the operation, in relation to the company, of the “no material interest” requirement contained in the Schedule to this Act in which the listed provision appears.
(2) In this Chapter “listed provision” means any of the following provisions (under which trustees of an employee benefit trust are not to be regarded as associates if specified limits relating to share ownership are not exceeded)—
(a) paragraph 23(2) of Schedule 2 (approved SIPs),
(b) paragraph 15(2) of Schedule 3 (approved SAYE option schemes),
(c) paragraph 13(2) of Schedule 4 (approved CSOP schemes), or
(d) paragraph 32(2) of Schedule 5 (enterprise management incentives).
(3) The general effect of this Chapter is that if the provisions of—
(a) sections 552 and 553 (attribution of interest in company to beneficiary or associate), or
(b) section 554 (attribution of further interest),
apply in relation to B or an associate of B's, B or the associate is to be treated for the purposes of the listed provision as having been the beneficial owner of a particular percentage of the company’s ordinary share capital on a particular date.
(4) In this Chapter, in relation to an individual, “associate”—
(a) has the same meaning as in section 417(3) and (4) of ICTA (expressions relating to close companies), but
(b) does not include the trustees of an employee benefit trust as a result only of the individual’s having (as mentioned in subsection (1)(a)) an interest in shares or obligations of the company which are subject to the trust.
(5) In this Chapter “employee” means the holder of a taxable employment under Part 2 (as defined in section 66(3)), and accordingly includes an office-holder whose office is within the scope of that definition as a result of section 5(1).
(1) In this Chapter “employee benefit trust”, in relation to a company, means a trust where conditions A and B are met.
(2) Condition A is that all or most of the employees of the company are eligible to benefit under the trust.
(3) Condition B is that after 13th March 1989 either—
(a) there has been no disposal of any of the property subject to the trust, or
(b) any disposal of any of that property was a disposal within subsection (4).
(4) The disposals within this subsection are—
(a) disposals in the ordinary management of the trust, or
(b) qualifying disposals (within the meaning given by section 551).
(5) In this section and section 551 “disposal” means disposal by sale, loan or otherwise.
(1) For the purposes of section 550 (meaning of “employee benefit trust”) a “qualifying disposal” is a disposal of property consisting of—
(a) any of the ordinary share capital of the company, or
(b) money paid outright,
where any of conditions 1, 2 and 3 is met.
(2) Condition 1 is that the property has been applied for the benefit of—
(a) individual employees or former employees of the company,
(b) spouses, former spouses, widows or widowers of employees or former employees of the company,
(c) dependants of persons within paragraph (a), or
(d) relatives, or spouses of relatives, of persons within paragraph (a) or (b).
(3) In subsection (2) each reference to the company includes a reference to a company controlled by the company.
(4) Condition 2 is that the property has been applied for charitable purposes.
(5) Condition 3 is that the property has been transferred to—
(a) the trustees of another employee benefit trust,
(b) the trustees of a qualifying employee share ownership trust (within the meaning of Schedule 5 to FA 1989), or
(c) the trustees of a profit sharing scheme approved under Schedule 9 to ICTA (approved share option schemes and profit sharing schemes).
(6) In this section “relative” means—
(a) parent, child or remoter relation in the direct line, or
(b) brother, sister, uncle, aunt, nephew or niece.
(1) This section applies if—
(a) after 13th March 1989 B, or an associate of B's, has received a payment (“the relevant payment”) from the trustees of the employee benefit trust, and
(b) at any time during the period of 3 years ending with the day on which the relevant payment was received (“the payment date”), the property subject to the trust consisted of or included any part of the ordinary share capital of the company.
(2) In such a case B or the associate is to be treated for the purposes of the listed provision as having been the beneficial owner of the appropriate percentage of the ordinary share capital of the company on the payment date.
(3) This is in addition to any percentage of that share capital of which B or the associate was actually the beneficial owner on that date.
(4) Section 553 explains what is meant by “the appropriate percentage”.
Income Tax (Earnings and Pensions) Act 2003