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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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Just and reasonable override - up to 5 April 2015: example 2 - HMRC-favour adjustment for uneven duties in a year

Sarah is R/NOR working on single contract for UK company is awarded forfeitable shares in her US parent company for nil consideration on 6 April 2008.

The shares have a 3-year forfeiture condition lifting on 5 April 2011

Their market value at 3 years is £20,000.

ITEPA03/S425(2) means there is no charge on acquisition.

The ITEPA03/S428 charge is £20,000

In 2008/09 she is R/NOR with 25% US and 75% UK duties. She claims the remittance basis.

In 2009/10 she is R/NOR with 25% US and 75% UK duties. She claims the remittance basis.

In 2010/11 she is R/NOR with 7 days of US duties. For the remainder of the entire year she is on paid leave. She claims the remittance basis.

In accordance with ITEPA03/S41B(2) the relevant period is years 6 April 2008 to 5 April 2011. She has claimed remittance basis for at least one of the years in the relevant period.

In accordance with ITEPA03/S41C(5) where there is a part of the relevant period that is within a tax year to which subsection (6) applies, if the duties of the employment are performed wholly outside the UK, the securities income treated as accruing in that part of the relevant period is foreign. Here, in 2010/11, the duties of Sarah’s employment are performed wholly outside the UK, so the securities income treated as accruing in that part of the relevant period is foreign. In 2008/09 and 2009/10, some but not all of the duties are performed outside the United Kingdom, so for those years, the securities income is apportioned between the UK and the non-UK duties.

The rules give the following result:

The securities income is £20,000. ITEPA03/S41C(2) treats £6,666 as accruing in each year.

In 2008/09 and 2009/10, 25% of the securities income is foreign securities income.

In 2010/11 all of the securities income is foreign securities income.

So the total foreign securities income is £1,666 + £1,666 + £6,666 = £9,998.

This result attributes almost half of the securities income to Sarah’s overseas duties. However, there have been no duties for most of 2010/11, so, on a just and reasonable basis, we can ignore the period of leave in that year and take the relevant period to be from 6 April 2008 to 12 April 2010.

Consequently, the amount of securities income for 2008/09 and for 2009/10 is £20,000 x 365/737 = £9,905 in each year and for 2010/11 is £20,000 x 7/737 = £190.

Sarah’s total foreign securities income is then £2,476 + £2,476 + £190 = £5,142.

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