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Income Tax (Earnings and Pensions) Act 2003

Type Public General Act

Publication 2003-03-06

Last updated 2026-03-15

State In force

Department Statute Law Database

Source legislation.gov.uk

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(2) The number of employees requirement in the case of a parent company is that the sum of—

(a) the full-time equivalent employee number for it, and

(b) the full-time equivalent employee numbers for each of its qualifying subsidiaries,

is less than 250.

(3) The full-time equivalent employee number for a company is calculated as follows—

Step 1

Find the number of full-time employees of the company.

Step 2

Add, for each employee of the company who is not a full-time employee, such fraction as is just and reasonable.

The result is the full-time equivalent employee number.

(4) In this paragraph references to an employee—

(a) include a director, but

(b) do not include—

(i) an employee on maternity , paternity , shared parental , parental bereavement or neonatal care leave, or

(ii) a student on vocational training.

Excluded activities: shipbuilding

20A

In paragraph 16(ia) “shipbuilding” has the same meaning as in the Framework on state aid to shipbuilding (2003/C 317/06), published in the Official Journal on 30 December 2003.

Excluded activities: producing coal

20B

(1) This paragraph supplements paragraph 16(ib).

(2) “Coal” has the meaning given by Article 2 of Council Regulation (EC) No. 1407/2002 (state aid to coal industry).

(3) The production of coal includes the extraction of it.

Excluded activities: producing steel

20C

In paragraph 16(ic) “steel” means any of the steel products listed in Annex 1 to the Guidelines on national regional aid (2006/C 54/08), published in the Official Journal on 4 March 2006.

395A

Section 394 does not apply to a benefit provided under an employer–financed retirement benefits scheme if—

(a) immediately before 6th April 1980 the scheme was approved under section 222 of ICTA 1970,

(b) the scheme was not approved under Chapter II of Part II of FA 1970,

(c) no material changes have been made to the terms on which benefits are provided under the scheme after 5th April 1980, and

(d) no contributions have been paid under the scheme after that date.

105A

(1) For the purposes of section 105(4B)(b) an amount is attributed to the relevant period “in respect of a lease premium” if—

(a) the property consists of premises, or a part of premises, that are subject to a lease,

(b) the premises are not mainly used by P for a purpose other than the provision of living accommodation to which this Chapter applies,

(d) the net amount payable by P in relation to the lease by way of lease premium is greater than zero.

(2) The amount so attributed is—

$$AC×C$where—A is the relevant period (in days),B is the term of the lease (in days), andC is the net amount payable by P in relation to the lease by way of lease premium.$

(3) For provision about the application of this section in relation to certain leases with break clauses, see section 105B.

(4) For the purposes of this section the net amount payable by P in relation to a lease by way of lease premium is—

(a) the total amount (if any) that has been paid, or is or will become payable, by P in relation to the lease by way of lease premium, less

(b) any amount within paragraph (a) that has been repaid or is or will become repayable.

(5) In this section and section 105B “lease premium” means any premium payable—

(a) under a lease, or

(b) otherwise under the terms on which a lease is granted.

(6) In the application of this section to Scotland “premium” includes a grassum.

105B

(1) This section applies to a lease (“the original lease”) that contains one or more relevant break clauses.

(2) For the purposes of this section—

(a) “break clause” means a provision of a lease that gives a person a right to terminate it so that its term is shorter than it otherwise would be, and

(b) a break clause contained in the original lease is “relevant” if the right to terminate the lease that it confers is capable of being exercised in such a way that the term of the original lease is 10 years or less.

(3) For the purposes of section 105A—

(a) the term of the original lease, and

(b) the net amount payable by P in relation to the lease by way of lease premium,

are to be determined on the assumption that any relevant break clause is exercised in such a way that the term of the lease is as short as possible.

(4) If a relevant break clause is not in fact exercised in such a way that the term of the original lease is as short as possible, the parties to the lease are treated for the purposes of section 105A as if they were parties to another lease (a “notional lease”) the term of which—

(a) begins immediately after the time at which the term of the original lease would have ended, if that break clause had been so exercised, and

(b) ends at the time mentioned in subsection (5).

(5) The term of a notional lease ends—

(a) at the time the term of the original lease would end, on the assumption that any relevant break clause that is exercisable only after the beginning of the term of the notional lease is exercised in such a way that the term of the original lease is as short as possible, or

(b) if earlier, the tenth anniversary of the beginning of the term of the original lease.

