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HMRC internal manual

Employment Related Securities Manual

Just and reasonable override - up to 5 April 2015: example 1 - HMRC-favour adjustment for “wrong” relevant period

Fred is awarded free forfeitable shares on 1 September 2008. ITEPA03/S425 provides that there is no income tax liability at the time of the award as the shares cease to be forfeitable within 5 years of acquisition.

The forfeiture condition lifts on 30 September 2008 when the shares are worth £50,000, so £50,000 counts as employment income under ITEPA03/S426.

However, Fred is not ordinarily resident in the UK throughout this period and has made a claim under ITA07/S809B for the remittance basis to apply. His duties for the period from 1 September to 30 September were performed entirely outside the UK.

Under ITEPA03/S41B(2), the ‘relevant period’ for forfeitable shares begins with the day of the acquisition and ends with the day of the chargeable event. Therefore the relevant period is 1 September to 30 September 2008. As Fred’s duties were entirely foreign during the period, all of the securities income is foreign and will only be taxed in the UK if it is remitted here.

On examination of the facts, it is clear that the shares were awarded to Fred in recognition of his duties over the twelve months prior to 1 September 2008. In that period, all of Fred’s duties were performed in the UK. The just and reasonable override would take effect to treat none of the £50,000 securities income as foreign.

The whole £50,000 would therefore be taxable specific income for 2008/09 under ITEPA03/S41A(4).

For the application of this and the other examples to periods from 6 April 2013, see ERSM160873.