A UK employer company is a subsidiary of a US parent company
listed on NASDAQ, a recognised investment exchange (see
EIM11901).
On 6 April 2003 the UK employer gives an employee 1,000
shares in the US parent subject to risk of forfeiture. The risk of
forfeiture will be lifted on 1 March 2004 assuming various
conditions are met.
On 1 March 2004 the risk of forfeiture is lifted and the
employee is free to keep or sell the shares. The employee chooses
to keep them.
The open market value of the shares on 1 March 2004 is
£10,000.
Section 427 ITEPA 2003 charges to income tax as employment
income the value of the shares when the risk of forfeiture is
lifted, less the amount paid for the shares, which in this case is
nil. So the taxable amount in 2003/04 is £10,000. There is no
charge to tax when the shares are awarded unless the period of
forfeiture exceeds 5 years.
By virtue of Section 698 ITEPA 2003, at the time the shares
become unconditional, the employee is deemed to be provided with an
interest in the shares that is not conditional and to which Section
696 applies. As the shares are readily convertible assets because
they are listed on NASDAQ, the employer is required to operate PAYE
on £10,000.
Although the employee has not realised any amount, because
the shares have been retained, this is of no relevance. The
employer must deduct and account for tax in accordance with Section
710(1) and (4) ITEPA 2003 (see
EIM11950). Thus the employee should take
care to make good to the employer within the time allowed any tax
due to be accounted for under Section 710(4) in order to avoid a
charge to tax under Section 222 ITEPA 2003 (see
EIM11951).