(6) For the purposes of section 105A the net amount payable by P in relation to a notional lease by way of lease premium is, in the case of a notional lease the term of which ends under paragraph (a) of subsection (5)—

(a) the net amount that would be payable by P in relation to the original lease by way of lease premium on the assumption mentioned in that paragraph, less

(b) any part of that amount that has already been attributed to a period in respect of a lease premium under section 105(4B)(b).

(7) For the purposes of section 105A the net amount payable by P in relation to a notional lease by way of lease premium is, in the case of a notional lease the term of which ends under paragraph (b) of subsection (5), the relevant proportion of—

(a) the net amount that would be payable by P in relation to the original lease by way of lease premium, on the assumption that no break clause is exercised, less

(b) any part of that amount that has already been attributed to a period in respect of a lease premium under section 105(4B)(b).

(8) In subsection (7) “the relevant proportion” means—

$$DE$where—D is the term of the notional lease (in days), andE is the sum of—(a) the term of the notional lease (in days), and(b) the number of days by which the term of the original lease would exceed 10 years, on the assumption that no break clause is exercised.$

Definitions of “C” and “I” for the purposes of section 24A(14)

124A

(1) This section applies where—

(a) a car has automatic transmission (“the automatic car”),

(b) at any time in the year when the automatic car is available to the employee (“E”), E holds a disabled person's badge, and

(c) by reason of E's disability, E must, in the event of wanting to drive a car, drive a car which has automatic transmission.

(2) If, under section 122 to 124, the price of the automatic car is more than it would have been if the automatic car had been an equivalent manual car, the price of the automatic car is to be the price of an equivalent manual car.

(3) In subsection (2) “an equivalent manual car” means a car which—

(a) is first registered at or about the same time as the automatic car, and

(b) does not have automatic transmission, but otherwise is the closest variant available of the make and model of the automatic car.

(4) For the purposes of this section a car has automatic transmission if—

(a) the driver of the car is not provided with any means by which the driver may vary the gear ratio between the engine and the road wheels independently of the accelerator and the brakes, or

(b) the driver is provided with such means, but they do not include—

(i) a clutch pedal, or

(ii) a lever which the driver may operate manually.

(5) For the purposes of this section a car is available to an employee at a particular time if it is then made available, by reason of the employment and without any transfer of the property in it, to the employee.

Scope of this Chapter

Health-screening and medical check-ups

320B

(1) No liability to income tax arises in respect of the provision for an employee, on behalf of an employer, of a health-screening assessment or a medical check-up.

(2) Subsection (1) does not apply—

(a) to more than one health-screening assessment provided in a tax year by any one employer or by any of a number of persons who are employers of the employee at the same time, or

(b) to more than one medical check-up so provided.

(3) In this section—

“health-screening assessment” means an assessment to identify employees who might be at particular risk of ill-health, and

“medical check-up” means a physical examination of the employee by a health professional for (and only for) determining the employee's state of health.

556A

No deduction may be made under section 555 if the deductible payment is made in pursuance of arrangements the main purpose, or one of the main purposes, of which is the avoidance of tax.

Case outside this Chapter

Taxable amount under Chapter 4

Meaning of “intellectual property” and “transfer”

173A

(1) For the purposes of this Chapter a reference to a loan includes a reference to arrangements—

(a) to which section 564C of ITA 2007 or section 503 of CTA 2009 (purchase and resale arrangements) applies (or would apply assuming one of the parties were a financial institution), or

(b) to which section 564D of ITA 2007 or section 504 of CTA 2009 (diminishing shared ownership arrangements) applies (or would apply on that assumption).

(2) In the application of this Chapter as a result of this section, a reference to interest is to be treated as including alternative finance return (or anything that would be such return on that assumption).

(3) In the application of this Chapter as a result of this section, a reference to the amount outstanding is to be taken—

(a) in the case of arrangements within subsection (1)(a), as a reference to the purchase price minus such part of the aggregate payments made as does not represent alternative finance return (or anything that would be such return on that assumption),

(b) in the case of arrangements to which section 564D of ITA 2007 or section 504 of CTA 2009 applies, as a reference to the amount of the first owner’s original beneficial interest minus such part of the aggregate payments made as does not represent alternative finance return, and

(c) in the case of arrangements to which section 564D of ITA 2007 or section 504 of CTA 2009 would apply assuming one of the parties were a first owner, as a reference to the amount of that party's original beneficial interest minus such part of the aggregate payments made as does not represent anything that would be alternative finance return on that assumption.

