Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Employment Income Manual

From
HM Revenue & Customs
Updated
, see all updates

Employment income provided through third parties: exclusions: earmarking for employee share option schemes: specified exit events: Section 554M exclusion for expected grants: fall-back charge if grant is delayed

Section 554M(3) and (4) ITEPA 2003

A fall-back charge may apply if a relevant step comes within the Section 554M exclusion for expected grants but the grant is delayed.

It makes no difference whether the relevant share option is to acquire relevant shares or to receive a sum of money.

Conditions

Section 554M(3) states when this fall-back charge applies.

  • The grant is not made before the end of the date (‘the final grant date’) falling immediately after the period of three months starting with the date on which the relevant third person takes the relevant step.
  • Broadly speaking, earmarked shares are still held with a view to the meeting of a grant of relevant shares within one of the Section 554K exclusions. More precisely - as at the end of the final grant date, any of the earmarked shares continue to be held by or on behalf of the relevant third person solely with a view to providing relevant shares or paying a sum of money pursuant to a relevant share option, and the grant of this option meets one of two alternative conditions.

    • The first condition is that this grant is to be made to A as mentioned in Section554M(1)(a) and is to meet the requirements of Section 554M(1)(b) to (e).
    • The second condition is that this grant is expected to be made to A as mentioned in Section 554M(1)(a) and, if this grant is made, it will meet the requirements of Section 554M(1)(b) to (e).

On Section 554M(1)(a) to (e), see EIM45405.

The fall-back charge

Section 554M(4) deems a relevant step to be taken with the following features.

  • The relevant step is within Section 554B.
  • It is taken at the end of the final grant date.
  • The subject of the relevant step is:

    • the shares which continue to be held as discussed above, and
    • any ‘relevant income’ in relation to those shares. See EIM45475.
  • The relevant step gives rise to Part 7A income.

The relevant step gives rise to Part 7A income subject to the exclusion in Section 554A(4) (see EIM45095) and any relevant reliefs.