Post Acquisition Benefits from Securities
Exclusions: certain control situations
ITEPA03/S449 excludes from a Chapter 4 charge cases where the benefit is received in certain control situation - see ERSM20290 for detailed guidance.
Example 1: control test passed – majority of shares of that class not employment related securities
A ferry company provides travel concessions to all its ordinary shareholders. 10% of the shares are held by employees and are employment-related securities, the remaining 90% are not. The minority employee shareholders are exempt from a Chapter 4 charge on the benefit of the travel concession, because a similar benefit is received by the owners of all the company’s shares of that class and, immediately before receipt of that benefit, the majority of the company shares of that class are not employment-related securities (ITEPA03/S449 (3)).
Example 2: control test passed – employee-controlled company
A manufacturing company is controlled by its employees through its single class of ordinary shares. It allows all shareholders to purchase goods produced by the company at 20% discount. No benefit is charged under Chapter 4 because a similar benefit is received by the owners of all the company’s shares of that class and, immediately before receipt of that benefit, the company is employee-controlled by virtue of holdings of shares of that class (ITEPA03/S449 (2)). Such benefits may, of course, be taxed under the general benefits code.
Not all benefits taken up
Although the legislation requires a similar benefit to be received by all owners of the class of share, HMRC will accept that a right to a similar benefit given to all shareholders of that class of share, whether taken up or not, will satisfy this test– provided (as from 7 May 2004) that it is not part of a scheme for avoiding Income Tax or NIC.
Example 3: control test failed – different classes of share
The founder of Newco exercises his control through owning ordinary shares, whilst the employees have A-ordinary shares without voting rights. A benefit, such as bonus shares, only provided to A-ordinary shareholders would not be excluded from Chapter 4 because:
- the employees do not control the company through the A-ordinary shares,
- the majority of A ordinary shares are employment-related securities