(4) In this section—

“alternative finance return” has the meaning given in sections 564I to 564L of ITA 2007 or sections 511 to 513 of CTA 2009, ...

“financial institution” has the meaning given in section 564B of ITA 2007 or section 502 of CTA 2009, and

“first owner” is to be construed in accordance with section 564D of ITA 2007 or section 504 of CTA 2009.

(5) This section does not apply to arrangements entered into before 22 March 2006.

290A

(1) No liability to income tax arises in respect of a person in lower-paid employment as a minister of religion by virtue of the payment or reimbursement of accommodation outgoings.

(2) Subsection (1) does not apply if the minister is paid an allowance intended to be used, wholly or in part, for paying accommodation outgoings (as to which see section 290B).

(3) In this section—

“accommodation outgoings” means amounts incurred by the minister in—heating, lighting or cleaning qualifying premises; ormaintaining a garden forming part of qualifying premises;

“qualifying premises” has the same meaning as in section 290.

290B

(1) This section applies where a person in lower-paid employment as a minister of religion is paid an allowance intended to be used, wholly or in part, for paying accommodation outgoings.

(2) No liability to tax arises by virtue of the payment of the allowance to the extent that it is used for paying accommodation outgoings.

(3) In this section—

“accommodation outgoings” has the same meaning as in section 290A;

“qualifying premises” has the same meaning as in section 290.

293A

(1) No liability to income tax arises in respect of a payment made to a member of the House of Commons under section 5(1) of the Parliamentary Standards Act 2009 if the payment is expressed to be made—

(a) in respect of relevant UK travel expenses, or

(b) in respect of relevant subsistence expenses.

(2) “Relevant UK travel expenses” means expenses necessarily incurred on journeys of the following kinds within the United Kingdom—

(a) journeys made by the member that are necessary for the performance of the member's parliamentary duties, and

(b) if the member shares caring responsibilities with a spouse or partner, journeys made by the spouse or partner between the member's London Area residence and the member's constituency residence.

(3) “Relevant subsistence expenses” means expenses necessarily incurred on an evening meal (excluding alcoholic drinks) eaten on the Parliamentary Estate, where the member is required to be at the House of Commons because the House is sitting beyond 7.30 p.m.

(4) “Caring responsibilities” and “London Area” have the same meaning in subsection (2)(b) as they have in the scheme in effect for the time being under section 5 of the Parliamentary Standards Act 2009.

Case outside this Chapter

Associated persons

The UK permanent establishment requirement

14A

(1) The UK permanent establishment requirement is met if condition A or B is met.

(2) Condition A is that the company has a permanent establishment in the United Kingdom.

(3) Condition B is that—

(a) the company is a parent company, and

(b) any other member of the group—

(i) meets the conditions in paragraph 14(1)(a) (trading activities requirement), and

(ii) has a permanent establishment in the United Kingdom.

413A

(1) This Chapter does not apply to a payment which meets conditions A and B.

(2) Condition A is that the payment meets the whole or part of legal costs incurred by the employee exclusively in connection with the termination of the employee’s employment.

(3) Condition B is that either—

(a) the payment is made pursuant to an order of a court or tribunal, or

(b) the termination of the employee’s employment results in a settlement agreement between the employer and the employee and —

(i) the settlement agreement provides for the payment to be made by the employer, and

(ii) the payment is made directly to the employee’s lawyer.

(4) In this section—

“lawyer” has the same meaning as “qualified lawyer” in section 203(4) of the Employment Rights Act 1996 or article 245(4) of the Employment Rights (Northern Ireland) Order 1996;

“legal costs” means fees payable for the services and disbursements of a lawyer.

270B

(1) For the purposes of section 270A, the “relevant earnings amount”, in the case of an employee provided with vouchers by an employer for any qualifying week in a tax year, means—

(a) the aggregate of—

(i) the amount of any relevant earnings for the tax year from employment by the employer, and

(ii) any amounts treated under Chapters 2 to 12 of Part 3 as earnings from such employment, less

(b) the aggregate of any excluded amounts.

(2) But if the employee becomes employed by the employer during the tax year, what would otherwise be the amount of the aggregate mentioned in subsection (1)(a) is the relevant multiple of that amount; and the relevant multiple is—

$$365 RD$where RD is the number of days in the period beginning with the day on which the employee becomes employed by the employer and ending with the tax year.$

(3) In subsection (1)(a) “relevant earnings” means—

(a) salary, wages or fees, and

(b) any other earnings specified in regulations made by the Treasury under this paragraph.

