Finance Act 2003

PAYE U.K.

11 (1) Section 509 (modification of section 696 where charge on shares ceasing to be subject to plan) is amended as follows. U.K.

(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— U.K.

“698 PAYE: special charges on employment-related securities

(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— U.K.

“700 PAYE: gains from securities options

(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),”. U.K.

(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. U.K.

(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.