C1Part 7F41Employment income: income and exemptions relating to securities
Pt. 7: power to modify conferred (7.4.2005) by Finance Act 2005 (c. 7), s. 21(8)-(10)
Chapter 6F49... share incentive plans
Word in Pt. 7 Ch. 6 title omitted (6.4.2014) by virtue of Finance Act 2014 (c. 26), Sch. 8 paras. 2, 89 (with Sch. 8 paras. 90-96)
Introduction
488F11... Share incentive plans (SIPs)
1
This Chapter provides—
F5a
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
b
for exemptions from income tax in connection with shares obtained under F28share incentive plans (“SIPs”) which are Schedule 2 SIPs,
c
for amounts to count as employment income in certain circumstances in connection with such plans, and
d
for the making of PAYE deductions in connection with such amounts.
F432
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
The provisions of—
a
this and the following sections of this Chapter,
b
Schedule 2, and
c
the provisions mentioned in section 515 (tax advantages and charges under other Acts),
together constitute “the SIP code”.
4
In the SIP code—
F1...
“PAYE deduction” means a deduction required by PAYE regulations;
F12“Schedule 2 SIP” is to be read in accordance with paragraph 1 and Part 10 of Schedule 2;
a “share incentive plan” (or “SIP” for short) means a plan established by a company providing—
- a
for shares to be appropriated to employees without payment (“free shares”), or
- b
for shares to be acquired on behalf of employees out of sums deducted from their salary (“partnership shares”).
- a
5
Other expressions used in the SIP code and contained in the index at the end of Schedule 2 have the meaning indicated by the index.
Scope of tax advantages
489Operation of tax advantages in connection with F18Schedule 2SIP
1
Sections 490 to 499 apply for income tax purposes in connection with shares awarded under F35a Schedule 2 SIP.
2
But those sections do not apply to an individual if, at the time of the award of shares in question, the earnings from the eligible employment are not (or would not be if there were any) general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 apply.
3
“The eligible employment” means the employment which results in the individual meeting the employment requirement in relation to the plan.
F34
And those sections do not apply if the main purpose (or one of the main purposes) of the arrangements under which the shares in question are awarded or acquired is the avoidance of tax or national insurance contributions.
Tax advantages: supplementary
499No charge in respect of incidental expenditure
An employee is not liable to income tax in respect of incidental expenditure of—
a
the trustees,
b
the company which established the plan, or
c
(if different) the employer,
in operating the plan.
Scope of tax charges
500Operation of tax charges in connection with F20Schedule 2SIP
1
Sections 501 to 508 apply for income tax purposes in connection with shares awarded under F50a Schedule 2 SIP.
2
But those sections do not apply to an individual if, at the time of the award of shares in question, the earnings from the eligible employment are not (or would not be if there were any) general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 apply.
3
“The eligible employment” means the employment which results in the individual meeting the employment requirement in relation to the plan.
PAYE
509Modification of section 696 where charge on shares ceasing to be subject to plan
1
Where—
a
as a result of shares ceasing to be subject to F54a Schedule 2SIP, there is an amount that counts as employment income of a participant by virtue of the SIP code, and
b
the shares are readily convertible assets,
section 696 (readily convertible assets) applies as follows.
2
Section 696 applies as if the participant (“P”) were being provided with PAYE income in the form of those shares—
a
at the time when the shares cease to be subject to the plan, and
b
in respect of the relevant employment in which P is employed at that time (or, if P is not then employed in relevant employment, the relevant employment in which P was last employed before that time).
3
In addition, subsection (2) of section 696 applies as if the reference in that subsection to the amount of income likely to be PAYE income in respect of the provision of the asset were a reference to the amount which is likely to count as employment income by virtue of the SIP code as a result of the shares ceasing to be subject to the plan.
4
In this section “readily convertible asset” has the same meaning as in section 696 (see sections 701 and 702), but this is subject to F45subsections (5) and (6).
5
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, any market for the shares which—
a
is created by virtue of the trustees acquiring shares for the purposes of the plan, and
b
exists solely for the purposes of the plan,
is to be disregarded.
F476
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).
510Payments by trustees to employer company on shares ceasing to be subject to plan
1
This section applies if, as a result of any shares (“the relevant shares”) ceasing to be subject to F22a Schedule 2SIP—
a
there is an amount that counts as employment income of a participant by virtue of the SIP code, and
b
an obligation to make a PAYE deduction arises in respect of that amount.
2
The trustees must pay to the employer company a sum which is sufficient to enable the employer company to discharge that obligation.
3
Subsection (2) is subject to—
a
subsection (4), and
b
section 511 (PAYE deductions to be made by trustees on shares ceasing to be subject to plan).