(4) In subsection (1)(b) “excluded amounts” means amounts specified in regulations made by the Treasury under this subsection.

(5) In section 270A “the required time”, in the case of an employee, means—

(a) if the employee joins the scheme under which the vouchers are provided at a time during the tax year, that time, and

(b) otherwise, the beginning of the tax year.

(6) For the purposes of subsection (5)(a) the employee is taken to join the scheme as soon as—

(a) the employer has agreed that vouchers will be provided under the scheme for the employee, and

(b) there is a child falling within section 270A(3)(a) or (b) in relation to the employee.

(7) The Treasury may by order amend this section.

304A

(1) No liability to income tax arises in respect of any subsistence allowances paid by a relevant EU body to persons who, because of their expertise in matters relating to the subject matter of the functions of the relevant EU body, have been seconded to the body by their employers.

(2) Each of the following is a “relevant EU body”—

(a) the European Medicines Agency, established as the European Agency for the Evaluation of Medicinal Products by Council Regulation (EEC) No 2309/93 of 22 July 1993,

(b) the European Police College, established by Council Decision of 20 September 2005 (2005/681/JHA),

(d) any other body established by an EU instrument which is designated as a relevant EU body for the purposes of this section by an order made by the Treasury.

318AA

(1) For the purposes of section 318A, “relevant earnings amount”, in the case of an employee provided with care by an employer for any qualifying week in a tax year, means—

(a) the aggregate of—

(i) the amount of any relevant earnings for the tax year from employment by the employer, and

(ii) any amounts treated under Chapters 2 to 12 of Part 3 as earnings from such employment, less

(b) the aggregate of any excluded amounts.

(2) But if the employee becomes employed by the employer during the tax year, what would otherwise be the amount of the aggregate mentioned in subsection (1)(a) is the relevant multiple of that amount; and the relevant multiple is—

$$365 RD$where RD is the number of days in the period beginning with the day on which the employee becomes employed by the employer and ending with the tax year.$

(3) In subsection (1)—

“relevant earnings” has the same meaning as in subsection (1)(a) of section 270B (see subsection (3) of that section), and

“excluded amounts” has the same meaning as in subsection (1)(b) of section 270B (see subsection (4) of that section).

(4) In section 318A “the required time”, in the case of an employee, means—

(a) if the employee joins the scheme under which the care is provided at a time during the tax year, that time, and

(b) otherwise, the beginning of the tax year.

(5) For the purposes of subsection (5)(a) the employee is taken to join the scheme as soon as—

(a) the employer has agreed that care will be provided under the scheme for the employee, and

(b) there is a child falling within section 318A(3)(a) or (b) in relation to the employee.

(6) The Treasury may by order amend this section.

Monitoring schemes

326A

(1) No liability to income tax arises by virtue of the payment or reimbursement of a fee in respect of —

(a) an application to join the scheme administered under section 44 of the Protection of Vulnerable Groups (Scotland) Act 2007 (asp 14) (scheme to collate and disclose information about individuals working with vulnerable persons).

(b) a fee paid by virtue of section 116A(4)(b) or (5)(b) of the Police Act 1997 (“the Police Act”) (fee for up-dating certificates);

(i) section 113A(1)(b) of the Police Act (fee for criminal record certificates);

(ii) section 113B(1)(b) of the Police Act (fee for enhanced criminal record certificates);

(iii) iii)section 114(1)(b) of the Police Act (fee for criminal record certificates: Crown employment); or

(iv) iv)section 116(1)(b) of the Police Act (fee for enhanced criminal record certificates: judicial appointments and Crown employment);

where the application is made at the same time as an application under section 116A(4) or (5) of the Police Act for the certificate to be subject to up-date arrangements.

(2) The Treasury may by order amend subsection (1) so as—

(a) to add to the fees covered by that subsection a fee of a specified kind payable in connection with a scheme for England and Wales or Northern Ireland which corresponds to the scheme administered under section 44 of the Protection of Vulnerable Groups (Scotland) Act 2007, or

(b) to amend or remove a reference to a fee added under paragraph (a).

