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.

See Securities options: contents - HMRC

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:

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

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.