SCHEDULE 3 PAYMENTS TO BE DISREGARDED IN THE CALCULATION OF EARNINGS FOR THE PURPOSES OF EARNINGS-RELATED CONTRIBUTIONS
PART IX SHARE INCENTIVES
Certain payments by way of shares, interests in shares and gains arising from them disregarded1
1
Payments by way of—
a
shares;
b
conditional interests in shares; and
c
other rights in or over shares;
respectively mentioned in this Part are disregarded in the calculation of an employed earner’s earnings.
2
For the purposes of paragraphs 13, 15 and 16—
a
“body corporate” includes—
i
a body corporate constituted under the law of a country or territory outside the United Kingdom, and
ii
an unincorporated association wherever constituted;
b
“total discount” means the difference between the total value of the exercise price of the shares that are subject to the right in question and the total market value of that right;
c
“total market value” means the price which the shares that are subject to the right in question might reasonably be able to fetch in the open market; and
d
the total market value of the subsequent right is similar to the total market value of the first right if it is not substantially greater than the first right.
Shares in secondary contributor or associated body2
1
A payment by way of shares where such shares—
a
are not readily convertible assets; and
b
form part of the ordinary share capital of—
i
the secondary contributor,
ii
a company which has control of the secondary contributor, or
iii
a company which either is, or has control of, a body corporate which is a member of a consortium owning either that secondary contributor or a body corporate having control of that secondary contributor.
2
In this paragraph—
a
“body corporate” includes—
i
a body corporate constituted under the law of a country or territory outside the United Kingdom, and
ii
an unincorporated association, wherever constituted;
b
a body corporate (“A”) is a member of a consortium owning another body corporate (“B”) if—
i
A is one of a number of such bodies which between them beneficially own not less than¾ of B’s ordinary share capital; and
ii
each of the bodies corporate owns not less than 1/20 of B’s ordinary share capital;
c
“company” means a body corporate having a share capital;
d
“control” in relation to a body corporate means the power of a person to secure—
i
by means of the holding of the shares or the possession of voting power in, or in relation to, that or any other body corporate,
ii
by virtue of any powers conferred by the articles of association or other document regulating that or any other body corporate,
that the affairs of the first-mentioned body corporate are conducted in accordance with the wishes of that person;
e
“ordinary share capital” in relation to a company means all the company’s issued share capital (however described), other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the profit of the company.
3
In this paragraph and paragraph 3, “shares” includes stock.
Rights to acquire shares3
A payment by way of a right to acquire shares where neither that right nor those shares are readily convertible assets.
F8“Short” share options granted on or after 6th April 19993A
A payment by way of the grant of a right to acquire shares obtained on, or after, 6th April 1999 which is not capable of being exercised more than ten years after it is obtained.
Enterprise management incentives4
A payment by way of the grant of a qualifying option within the meaning of Schedule 14 to the Finance Act 2000 F1 which is capable of being exercised more than 10 years after the grant.
Priority share allocations5
A payment by way of any benefit which by virtue of section 68(1) of the Finance Act 1988 (priority share allocations for directors or employees) F2 is not treated as an emolument of the employment chargeable to tax under Schedule E.
Partnership share agreements6
A payment that is deducted from the earnings of the employment under a partnership share agreement.
Here “partnership share agreement” has the meaning given in paragraph 34 of Schedule 8 to the Finance Act 2000.
Shares under employee share ownership plan7
A payment by way of shares under an award of shares under an employee share ownership plan.
Here “employee share ownership plan” has the meaning given in paragraph 1(1) of Schedule 8 to the Finance Act 2000.
Shares under approved profit sharing schemes8
A payment by way of shares appropriated under a profit sharing scheme to which section 186 of the Taxes Act F3 applies.
Conditional interest in shares9
Conditional interest in shares: gains from exercise etc. of share options10
A payment by way of a conditional interest in shares where, at the time of payment—
a
the earner is treated under section 203FB(4) of the Taxes Act (PAYE: gains from share options etc) F6 as having been provided with a further interest;
b
that further interest would not for the purpose of section 140A of that Act, be treated as only conditional; and
c
the conditional interest together with the further interest are not readily convertible assets.
Convertible shares11
A payment by way of convertible shares in respect of which tax is not chargeable under section 140D of the Taxes Act F7 by virtue of either subsection (8) or (10) of that section.
Convertible shares: gains from the exercise etc. of share options12
A payment by way of a beneficial interest in convertible shares where—
a
the earner is treated under section 203FB of the Taxes Act as if the original provision of those shares included the shares into which they are converted; and
b
neither those shares, nor the shares into which they are converted are readily convertible assets.
Share option gains by directors and employees13
A payment by way of a gain realised by the exercise of a right to acquire shares in a body corporate where—
a
that gain is chargeable to tax under Schedule E under section 135 of the Taxes Act; but
b
neither that right, nor those shares, are readily convertible assets.
Shares acquired under options granted before 9th April 199814
A payment by way of the acquisition of an interest in shares pursuant to a right to acquire such shares granted before 9th April 1998 where the acquisition of that interest would be treated as earnings under regulation 22(3).
Assignment or release of option15
1
A payment by way of a gain realised by the assignment or release of a right (“the first right”) to acquire shares in a body corporate (“the relevant body corporate”) chargeable to tax under Schedule E by virtue of section 135 of the Taxes Act if—
a
sub-paragraph (2) is satisfied; and
b
sub-paragraph (3) does not apply.
2
This sub-paragraph is satisfied if a subsequent right forms all, or part, of the consideration given for the assignment or release of the first right.
3
This paragraph applies if—
a
the first right was acquired before 6th April 1999; and
b
the total discount on the total market value of the subsequent right is substantially greater than the total discount on the total market value of the first right at the time of its assignment or release.
4
In this paragraph “subsequent right” means a right—
a
to acquire shares in the relevant body corporate or any other body corporate; and
b
which is not treated as consideration for the assignment or release of the first right by virtue of section 136(1) of the Taxes Act.
Exercise, assignment or release of options acquired before 6th April 199916
1
A payment by way of a gain realised by the exercise, assignment or release of a right obtained before 6th April 1999 (“the relevant right”) to acquire shares in a body corporate (“the relevant body corporate”) where that gain is chargeable to tax under Schedule E by virtue of section 135 of the Taxes Act unless each of the conditions in sub-paragraphs (2) to (5) is met.
2
The condition in this sub-paragraph is that the relevant right forms all or part of the consideration given for the assignment or release of a right to acquire shares in a body corporate (“the first right”).
3
The condition in this sub-paragraph is that the relevant right is a right to acquire shares in the relevant body corporate or any other body corporate.
4
The condition in this sub-paragraph is that the relevant right is not treated as consideration for the assignment or release of the first right by virtue of section 136(1) of the Taxes Act.
5
The condition in this sub-paragraph is that, at the time of its acquisition, the total market value of the relevant right was not similar to the total market value of the first right immediately before its exercise, assignment or release.