Corporation Tax Act 2009 (c. 4)

Part 12 U.K. Other relief for employee share acquisitions

Chapter 2 U.K. Relief if shares acquired by employee or other person

Introductory U.K.

1006 Overview of Chapter U.K.

(1) This Chapter provides for relief if shares are acquired by an employee or another person because of the employee's employment by a company.

(2) Sections 1007 to 1009 set out the requirements that must be met for relief to be available.

(3) Sections 1010 to 1012 set out how the amount of relief is calculated.

(4) Section 1013 sets out how the relief is given.

Requirements to be met for relief to be available U.K.

1007 Basic requirements for relief under Chapter 2 U.K.

(1) Relief under this Chapter is available to a company (“the employing company”) if—

(a) a person (“the employee”) has employment with the employing company,

(b) that employment (“the relevant employment”) is in relation to a business within subsection (2) (“the qualifying business”),

(c) the employee or another person acquires shares because of the relevant employment,

(d) the conditions set out in sections 1008 and 1009 are met as mentioned in those sections, and

(e) relief under Chapter 3 is not available to the employing company in relation to the acquisition of the shares.

The person who acquires the shares is, in that capacity, called “the recipient”.

(2) A business is within this subsection so far as—

(a) the business is carried on by the employing company, and

(b) the employing company is within the charge to corporation tax in relation to the profits of the business.

1008 Conditions relating to shares acquired U.K.

(1) Each of the following conditions must be met in relation to the shares acquired.

Condition 1

The shares are ordinary shares that are fully paid-up and not redeemable.

Condition 2

The shares are—

(a) shares of a class listed on a recognised stock exchange,

(b) shares in a company that is not under the control of another company, or

(c) shares in a company that is under the control of a listed company.

Condition 3

The shares are shares in—

(a) the employing company,

(b) a company that, when the shares are acquired, is a parent company of the employing company,

(c) a company that, when the shares are acquired, is a member of a consortium that owns the employing company,

(d) a company that, when the shares are acquired, is a member of a consortium that owns a parent company of the employing company, or

(e) a company within subsection (2).

(2) A company (“company A”) is within this subsection if when the shares are acquired—

(a) the employing company or a parent company of the employing company is a member of a consortium that owns another company (“company B”), and

(b) company A is—

(i) a member of that consortium or a parent company of a member of that consortium, and

(ii) a member of the same commercial association of companies as company B.

1009 Conditions relating to employee's income tax position U.K.

(1) If the shares acquired are not restricted shares, the following conditions must be met in relation to the income tax position of the employee.

Condition 1

The employee is subject to a charge under ITEPA 2003 in relation to the acquisition of the shares.

Condition 2

Section 446UA of ITEPA 2003 does not apply in relation to the shares.

(2) If the shares acquired are restricted shares, the following condition must be met in relation to the income tax position of the employee.

The Condition

The employee—

(a) has, as a result of the acquisition of the shares, earnings within Chapter 1 of Part 3 of ITEPA 2003 from the relevant employment that are subject to the charge under Part 2 of that Act, or

(b) is not within paragraph (a) but will be subject to a charge under ITEPA 2003 as a result of section 426 of that Act if an event occurs in relation to the shares that is a chargeable event for the purposes of that section.

(3) Subsection (4) applies if—

(a) the conditions are, or the condition is, not met, but

(b) the conditions or the condition would be met if at all material times the employee had been a UK employee.

(4) This Chapter applies as if the employee had been a UK employee as mentioned in subsection (3)(b).

(5) The employee is a UK employee if—

(a) the employee is UK resident and ordinarily UK resident, and

(b) the duties of the relevant employment are performed in the United Kingdom.

Calculation of amount of relief U.K.

1010 Calculation of relief if shares are neither restricted nor convertible U.K.

(1) If the shares acquired are neither restricted shares nor convertible shares, the amount of relief to be given is an amount equal to—

(a) the market value of the shares when they are acquired, less

(b) the total amount or value of any consideration given by any person in relation to the acquisition of the shares.

This is subject to section 1012.

(2) The consideration mentioned in subsection (1)(b) does not include the performance of any duties of, or in connection with, the relevant employment.

(3) A just and reasonable apportionment is to be made of any consideration given partly in relation to the acquisition of the shares and partly in relation to other matters.

1011 Calculation of relief if shares are restricted or convertible U.K.

(1) If the shares acquired are restricted shares or convertible shares (or both), the amount of relief to be given is calculated as follows.

This is subject to section 1012.

(2) If the shares are restricted shares, the amount of relief is equal to the amount that, as a result of the acquisition of the shares, is earnings of the employee within Chapter 1 of Part 3 of ITEPA 2003 from the relevant employment.

(3) If the shares are convertible shares, the amount of relief is equal to the amount that, as a result of the acquisition of the shares, is earnings of the employee within Chapter 1 of Part 3 of ITEPA 2003 from the relevant employment.

In calculating the employee's earnings for this purpose the market value of the shares is to be determined as if they were not convertible shares.

(4) For the purposes of subsections (2) and (3) “earnings” does not include any amount of exempt income (within the meaning of section 8 of ITEPA 2003).

(5) If the shares are both restricted and convertible, the total amount of relief is whichever is the greater of the amounts of relief given by subsections (2) and (3) (or, if the amount is the same in each case, that amount).

1012 Reduction in amount of relief U.K.

(1) This section applies if the relevant employment is in relation to both the qualifying business and a business (or part of a business) that is not within section 1007(2).

(2) The amount of relief is to be reduced by a just and reasonable amount.

Giving of relief U.K.

1013 How the relief is given U.K.

(1) The relief is given for the accounting period in which the shares are acquired.

(2) The amount of relief is allowed as a deduction in calculating the profits of the qualifying business for corporation tax purposes (subject to subsections (3) and (4)).

(3) If the employing company is a company with investment business (as defined in section 1218), the amount of relief is treated as expenses of management of the company.

But this subsection does not apply if the qualifying business is a property business (in which case subsection (2) applies instead).

(4) If the employing company is a company in relation to which section 76 of ICTA (expenses of insurance companies) applies, the amount of relief is treated as expenses payable falling to be brought into account at Step 1 in subsection (7) of that section.

(5) If the relevant employment is in relation to more than one business (or part of a business) within section 1007(2), the relief is to be apportioned on a just and reasonable basis.