Office of Public Sector Information
SCHEDULE 22 continued
(1) The amount calculated under subsection (2) is a deductible amount if—
(a) an agreement having effect under paragraph 3A of Schedule 1 to the Contributions and Benefits Act has been entered into allowing the secondary contributor to recover from the employee the whole or part of any secondary Class 1 contributions in respect of the gain, or
(b) an election having effect under paragraph 3B of Schedule 1 to that Act is in force which has the effect of transferring to the employee the whole or part of the liability to pay secondary Class 1 contributions in respect of the gain.
(2) The amount is the sum of—
(a) any amount that under the agreement referred to in subsection (1)(a) is recovered in respect of the gain by the secondary contributor before 5th June in the tax year following that in which the gain is realised, and
(b) the amount of any liability in respect of the gain that, by virtue of the election referred to in subsection (1)(b), has become the employee’s liability.
(3) If notice of withdrawal of approval of the election is given, the amount of any liability in respect of the gain for the purposes of subsection (2)(b) is limited to the amount of the liability met before 5th June in the tax year following that in which the gain is realised.
(4) Subsection (1) does not apply in respect of a liability to pay Class 1 contributions which is prevented from arising by virtue of section 2(1)(a) of the Social Security Contributions (Share Options) Act 2001 (liability to pay Class 1 contributions in respect of gains replaced by liability to pay special contribution).
(5) In this section—
“approval”, in relation to an election, means approval by the Board of Inland Revenue under paragraph 3B of Schedule 1 to the Contributions and Benefits Act, and
“secondary contributor” has the same meaning as in that Act (see section 7).
(1) The amount of the liability referred to in subsection (4) is a deductible amount if conditions A to D are met.
(2) Condition A is that a notice in respect the employment-related securities option was given to the Board of Inland Revenue in accordance with section 1 of the Social Security Contributions (Share Options) Act 2001 before 11th August 2001.
(3) Condition B is that the person, or one of the persons, who gave that notice is a person who (apart from that Act) was liable, or would have become liable, by virtue of an election under paragraph 3B of Schedule 1 to the Contributions and Benefits Act, to pay secondary Class 1 contributions in respect of an event which is a chargeable event for the purposes of section 476.
(4) Condition C is that that person became liable to pay a special contribution under section 2 of the Social Security Contributions (Share Options) Act 2001 in respect of the employment-related securities option.
(5) Condition D is that that person met that liability before 11th August 2001 or before the end of such further period as the Board of Inland Revenue directed under section 2(5) of that Act.
(1) This section applies if—
(a) the employment-related securities option (the “old option”) is assigned or released, and
(b) the whole or part of the consideration for the assignment or release consists of or includes another securities option (the “new option”).
(2) For the purposes of section 479(5) (amount of gain realised by assigning or releasing option) the new option is not to be treated as consideration given for the assignment or release of the old option.
(3) This Chapter applies to the new option as it applies to the old option.
(4) For the purposes of section 480(2) (consideration for acquisition of option) the amount of the consideration given for the acquisition of the new option is to be treated as being the sum of—
(a) the amount by which the amount of the consideration given for the acquisition of the old option exceeds the amount of any consideration given for the assignment or release of the old option, apart from the new option, and
(b) any valuable consideration given for the acquisition of the new option, apart from the old option.
(5) Two or more transactions are to be treated for the purposes of subsection (1) as a single transaction by which one option is assigned for a consideration which consists of or includes another option if—
(a) the transactions result in—
(i) a person ceasing to hold an option, and
(ii) that person or a connected person coming to hold another option, and
(b) one or more of the transactions is effected under arrangements to which two or more persons holding options, in respect of which there may be liability to tax under this Chapter, are parties.
(6) Subsection (5) applies regardless of the order in which the assignments and the acquisition occur.
(1) In this Chapter—
“securities”, and
“securities option”,
have the meaning indicated in section 420.
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) For the purposes of this Chapter sections 421(2) and 421A apply for determining the amount of consideration given for anything.
(4) In this Chapter “employment-related securities” has the same meaning as in Chapter 1 of this Part (see section 421B(8)).
(5) In this Chapter—
“the acquisition”,
“the employee”,
“the employer”,
“the employment”, and
“employment-related securities option”,
have the meaning indicated in section 471(5).
(6) In this Chapter “associated person” has the meaning indicated in section 472.
(7) In this Chapter—
“secondary Class 1 contributions” has the same meaning as in the Contributions and Benefits Act (see section 1 of that Act), and
“the Contributions and Benefits Act” means SSCBA 1992 or SSCB(NI)A 1992.”.
