http://www.legislation.gov.uk/id/ukpga/2003/1

476Charge on occurrence of chargeable event

F2(1)

If a chargeable event occurs in relation to an employment-related securities option, the taxable amount counts as employment income of the employee for the relevant tax year.

(2)

For this purpose—

(a)

“chargeable event” has the meaning given by section 477,

(b)

“the taxable amount”is the amount determined under section 478, and

(c)

“the relevant tax year”is the tax year in which the chargeable event occurs.

(3)

Relief under section 481 or 482 (relief for secondary Class 1 contributions or special contribution met by employee) may be available against an amount counting as employment income under this section.

F3(5)

If the employee has been divested of the employment-related securities option by operation of law—

(a)

income tax is charged on the amount determined under section 478, and

(b)

the person liable for any tax so charged is the relevant person in relation to the chargeable event (see section 477(7)).

F4(5A)

An amount charged under subsection (5)(a) is treated for income tax purposes as an amount of income.

(6)

This section is subject to—

section 519 (approved SAYE option schemes: no charge in respect of exercise of share option by employee),
section 524 (approved CSOP schemes: no charge in respect of exercise of share option by employee), and
section 530 (enterprise management incentives: no charge on exercise by employee of option to acquire shares at market value).

477Chargeable events

(1)

This section applies for the purposes of section 476 (charge on occurrence of chargeable event).

(2)

Any of the events mentioned in subsection (3) is a “chargeable event” in relation to the employment-related securities option unless it occurs on or after the death of the employee.

(3)

The events are—

(a)

the acquisition of securities pursuant to the employment-related securities option by an associated person,

(b)

the assignment for consideration of the employment-related securities option by an associated person otherwise than to another associated person or the release for consideration of the employment-related securities option by an associated person, or

(c)

the receipt by an associated person of a benefit F5in connection with the employment-related securities option (other than one within paragraph (a) or (b)).

(4)

For the purposes of subsection (3)(a) securities are acquired at the time when a beneficial interest is acquired (and not, if different, the time when the securities are conveyed or transferred).

(5)

A benefit received on account of any disability (within the meaning of the Disability Discrimination Act 1995) of the employee is to be disregarded for the purposes of subsection (3)(c).

(6)

A benefit in money or money’s worth received in consideration for or otherwise in connection with—

(a)

failing or undertaking not to acquire securities pursuant to the employment-related securities option, or

(b)

granting or undertaking to grant to another person a right to acquire securities which are subject to the employment-related securities option or any interest in them,

is to be regarded for the purposes of subsection (3)(c) as received in connection with the employment-related securities option.

(7)

For the purposes of section 476(5) F6(charge to income tax) the relevant person in relation to a chargeable event is—

(a)

in the case of an event that is a chargeable event by virtue of subsection (3)(a), the person by whom the securities are acquired, and

(b)

in the case of an event that is a chargeable event by virtue of subsection (3)(b) or (c), the person by whom the consideration or benefit is received.

478Amount of charge

(1)

The taxable amount for the purposes of section 476 (charge on occurrence of chargeable event) is—

AG - DA

where—

AG is the amount of any gain realised on the occurrence of the chargeable event, and

DA is the total of any deductible amounts.

(2)

Section 479 explains what is the amount of any gain realised on the occurrence of a chargeable event.

(3)

Section 480 specifies what are deductible amounts.

479Amount of gain realised on occurrence of chargeable event

(1)

This section applies for the purposes of section 478 (amount of charge on occurrence of chargeable event).

(2)

The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(a) (acquisition of securities) is (subject to subsection (4))—

MV - C

(3)

In subsection (2)—

MV is the market value of the securities that are acquired at the time when they are acquired, and
C is the amount of any consideration given for the securities that are acquired.

(4)

But the amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(a) (acquisition of securities) is calculated—

(a)

if section 531 (enterprise management incentives: limitation of charge on exercise of option to acquire shares below market value) applies, in accordance with that section, and

(b)

if section 532 (enterprise management incentives: modified tax consequences following disqualifying events) applies, in accordance with that section.

