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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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Post Acquisition Benefits from Securities

Introduction to benefits charge

Legislative history

The charge on benefits in connection with employment-related securities is set out in Chapter 4 of Part 7 of ITEPA 2003 as amended by FA03/SCH22, FA04/S86 and F(No2)A05/SCH2.

Chapter 4 replaced three provisions of FA 1988:

  • Restricted securities – FA88/S78 – see ERSM30030.
  • Dependent subsidiaries – FA88/S79 – see ERSM61000.
  • Charge on special benefits – FA88/S80 – see ERSM90020.

The original charge on special benefits was introduced in Finance Act 72. It was enacted to deal with the variety of employee share incentives that appeared after share options were legislated for in FA66, and was superseded by FA88/S80.

The FA88 charge on restricted securities was moved by FA03/SCH22 to Chapter 2 Part 7ITEPA03, at the same time as the FA88 charge on dependent subsidiaries was repealed. The FA88 charge on special benefits is now a “charge on other chargeable benefits from securities” in Chapter 4 Part 7 ITEPA 2003.

Principal changes

The principal changes to the charge on special benefits as from 16 April 2003 are set out in the table below:

FA 1988 & ITEPA before 16 April 2003 ITEPA from 16 April 2003
   
Person receives a benefit by virtue of that person’s ownership of shares – see ERSM91010 As from 16/4/03 associated person receives a benefit by virtue of ownership of employment-related securities – see ERSM90020
As from 2/12/04 associated person receives a benefit in connection with employment-related securities - see ERSM90030  
Person includes person connected to employee – see ERSM91000 Associated person – see ERSM20250
Shares included company securities per ICTA88/S254 (1) – see ERSM91000 Wider definition of securities – see ERSM20110
  • Employment-related – see ERSM20230    
      No PAYE or NIC PAYE & NIC as from 1/9/03 if the securities are readily convertible assets or the benefit is in cash or readily convertible assets see ERSM170030
      Only if not subject to Income Tax elsewhere – see ERSM91010 Only if not subject to Income Tax elsewhere, except for avoidance cases as from 2/12/04 – see ERSM90200
      Exemptions for certain control situations – see ERSM91020 Exemptions for certain control situations, except for avoidance cases as from 7/5/04 and as extended from 2/12/04 – see ERSM90210

Securities not grandfathered

There is no grandfathering of securities acquired before 16 April 2003 – the day Schedule 22 came into effect; so the new legislation applies to any benefit received on or after 16 April 2003 irrespective of when the securities (from which the benefit was derived) were acquired.