(2) Sub-paragraph (1) has effect—
(a) on and after 16th April 2003 in relation to employment-related securities options which are not share options, and
(b) on and after the day appointed under paragraph 3(2) in relation to employment-related securities options which are share options;
and for this purpose “share options” means rights to acquire shares in a company or securities as defined in section 254(1) of the Taxes Act 1988 issued by a company.
11 (1) Section 509 (modification of section 696 where charge on shares ceasing to be subject to plan) is amended as follows.
(2) In subsection (4), for “subsection (5)” substitute “subsections (5) and (6)”.
(3) After subsection (5) insert—
“(6) In determining for the purposes of this section (and of section 696 in its application in accordance with this section) whether the shares are readily convertible assets, section 702 has effect with the omission of subsections (5A) to (5D).”.
12 (1) For sections 698 and 699 (PAYE: conditional interests in shares and convertible shares) substitute—
(1) This section applies where by reason of the operation of—
(a) section 426 (chargeable events in relation to restricted securities and restricted interests in securities),
(b) section 438 (chargeable events in relation to convertible securities and interests in convertible securities),
(c) section 446B (charge on acquisition where market value of securities or interest artificially depressed),
(d) section 446L (charge where market value of securities artificially enhanced),
(e) section 446U (securities or interest acquired for less than market value: charge on discharge of notional loan),
(f) section 446Y (charge where securities or interest disposed of for more than market value), or
(g) section 447 (chargeable benefit from securities or interest),
in relation to employment-related securities, an amount counts as employment income of an employee.
(2) Sections 684 to 691 and 696 have effect as if—
(a) the employee were provided with PAYE income in the form of the employment-related securities by the employer on the relevant date, and
(b) the reference in subsection (2) of section 696 to the amount of income likely to be PAYE income in respect of the provision of the asset were to the amount likely to count as employment income.
(3) In a case in which the employment-related securities are not readily convertible assets, if—
(a) the amount counts as income by virtue of section 427(3)(c), 439(3)(b), (c) or (d), 446Y or 447, and
(b) the whole or any part of the consideration or benefit concerned takes the form of a payment or consists in the provision of an asset,
subsection (4) applies.
(4) Sections 684 to 691 and 696 have effect —
(a) to the extent that the consideration or benefit takes the form of a payment, as if it were a payment of PAYE income of the employee by the employer, and
(b) to the extent that the consideration or benefit consists in the provision of an asset, as if the provision of the asset were the provision of PAYE income in the form of the asset by the employer on the relevant date.
(5) Section 696 as applied by subsection (4)(b) has effect as if the reference in subsection (2) of that section to the amount of income likely to be PAYE income were to the same proportion of the amount likely to count as employment income as so much of the consideration or benefit as consists in the provision of the asset bears to the whole of the consideration or benefit.
(6) In this section “the relevant date” means—
(a) in relation to an amount counting as employment income under section 426 or 438, the date on which the chargeable event in question occurs,
(b) in relation to an amount counting as employment income under section 446B, the date of the acquisition of the securities or interest in securities in question,
(c) in relation to an amount counting as employment income under section 446L, the valuation date in question,
(d) in relation to an amount counting as employment income under section 446U, the date on which the notional loan in question is treated as discharged,
(e) in relation to an amount counting as employment income under section 446Y, the date of the disposal of the securities or interest in securities in question, and
(f) in relation to an amount counting as employment income under section 447, the date on which the benefit in question is received.
(7) In this section “employment-related securities” has the same meaning as in Chapters 1 to 4 of Part 7.”.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2) but does not affect the operation of section 698 as originally enacted in relation to any securities, or interests in securities, acquired before 16th April 2003.
13 (1) For section 700 (PAYE: gains from share options) substitute—
(1) This section applies where by reason of the operation of section 476 (acquisition of securities pursuant to securities option etc) in relation to an employment-related securities option an amount counts as employment income of an employee.
(2) In a case where the amount counts as employment income by virtue of section 477(3)(a) (acquisition of securities), sections 684 to 691 and 696 have effect as if—
(a) the employee were provided with PAYE income in the form of the securities by the employer on the relevant date, and
(b) the reference in subsection (2) of section 696 to the amount of income likely to be PAYE income in respect of the provision of the asset were to the amount likely to count as employment income.
