ERSM304200 - Enterprise Management Incentives: Chapter 9 Part 7 ITEPA 2003 Enterprise Management Incentives

This Chapter provides for share options notified to an officer of HMRC to be qualifying options for the purposes of the EMI code, for exemptions and reliefs from Income Tax in connection with the qualifying options granted and for amounts to count as employment income in certain circumstances in connection with such options. The circumstances in which the gain from the exercise of the option is exempt from income tax are in sections 529 - 531, and are briefly

• Option is a qualifying option and is exercised within 10 years of date of grant
• If it is a replacement qualifying option it is exercised within 10 years of the date of grant of the original option
• Option exercise price is not less than the market value on the date of grant (or in the case of a replacement option the original date of grant)
• If a disqualifying event occurs, the option is exercised within 40 days of the disqualifying event

Where options are granted at less than market value, the exercise of the option is partially exempt. The charge is limited to the amount of the discount given or to the difference between the market value at exercise and the amount paid for the shares if this is less. Any consideration paid for the grant is a deductible amount in computing this charge. (ERSM110560)

Unless options are exercised in these specific circumstances then income tax will be due in respect of the gain arising from the chargeable event (ERSM110500). If the shares constitute readily convertible assets (ERSM170030) then PAYE will need to be operated and NIC accounted for.

Section 532 deals with the modified tax consequences where options are exercised after a disqualifying event. Sections 533 to 539 deal with the events that are disqualifying events.

Section 534 deals with the loss of independence

Section 535 deals with disqualifying events relating to an employee

Section 536 deals with variations and alterations that are disqualifying events

Sections 537 to 538 deal with alterations of share capital and conversions of shares.

Section 539 defines a CSOP option for the purposes of section 536 (disqualifying events)

Section 540 excludes the application of Chapter 3C (notional loans) to UK resident employees

Section 541 covers the effects on other income tax charges