Jeremy is a UK citizen who leaves the UK on 1 July 2009 for an
assignment in France lasting 24 months. He remains employed by the
UK employer and has an E101 certificate, extended over the 24-month
period of the assignment. While in the UK on 1 June 2008 he
receives an option over shares. The options vest on 31 May 2010 and
on 1 August 2010 he exercises his option and acquires shares,
producing an option gain of £10,000.
Jeremy is UK-resident at grant so Chapter 5 applies. A
charge arises on £10,000 under ITEPA03/S476 when the shares
are acquired on the exercise of the option. He was UK- resident,
ordinarily resident, and UK-domiciled for 2008/09 and 2009/10 and
not UK- resident in 2010/11. He is not eligible to claim the
remittance basis in any year which falls in the period between 1
June 2008 and 31 May 2010, so Chapter 5A of Part 2 does not apply.
As Jeremy is not treaty resident in the UK when the chargeable
event occurs and there is a UK/France DTA, he may claim time
apportionment on a straight line basis between UK and non-UK duties
between grant and vest. (See
ERSM161300.) Unless the employer has
obtained an NT code, it should operate PAYE on the amount that
counts as employment income under Chapter 5 – unless it has
sufficiently accurate information on periods of employment spent
abroad, in which case it may operate PAYE for the non- resident
employee only on the UK proportion, using the best estimate that
can reasonably be made, in accordance with ITEPA03/S696(2). Time
apportionment gives a UK tax charge of £10,000 x 260/480 =
£5,416.
For NICs, the option was granted whilst Jeremy was insured
in the UK scheme. A charge to tax under Chapter 5 gives rise to
deemed earnings under SSCBA92/S4(4)(a) when shares are acquired. As
the gain from the share option was realised from a period of
employment in the UK, a liability for Class 1 NICs arises.
As Jeremy has a valid E101 at the point the deemed earnings
are received, UK NIC is due on the same amount that is counts as
employment income by virtue of Chapter 5, which is £10,000. In
this instance, even if Jeremy did not hold E101 at the point of
deemed earnings we would pursue UK NICs under EC sourcing
rules.