(3) In a case where the amount counts as income by virtue of section 477(3)(b) or (c) (assignment or release for consideration or receipt of benefit), sections 684 to 691 and 696 have effect —
(a) to the extent that the consideration or benefit takes the form of a payment, as if it were a payment of PAYE income of the employee by the employer, and
(b) to the extent that the consideration or benefit consists in the provision of an asset, as if the provision of the asset were the provision of PAYE income in the form of the asset by the employer on the relevant date.
(4) Section 696 as applied by subsection (3)(b) has effect as if the reference in subsection (2) of that section to the amount of income likely to be PAYE income were to the same proportion of the amount likely to count as employment income as so much of the consideration or benefit as consists in the provision of the asset bears to the whole of the consideration or benefit.
(5) In this section “the relevant date” means the date on which the chargeable event in question occurs.
(6) In this section—
“employment-related securities option”, and
“securities”,
have the same meaning as in Chapter 5 of Part 7.”.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).
14 (1) In section 701(2)(b) (“asset” not to include vouchers or credit-tokens), omit “subject to section 700(6),”.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).
15 (1) Section 702 (meaning of “readily convertible asset”) is amended as follows.
(2) After subsection (5) insert—
“(5A) An asset consisting in securities which is not a readily convertible asset apart from this subsection is to be treated as a readily convertible asset unless the securities are shares that are corporation tax deductible.
(5B) For the purposes of subsection (5A) shares are corporation tax deductible if they are acquired by a person—
(a) by reason of that, or another person's, employment with a company, or
(b) pursuant to an option granted by reason of that, or another person's, employment with a company,
and the company is entitled to corporation tax relief in respect of the shares under Schedule 23 to the Finance Act 2003 (corporation tax relief for employee share acquisition).
(5C) If a person acquires additional shares by virtue of holding shares that are corporation tax deductible, the additional shares are to be treated for the purposes of subsection (5A) as if they were corporation tax deductible.
(5D) If—
(a) on a person ceasing to be beneficially entitled to shares that are corporation tax deductible, that person acquires other shares, and
(b) the circumstances are such that the shares to which the person ceases to be beneficially entitled constitute “original shares” and the other shares constitute a “new holding” for the purposes of sections 127 to 130 of TCGA 1992,
the shares that constitute the new holding are to be treated for the purposes of subsection (5A) as if they were corporation tax deductible.”.
(3) In subsection (6), after the definition of “money debt” insert—
““securities” has the same meaning as in Chapters 1 to 5 of Part 7 (employment income from securities) (see section 420),
“shares” includes—
(a) an interest in shares, and
(b) stock or an interest in stock,”.
(4) For the purposes of section 702, shares are to be treated as corporation tax deductible during an accounting period which began before 1st January 2003 if they would have been corporation tax deductible had the accounting period begun on or after that date.
16 (1) In section 3(1) (structure of employment income Parts), in the entry relating to Part 7, for “share-related income and exemptions” substitute “income and exemptions relating to securities and securities options acquired in connection with an employment”.
(2) Sub-paragraph (1) has effect on and after 16th April 2003.
17 (1) In section 7(6)(b) (employment income), for “(share-related income and exemptions)” substitute “(income and exemptions relating to securities and securities options)”.
(2) Sub-paragraph (1) has effect on and after 16th April 2003.
18 (1) In section 19(2) (year in which earnings treated as received), omit the entries relating to Chapters 8 and 9 of Part 3.
(2) Sub-paragraph (1) has effect—
(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and
(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.
19 (1) In section 32(2) (receipt of non-money earnings), omit the entries relating to Chapters 8 and 9 of Part 3.
(2) Sub-paragraph (1) has effect—
(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and
(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.
20 (1) In section 63(1) (the benefits code), omit the entries relating to Chapters 8 and 9 of Part 3.
(2) Sub-paragraph (1) has effect—
(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and
(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.
21 (1) In section 64 (relationship between earnings and benefits code), omit subsections (5) and (6).
(2) Sub-paragraph (1) has effect in accordance with the provision made for the repeal of Chapter 8 of Part 3.
22 (1) Omit Chapter 8 of Part 3.
(2) Sub-paragraph (1) has effect in relation to shares, and interests in shares, acquired on or after 16th April 2003.
23 (1) Omit Chapter 9 of Part 3.
(2) Sub-paragraph (1) has effect in relation to shares, and interests in shares, disposed of on or after 16th April 2003.
24 (1) Section 216 (provisions not applicable to lower-paid employments) is amended as follows.
(2) In subsection (4), omit the entries relating to Chapters 8 and 9 of Part 3.
