Frequently Asked Questions on the Taxation of Employment Related Securities Following the Finance Act 2003
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IntroductionSchedule 22 to Finance Act 2003 replaces Chapters 1 to 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003, and introduces a number of changes to the taxation of employment-related securities. This guidance gives an overview of the new legislation and provides answers to the common questions that have been asked. Additionally, Part 7 of ITEPA has Chapters 6 to 9 that are concerned
with tax-advantaged arrangements, for which there are special rules.
Some of these special rules were also changed by Schedule 21 Finance
Act 2003, but are not the subject of these FAQs. Chapter 10 is
concerned with priority share allocations in a public offer, and
provides an exemption from tax where employees receive shares as part
of the public offer, provided certain conditions are met. Chapter 11 is
concerned with Employee Benefit Trusts. The following table summarises
the origin of the various Chapters and other relevant provisions in the
modified ITEPA: |
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Topic |
ITEPA |
ITEPA |
Old legislation |
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Introduction |
Chapter 1 Part 7 |
Chapter 1 Part 7 |
n/a |
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Restricted securities |
Chapter 2 Part 7 |
Chapter 4 Part 7 |
s78 FA 1988 |
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Conditional securities |
Chapter 2 Part 7 |
Chapter 2 Part 7 |
s140A ICTA 1988 |
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Convertible securities |
Chapter 3 Part 7 |
Chapter 3 Part 7 |
s140D ICTA 1988 |
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Securities with artificially depress market value |
Chapter 3A Part 7 |
n/a |
n/a |
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Securities with artificially enhanced market value |
Chapter 3B Part 7 |
n/a |
n/a |
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Securities acquired for less than market value |
Chapter 3C Part 7 |
Chapter 8 Part 3 |
s162 ICTA 1988 |
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Securities disposed of for more than market value |
Chapter 3D Part 7 |
Chapter 9 Part 3 |
s162 ICTA 1988 |
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Post-acquisition benefits from securities |
Chapter 4 Part 7 |
Chapter 4 Part 7 |
s80 FA 1988 |
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Securities options |
Chapter 5 Part 7 |
Chapter 5 Part 7 |
s135 ICTA 1988 |
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Share Incentive Plans (SIP) |
Chapter 6 + Sch 2 |
Chapter 6 + Sch 2 |
Sch 8 FA 2000 |
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SAYE option schemes |
Chapter 7 + Sch 3 |
Chapter 7 + Sch 3 |
Sch 9 ICTA 1988 |
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CSOP schemes |
Chapter 8 + Sch 4 |
Chapter 8 + Sch 4 |
Sch 9 ICTA 1988 |
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EMI schemes |
Chapter 9 Sch 5 |
Chapter 9 Sch 5 |
Sch 14 FA 2000 |
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Priority share allocations |
Chapter 10 Part 7 |
Chapter 6 Part 7 |
s68 FA 1988 |
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Employee benefit trusts |
Chapter 11 Part 7 |
Chapter 11 Part 7 |
Sch 8 ICTA 1988 |
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PAYE on securities |
s698 Ch 4 Part 11 |
s698 (conditional) |
s203FB ICTA 1988 |
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PAYE on options |
s700 Ch 4 Part 11 |
s700 Ch 4 Part 11 |
s203FB ICTA 1988 |
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Meaning of RCA |
s702(1)-(6) |
s702(1)-(6) including new subsections 5A-5D |
s203F ICTA 1988 |
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Here are links to the FAQs, which have been sorted according to the nine chapters covered by the unapproved legislation, plus additional FAQs on PAYE and more general questions.
Chapter 2 – restricted securities - elections - loss on shares - MBO - FCPE - earn outs - printing errors in "UMV and "IUP" - restricted shares obtained under EMI option - blackout periods - exchanges of securities
Chapter 3 – convertible securities - interaction with Chapter 2 (restricted securities) - flowering shares
Chapters 3A and 3B – value manipulation by depreciatory or appreciatory transactions - dependent subsidiary
Chapter 3C – securities acquired for less than market value - interaction with Chapter 2 options granted abroad - not ordinarily resident and non-domiciled employees - overseas workdays and employments - LTIP awarded abroad
Chapter 3D – securities disposed of for more than market value - fair value – put & call options as earn-out
Chapter 4 - post-acquisition benefits from securities - ratchets - catch-ups
Chapter 5 – securities options - gilts - LTIPs - exercise - compensation - phantom options - earn outs - notional selling costs - rights issues
PAYE & NICs – readily convertible assets - NIC elections - NIC and pre-6/4/99 options
General questions – 'Appointed Day' - more information - reorganisation of share capital and bonus shares
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