(5)

The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(b) (assignment or release of option) is the amount of the consideration given for the assignment or release.

(6)

The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(c) (receipt of benefit in connection with option) is the amount or market value of the benefit.

(7)

But if—

(a)

the consideration mentioned in subsection (5), or

(b)

the benefit mentioned in subsection (6),

consists (in whole or in part) in the provision of securities or an interest in securities the market value of which has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the receipt of the consideration or benefit, its market value is to be taken to be what it would be but for the reduction.

(8)

The following are among the things that are, for the purposes of subsection (7), done otherwise than for genuine commercial purposes—

(a)

anything done as part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax or national insurance contributions, and

(b)

any transaction between companies which are members of the same group on terms which are not such as might be expected to be agreed between persons acting at arm’s length (other than a payment for group relief).

(9)

In subsection (8)(b)—

(a)

“group” means a company and its 51% subsidiaries, and

(b)

“group relief” has the same meaning as in section 402(6) of ICTA.

480Deductible amounts

(1)

This section applies for the purposes of section 478 (amount of charge on occurrence of chargeable event).

(2)

The amount of—

(a)

any consideration given for the acquisition of the employment-related securities option, and

(b)

the amount of any expenses incurred in connection with the acquisition of securities, assignment, release or receipt which constitutes the chargeable event,

is a deductible amount.

(3)

Where in consequence of—

(a)

the acquisition of the employment-related securities option,

(b)

the acquisition of securities pursuant to the employment-related securities option, or

(c)

a transaction of which the acquisition of the employment-related securities option or the acquisition of securities pursuant to the employment-related securities option forms part,

there is a reduction in the market value of any employment-related securities to which an associated person is beneficially entitled, the amount of the reduction is to be treated for the purposes of subsection (2) as consideration (or additional consideration) given for the acquisition of the employment-related securities option.

(4)

If an amount counts as employment income of the employee under section 526 (approved CSOP schemes: charge where option granted at a discount) in respect of the employment-related securities option, so much of that amount as is attributable to the shares in question is a deductible amount.

(5)

The following are also deductible amounts—

(a)

any amount that constituted earnings from the employment under Chapter 1 of Part 3 (earnings) in respect of the acquisition of the employment-related securities option,

(b)

any amount that was treated as earnings from the employment under Chapter 10 of that Part (taxable benefits: residual liability to charge) in respect of the acquisition of the employment-related securities option, and

(c)

the amount of any gain by a previous holder on an assignment of the employment-related securities option which would have been a deductible cost by virtue of subsection (2)(c) of section 479 (as originally enacted) on an exercise of the option at a time when that section was in force.

(6)

If there has been a previous chargeable event in relation to the employment-related securities option (or if section 476 or 477 as originally enacted applied to the option by virtue of an earlier event), so much of any deductible amount as was deducted in calculating the taxable amount on the occasion of that event is to be regarded as not being a deductible amount.

F7(7)

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481F8Relief for secondary Class 1 contributions met by employee

(1)

F9Relief is available under this section against an amount counting as employment income under section 476 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)

F10The amount of the relief is the total 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).

F11(4A)

Relief under this section is given by way of deduction from the amount otherwise counting as employment income.

(4B)

Relief under this section does not affect the amount to be taken into account—

(a)

as employment income in determining contributions payable under the Contributions and Benefits Act, or

(b)

as relevant employment income for the purposes of paragraph 3A or 3B of Schedule 1 to that Act.

(5)

In this section—

“approval”, in relation to an election, means approval by F12the Commissioners for Her Majesty’s Revenue and Customs 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).

482F13Relief for special contribution met by employee

(1)

F14Relief is available under this section against an amount counting as employment income under section 476 if conditions A to D are met.

(2)

Condition A is that a notice in respect the employment-related securities option was given to F12the Commissioners for Her Majesty’s Revenue and Customs 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 F12the Commissioners for Her Majesty’s Revenue and Customs directed under section 2(5) of that Act.

F15(6)

The amount of the relief is the amount of the liability referred to in subsection (4).

(7)