(3) In subsection (6), omit the entries relating to section 195(3) and section 199(4).
(4) Sub-paragraphs (1) to (3) have effect—
(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and
(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.
25 (1) Section 227(4) (employment income: exemptions) is amended as follows.
(2) For paragraphs (a) and (b) substitute—
“(a) section 425 (restricted securities: no charge in respect of acquisition in certain circumstances),
(b) section 475 (no charge in respect of acquisition of securities option),”.
(3) Omit paragraphs (d), (f) and (h).
(4) This paragraph has effect—
(a) so far as relating to section 425, in accordance with the provision made for the substitution of Chapter 2 of Part 7, and
(b) otherwise, in accordance with the provision made for the substitution of Chapter 5 of Part 7.
26 (1) Omit section 491 (no charge under Chapter 8 of Part 3 in respect of acquisition of approved share incentive plan shares).
(2) Sub-paragraph (1) has effect in accordance with the provision made for the repeal of Chapter 8 of Part 3.
27 (1) Omit section 494 (no charge on removal of restrictions applying to approved share incentive plan shares).
(2) Sub-paragraph (1) has effect—
(a) so far as relating to section 427, in accordance with the provision made for the substitution of Chapter 2 of Part 7, and
(b) so far as relating to section 449, in accordance with the provision made for the substitution of Chapter 4 of Part 7.
28 (1) Omit section 495 (approved share incentive plan shares: value of shares in dependent subsidiary).
(2) Sub-paragraph (1) has effect on 16th April 2003.
29 (1) Omit section 518 (no charge in respect of acquisition of approved SAYE share scheme option).
(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).
30 (1) In section 519 (no charge in respect of exercise of approved SAYE share scheme option), omit subsection (4).
(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).
31 (1) Omit section 520 (approved SAYE option schemes: no charge in respect of post-acquisition benefits).
(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 4 of Part 7.
32 (1) Omit section 523 (no charge in respect of acquisition of approved CSOP scheme option).
(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).
33 (1) In section 524 (no charge in respect of exercise of approved CSOP scheme option), omit subsection (4).
(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).
34 (1) Omit section 525 (approved CSOP schemes: no charge in respect of post-acquisition benefits).
(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 4 of Part 7.
35 (1) In section 526(4) (charge where approved CSOP scheme option granted at a discount: deductions of charge from amount chargeable under other provisions), for the words from the beginning to “deductions” substitute “Section 480(4) (gain realised on acquisition of securities pursuant to option etc) provides for a deduction”.
(2) Sub-paragraph (1) has effect—
(a) so far as relating to section 194, in accordance with the provision made for the repeal of Chapter 8 of Part 3, and
(b) otherwise, on and after the day appointed under paragraph 3(2).
36 (1) Omit section 528 (enterprise management incentives: no charge in respect of acquisition of qualifying option).
(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).
37 (1) In section 531(4) (enterprise management incentives: limitation of charge on exercise of qualifying option to acquire shares below market value), for the words after “which” substitute “under section 478 (amount of charge under section 476) is to be regarded as the taxable amount for the purposes of section 476 in respect of the acquisition of the shares pursuant to the option.”.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).
38 (1) In section 532(5) (enterprise management incentives: modified tax consequences following disqualifying events), for the words after “which” substitute “under section 478 (amount of charge under section 476) is to be regarded as the taxable amount for the purposes of section 476 in respect of the acquisition of the shares pursuant to the option.”.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).
39 (1) In section 538 (share conversions excluded for purposes of section 536), for subsection (4) substitute—
“(4) In this section—
“associated company” has the same meaning as, by virtue of section 416 of ICTA, it has for the purposes of Part 11 of ICTA,
“director” has the same meaning as in the benefits code (see section 67) but also includes a person who is to be or has been a director,
“employee” includes a person who is to be or has been an employee, and
“employee-controlled” has the same meaning as in Chapters 1 to 4 of this Part (see section 421H(1)).”.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).
40 (1) In section 540(1) (enterprise management incentives: notional loan provisions not to apply in relation to acquisition of shares by exercise of qualifying option), for “Chapter 8 of Part 3” substitute “Chapter 3C of this Part”.
(2) Sub-paragraph (1) has effect in accordance with the provision made for the repeal of Chapter 8 of Part 3.
41 (1) In section 541 (enterprise management incentives: effect on other income tax charges), for subsections (1) and (2) substitute—
“(1) Nothing in the EMI code affects—
(a) the operation of Chapters 2 to 4 of this Part in relation to shares acquired under a qualifying option, or
(b) the operation of Chapter 5 of this Part otherwise than in relation to the acquisition of shares under a qualifying option.
