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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Employment income provided through third parties: amount of Part 7A income: exercise price of share options: reduction

Section 554Z7(3) ITEPA 2003

If the conditions in Section 554Z7(1) and (2) are met (see EIM45740), you reduce the value of the relevant step.

Reduction if Section 554Z4 has not applied

You take two steps to reduce the value of the relevant step.

Step 1. Calculate the value of the relevant step after any reductions under:

* Section 554Z5 (overlap with earlier relevant step), see [EIM45725](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim45725), or
* Section 554Z6 (overlap with certain earnings), see [EIM45735](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim45735).

Step 2. Reduce the result of Step 1 (but not below nil) by the amount of the sum of money which A would have to pay as mentioned in Section 554Z7(1)(d) or (2)(b), see EIM45740.

Reduction if Section 554Z4 has applied

You take two steps to reduce the value of the relevant step.

Step 1. Calculate the value of the relevant step after any reductions under:

* Section 554Z4 (residence issues), see [EIM45720](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim45720),
* Section 554Z5 (overlap with earlier relevant step), see [EIM45725](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim45725), or
* Section 554Z6 (overlap with certain earnings), see [EIM45735](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim45735).

Step 2. Reduce the value calculated at Step 1 by

S x (Z3V — Z4V) / Z3V

where

* ‘S’ is the amount of the sum of money which A would have to pay as mentioned in Section 554Z7(1)(d) or (2)(b), see [EIM45740](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim45740),
* ‘Z3V’ is the value of the relevant step as determined under Section 554Z3, see [EIM45710](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim45710), and
* ‘Z4V’ is the amount of the reduction under Section 554Z4, see [EIM45720](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim45720).