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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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Schedule 4 Company Share Option Plan (CSOP): Requirements relating to options: For redundancy

Redundancy is one of the four good leaver terms within section 524(2B)(a)(i) ITEPA that allows for tax relief provided that exercise occurs within 6 months of cessation for this reason. For the purposes of section 524(2B)(a), it is defined as being within the meaning of Employment Rights Act 1996. This defines redundancy as follows:

”… an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to:

  • the fact that his employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased, or intends to cease, to carry on that business in the place where the employee was employed, or
  • the fact that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to cease or diminish”.

Where a business is sold in circumstances where the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply, the employees of that company are treated as having been made redundant within the statutory definition for share scheme purposes. Section 524 was amended by FA 2013 to specifically deal with this circumstance – see ETASSUM44400.

Where scheme rules provide a right of exercise for redundancy then the term must be defined in terms of the ERA, there is no scope for discretion to determine whether or not the cessation was for redundancy or otherwise.