(2) But in calculating the taxable amount for the purposes of section 426 (post-acquisition charge on restricted securities) 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 (amount of charge).”.
(2) So far as relating to—
(a) Chapter 9 of Part 3 (which is repealed and replaced by provisions inserted in Part 7),
(b) any of the new Chapters substituted or inserted in Part 7 by this Schedule, and
(c) each of the Chapters of that Part as originally enacted for which new Chapters are substituted by this Schedule,
sub-paragraph (1) has effect in accordance with the provision made for the taking effect of the repeal, substitution or insertion.
42 (1) Part 2 of Schedule 1 (index of defined expressions) is amended as follows.
(2) Omit the entries relating to—
“acquisition (in Chapter 8 of Part 3)”,
“the acquisition (in Chapter 8 of Part 3)”,
“acquisition (in Chapter 9 of Part 3)”,
“the acquisition (in Chapter 4 of Part 7)”,
“as a director or employee, in relation to the acquisition of an interest in shares (in Chapter 2 of Part 7)”,
“as a director or employee, in relation to the acquisition of shares or an interest in shares (in Chapter 3 of Part 7)”,
“as a director or employee, in relation to the acquisition of shares or an interest in shares (in Chapter 4 of Part 7)”,
“assign, in relation to a share option (in Chapter 5 of Part 7)”,
“associated company (in Chapter 4 of Part 7)”,
“company (in Chapter 5 of Part 7)”,
“the Contributions and Benefits Act (in Chapter 5 of Part 7)”,
“convertible, in relation to shares (in Chapter 3 of Part 7)”,
“dependent subsidiary (in Chapter 4 of Part 7)”,
“director (in Chapter 2 of Part 7)”,
“director (in Chapter 3 of Part 7)”,
“director (in Chapter 4 of Part 7)”,
“director (in Chapter 5 of Part 7)”,
“employee (in Chapter 8 of Part 3)”,
“employee (in Chapter 9 of Part 3)”,
“employee (in Chapter 2 of Part 7)”,
“the employee (in Chapter 2 of Part 7)”,
“employee (in Chapter 3 of Part 7)”,
“the employee (in Chapter 3 of Part 7)”,
“employee (in Chapter 4 of Part 7)”,
“the employee (in Chapter 4 of Part 7)”,
“employee (in Chapter 5 of Part 7)”,
“the employee (in Chapter 5 of Part 7)”,
“employee-controlled (in relation to a company) (in Chapter 4 of Part 7)”,
“the employee’s interest (in Chapter 2 of Part 7)”,
“the employer company (in Chapter 2 of Part 7)”,
“the employer company (in Chapter 3 of Part 7)”,
“the employer company (in Chapter 4 of Part 7)”,
“employment-related shares (in Chapter 9 of Part 3)”,
“the employment-related shares (in Chapter 8 of Part 3)”,
“held by outside shareholders (in Chapter 4 of Part 7)”,
“interest in shares (in Chapter 8 of Part 3)”,
“interest in shares (in Chapter 9 of Part 3)”,
“interest in shares (in Chapter 4 of Part 7)”,
“market value (in Chapter 8 of Part 3)”,
“market value (in Chapter 9 of Part 3)”,
“market value (in Chapter 2 of Part 7)”,
“only conditional (interest in shares) (in Chapter 2 of Part 7)”,
“payment for the employment-related shares (in Chapter 8 of Part 3)”,
“release, in relation to a share option (in Chapter 5 of Part 7)”,
“secondary Class 1 contributions (in Chapter 5 of Part 7)”,
“share option (in Chapter 5 of Part 7)”,
“the share option (in Chapter 5 of Part 7)”,
“shares (in Chapter 8 of Part 3)”,
“shares (in Chapter 9 of Part 3)”,
“shares (in Chapter 2 of Part 7)”,
“the shares (in Chapter 2 of Part 7)”,
“shares (in Chapter 3 of Part 7)”,
“the shares (in Chapter 3 of Part 7)”,
“shares (in Chapter 4 of Part 7)”,
“the shares (in Chapter 4 of Part 7)”,
“shares (in Chapter 5 of Part 7)”,
“terms (in Chapter 2 of Part 7)”,
“terms (in Chapter 3 of Part 7)”, and
“value (in relation to shares) (in Chapter 4 of Part 7)”.
Finance Act 2003