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HMRC internal manual

Employment Related Securities Manual

International from 6 April 2015: just and reasonable override - from 6 April 2015: example 2 - HMRC-favour adjustment for uneven duties in a year

Sarah is resident but not domiciled in the UK, and meets the requirement of ITEPA03/S26A (ERSM162615) and is working on single contract for UK company when she is awarded forfeitable shares in her US parent company for nil consideration on 6 April 2013.

The shares have a 3-year forfeiture condition lifting on 5 April 2016. Her residence status remains the same throughout the forfeiture period and she claims the remittance basis throughout.

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 2013/14 she has 25% US and 75% UK duties.

In 2014/15 she has 25% US and 75% UK duties.

In the first 7 days of 2015/16 she has only US duties. For the remainder of the entire year she is on paid leave.

In accordance with ITEPA03/S41G(2) the relevant period is years 6 April 2013 to 5 April 2016. In accordance with ITEPA03/S41H(6) where there is a part of the relevant period that is within a tax year to which subsection (7) 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 chargeable foreign securities income. Here, in 2015/16, the duties of Sarah’s employment are performed wholly outside the UK, so all of the securities income treated as accruing in that part of the relevant period is chargeable foreign securities income. In 2013/14 and 2014/15, 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.

That would give the following result:

The securities income is £20,000. ITEPA03/S41H(2) treats £6,666 as accruing in each year.

In 2013/14 and 2014/15, 25% of the securities income is chargeable foreign securities income.

In 2015/16 all of the securities income is chargeable foreign securities income.

So the total chargeable 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 2015/16, 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 2013 to 12 April 2015.

Consequently, the amount of securities income for 2013/14 and for 2014/15 is £20,000 x 365/737 = £9,905 in each year and for 2015/16 is £20,000 x 7/737 = £190.

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