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

HMRC internal manual

Employment Related Securities Manual

From
HM Revenue & Customs
Updated
, see all updates

Securities acquired for less than market value: computation

Notional loan

ITEPA03/S446T determines the amount of the notional loan initially outstanding. This is defined in subsection (1) as:

MV - DA  

where

MV is the market value (as if the securities were fully paid up and disregarding any outstanding debt due) of the employment-related securities at the time of acquisition (or deemed acquisition, per ITEPA03/S446Q (4)), and

DA is the total of deductible amounts.

Definition of market value

Market value follows the TCGA92/S272 definition (see ERSM20400).

Deductible amounts

Deductible amounts comprise, per subsection (3) of ITEPA03/S446T:

  1. any payment made for the employment-related securities by the employee, and any payment made by the person by whom they were acquired (if this is not the employee) at or before the acquisition;
  2. any amount counting as earnings under Chapter 1 of Part 3 ITEPA 2003 in respect of the acquisition of the securities;
  3. from 1 September 2013, any amount treated as earnings under ITEPA03/S226A (employee shareholder shares) in respect of the acquisition of the securities
  4. if there were no charge at acquisition for restricted securities because of section 425 (see ERSM70100), any amount that counts as employment income of the employee at the first chargeable event under ITEPA03/S427;
  5. if the securities were acquired on conversion of others, any amount that counts as employment income under ITEPA03/S438 by reason of the conversion (see ERSM40070);
  6. if the securities were acquired under a securities option, any amount that counted as employment income under ITEPA03/S476 in respect of the acquisition (see ERSM110510); and
  7. from 6 April 2011, any amount that counted as employment income under Chapter 2 of Part 7A (employment income provided through third parties) in relation to the securities.

For periods up to 5 April 2015, any amounts charged to Income Tax on grant of an option will be treated as a deductible amount within (b) above.

Where the acquisition of the securities causes a reduction in the market value of other securities held by the employee, by, for example, dilution of the value of the original shares by the issue of new shares, the amount of the reduction may be treated as a payment within (a) above. From 17 July 2014, this treatment is provided for by IEPA03/S421D(3).

Interaction with Chapter 2 (restricted securities)

See Example 3 in ERSM70120 for effect of election under ITEPA03/S431.

Subsequent changes to amount of notional loan

Subsequently, the amount of the notional loan outstanding at any given time will be the amount initially outstanding, as computed above, less the amount of any payments or further payments made for the securities after the acquisition but before that given time.

See Example 2 at ERSM70120.