EIM12300 – PAYE: employment-related securities: gains from securities options: background

Part 7 Chapter 5 ITEPA 2003

Part 7 Chapter 5 ITEPA 2003 was fundamentally amended by Schedule 22 FA 2003:

• with effect from 16 April 2003 in relation to employment-related securities options which are not share options (see EIM12320) and
• with effect from 1 September 2003 in relation to employment-related securities options which are share options (see EIM12310).

It provides for a charge to income tax on the occurrence of a chargeable event in relation to an employment-related securities option. Broadly, the events that represent a chargeable event in relation to an employment-related securities option are:

• the acquisition of securities by the exercise of an employment-related securities option
• the assignment or the release for consideration of an employment-related securities option
• the receipt of a benefit in money or money’s worth in connection with an employment- related securities option.

The Share Schemes Manual will be amended to provide detailed guidance in due course.

PAYE

Section 700 ITEPA 2003 was fundamentally amended by Schedule 22 FA 2003 with effect from 1 September 2003. Under Section 700, the person who was the employer at the time an employment-related securities option was issued is required to operate PAYE in respect of an amount that counts as employment income by reason of Part 7 Chapter 5 ITEPA 2003.

If the event that represents a chargeable event in relation to an employment-related securities option is:

• the acquisition of securities by the exercise of the option, or
• the acquisition of an asset other than money:

then the employer is only required to operate PAYE on the amount that counts as employment income if the securities or other asset acquired is a readily convertible asset (see EIM12400).

If the event that represents a chargeable event in relation to an employment-related securities option is the receipt of money:

• as consideration for the assignment or release of the option, or
• in connection with the option

then the employer is treated as having made the payment and is required to operate PAYE on the amount that counts as employment income.