4
Subsection (2) only applies if, or to the extent that, the plan does not require the participant to pay the employer company a sum which is sufficient to discharge the obligation mentioned in subsection (1)(b).
5
Section 710(1) (notional payments: accounting for tax) has effect as if it required the deduction of income tax to be made from any sum or sums received by the employer company—
a
from the trustees under subsection (2), or
b
from the participant in accordance with a requirement of the plan, as mentioned in subsection (4).
6
After making the necessary PAYE deduction from the sum or sums received as mentioned in subsection (5), the employer company must pay any remaining amount to the participant.
7
In this section “the employer company” means—
a
the company which employs the participant in relevant employment at the time when the relevant shares cease to be subject to the plan, or
b
if the participant is not then employed in relevant employment, the company which last employed the participant in relevant employment before that time,
so long as that company is one to which PAYE regulations apply at that time.
511PAYE deductions to be made by trustees on shares ceasing to be subject to plan
1
This section applies if, as a result of any shares ceasing to be subject to F6a Schedule 2SIP—
a
there is an amount that counts as employment income of a participant by virtue of the SIP code, and
b
condition A or B is met.
2
Condition A is that F17an officer of Revenue and Customs —
a
F51is of the opinion that it is impracticable for the employer company (within the meaning of section 510) to make a PAYE deduction, and
b
accordingly F8directs that this section is to apply.
3
Condition B is that there is no company that qualifies as the employer company (within the meaning of that section).
4
If this section applies—
a
section 510(2) does not apply, and
b
the trustees must make a PAYE deduction in respect of the taxable equivalent as if the participant were a former employee of the trustees.
5
The “taxable equivalent” means an amount equal to that mentioned in subsection (1).
6
If this section applies, section 689 (employee of non-UK employer) does not apply.
512Disposal of beneficial interest by participant
1
This section applies if—
a
a participant (“P”) disposes of P’s beneficial interest in any of P’s plan shares to the trustees, and
b
the trustees are, as a result of paragraph 6 of Schedule 7D to TCGA 1992 (deemed disposal by trustees on disposal of beneficial interest), treated as having disposed of the shares in question.
2
If this section applies, sections 510 and 511 apply as if the consideration payable by the trustees to the participant on the disposal had been received by the trustees as the proceeds of disposal of plan shares.
513Capital receipts: payments by trustees to employer company
1
This section applies if the trustees receive a sum of money which constitutes (or forms part of) a capital receipt which, by virtue of the SIP code, counts as employment income of a participant when it is received by the participant.
2
Out of that sum of money the trustees must pay to the employer company an amount equal to the amount of employment income.
3
The employer company must then pay over that amount to the participant, but when doing so must make a PAYE deduction.
4
This section is subject to section 514 (capital receipts: deductions to be made by trustees).
5
In this section “the employer company” means—
a
the company which employs the participant in relevant employment at the time when the trustees receive the sum mentioned in subsection (1), or
b
if the participant is not then employed in relevant employment, the company which last employed the participant in relevant employment before that time,
so long as that company is one to which PAYE regulations apply at that time.
514Capital receipts: PAYE deductions to be made by trustees
1
This section applies if—
a
the trustees receive a sum of money which constitutes (or forms part of) a capital receipt which, by virtue of the SIP code, counts as employment income of a participant when it is received by the participant, and
b
either condition A or B is met.
2
Condition A is that F17an officer of Revenue and Customs —
a
F29is of the opinion that it is impracticable for the employer company (within the meaning of section 513) to make a PAYE deduction, and
b
accordingly F42directs that this section is to apply.
3
Condition B is that there is no company that qualifies as the employer company (within the meaning of that section).
4
If this section applies, the trustees must, when paying the capital receipt over to the participant, make a PAYE deduction in respect of the taxable equivalent as if the participant were a former employee of the trustees.
5
The “taxable equivalent” means an amount equal to the amount which counts as employment income as mentioned in subsection (1)(a).
6
If this section applies, section 689 (employee of non-UK employer) does not apply.
Other tax consequences
515Tax advantages and charges under other Acts
F41
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
SIPs are also dealt with in—
a
b
c
sections 392 to 395 and 405 to 408 of ITTOIA 2005 (SIPs: special rules for charges under Chapters 3 and 4 of Part 4 of that Act (dividends etc. from UK or non-UK resident companies etc.)) and section 770 of that Act (exemption for amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment)F38, F36...
d
e
Chapter 1 of Part 11 of CTA 2009 (share incentive plans)
F193
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pt. 7 heading substituted (with effect in accordance with Sch. 22 para. 2(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 22 para. 2(1)