The Social Security (Contributions) (Amendment No. 3) Regulations 2003

Exercise, assignment or release of share option — market value of option or resulting shares increased by things done otherwise than for genuine commercial purposes11A

1

This paragraph applies for calculating or estimating the amount of earnings which is comprised in a payment which—

a

would be disregarded in the computation of earnings for the purposes of earnings-related contributions by virtue of paragraph 16 of Part 9 of Schedule 3; but

b

is not disregarded because paragraph 17 of that Part applies to it.

2

If this paragraph applies, the amount of earnings to be taken into account for the purpose of earnings related contributions is the amount which would, but for paragraph 16 of Part 9 of Schedule 3, have been taken into account by virtue of section 4(4)(a) of the Act4.

• This is subject to the following qualification.

3

If—

a

the right to acquire shares in a body corporate is not capable of being exercised more than ten years after the date on which it was obtained,

b

an amount of earnings was taken into account for the purpose of earnings-related contributions in respect of the earner’s obtaining that right, at the time he obtained it (“the deductible amount”), and

c

no exercise, assignment or release of the whole or any part of—

i

that right,

ii

any right replacing that right (“a replacement right”), or

iii

any subsequent replacement right,

has occurred on or after 10th April 2003,

the deductible amount may be deducted from the amount otherwise to be taken into account by virtue of this paragraph.

Payments resulting from exercise, assignment or release of options which are not disregarded by virtue of paragraph 1617

1

This paragraph applies to a payment—

a

made on or after 10th April 2003, and

b

which would otherwise fall to be disregarded by virtue of paragraph 16 of this Part,

where the market value of the shares has been increased by more than 10% by things done, on or after 6th April 1999, otherwise than for genuine commercial purposes.

2

For the purposes of sub-paragraph (1) “the shares” includes—

a

the shares subject to the right currently being exercised; and

b

where the right to acquire shares held on 6th April 1999 has been replaced by a subsequent right, includes the shares subject to the replacement right and any subsequent replacement right.

3

The following are among the things that are, for the purposes of this paragraph, done otherwise than for genuine commercial purposes—

a

anything done as part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax or of contributions under the Act; and

b

any transaction between companies which, at the time of the transaction, are members of the same group on terms which are not such as might be expected to be agreed between persons acting at arm’s length.

4

But sub-paragraph (3)(b) does not apply to a payment for group relief within the meaning given in section 402(6) of the Taxes Act7.

5

In sub-paragraph (3)(b) “group” means a body corporate and its 51% subsidiaries (within the meaning of section 838 of the Taxes Act), and other expressions used in this paragraph which are defined in, or for the purposes of, paragraph 16 have the same meaning here as they have in that paragraph.