“Convertible securities”

Part 7A — Employment income provided through third parties

CHAPTER 1 — Application etc

Application: main case

554A

(1) Chapter 2 applies if—

(a) a person (“A”) is an employee, or a former or prospective employee, of another person (“B”),

(b) there is an arrangement (“the relevant arrangement”) to which A is a party or which otherwise (wholly or partly) covers or relates to A,

(i) the relevant arrangement, or

(ii) the relevant arrangement so far as it covers or relates to A,

is (wholly or partly) a means of providing, or is otherwise concerned (wholly or partly) with the provision of, rewards or recognition or loans in connection with A's employment, or former or prospective employment, with B,

(d) a relevant step is taken by a relevant third person, and

(e) it is reasonable to suppose that, in essence—

(i) the relevant step is taken (wholly or partly) in pursuance of the relevant arrangement, or

(ii) there is some other connection (direct or indirect) between the relevant step and the relevant arrangement.

(2) In this Part “relevant step” means a step within section 554B, 554C or 554D , or paragraph 1 or 1A of Schedule 11 to F(No. 2)A 2017 (including such a step where the taking of the step, or some aspect of the taking of the step, constitutes a breach of trust or is a constituent part of a breach of trust, and even if the step or aspect is void as a result of breach of trust)..

(3) Subsection (1) is subject to subsection (4) and sections 554E to 554Y.

(4) Chapter 2 does not apply by reason of—

(a) a relevant step taken on or after A's death if—

(i) the relevant step is within section 554B, or

(ii) the relevant step is within section 554C by virtue of subsection (1)(ab) of that section,

(b) a relevant step within paragraph 1 of Schedule 11 to F(No.2)A 2017 which is treated as being taken on or after A's death, or

(c) a relevant step within paragraph 1A of Schedule 11 to F(No.2)A 2017 in a case where the initial step (within the meaning given by sub-paragraph (1)(a) of that paragraph) is treated as being taken on or after A's death.

(5) In subsection (1)(b) and (c)(ii) references to A include references to any person linked with A.

(5A) Subsections (5B) and (5C) apply where—

(a) a payment to a person other than A, or to A as a trustee, is of earnings from A's employment with B, and

(b) the earnings are, in whole or part, charged to tax under the employment income Parts otherwise than by virtue of this Part,

and for this purpose it does not matter whether all or some only or none of the tax is paid (but see sections 554Z5 and 554Z11B).

(5B) For the purposes of subsection (5C), an arrangement is a “redirected-earnings arrangement” if it (wholly or partly) covers or relates to redirected earnings; and for the purposes of this subsection and subsection (5C) “redirected earnings” means—

(a) the payment mentioned in subsection (5A)(a), or

(b) any sum or other property which (directly or indirectly)—

(i) represents, or

(ii) is derived from,

that payment.

(5C) The circumstances mentioned in subsection (5A)—

(a) do not prevent a redirected-earnings arrangement being within subsection (1)(b), and

(b) do not prevent rewards or recognition or loans being in connection with A's employment with B for the purposes of subsection (1)(c) where there is use of redirected earnings for the provision of the whole, or part, of the rewards or recognition or loans.

(6) For the purposes of subsection (1)(c) it does not matter if the relevant arrangement does not include details of the steps which will or may be taken in connection with providing, in essence, rewards or recognition or loans as mentioned (for example, details of any sums of money or assets which will or may be involved or details of how or when or by whom or in whose favour any step will or may be taken).

(7) In subsection (1)(d) “relevant third person” means—

(a) A acting as a trustee,

(b) B acting as a trustee, or

(8) If B is a company and is a member of a group of companies at the time the relevant step is taken, in subsection (7) references to B are to be read as including references to any other company which is a member of that group at that time.

(9) If B is a limited liability partnership, in subsection (7) references to B are to be read as including references to any company which is a wholly-owned subsidiary (as defined in section 1159(2) of the Companies Act 2006) of B at the time the relevant step is taken.

(10) Neither subsection (8) nor subsection (9) applies if there is a connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

(11) For the purposes of subsection (1)(e)—

(a) the relevant step is connected with the relevant arrangement if (for example) the relevant step is taken (wholly or partly) in pursuance of an arrangement at one end of a series of arrangements with the relevant arrangement being at the other end, and

(b) it does not matter if the person taking the relevant step is unaware of the relevant arrangement.

(12) For the purposes of subsection (1)(c) and (e) in particular, all relevant circumstances are to be taken into account in order to get to the essence of the matter.

Relevant steps

554B

(1) A person (“P”) takes a step within this section if—

(a) a sum of money or asset held by or on behalf of P is earmarked (however informally) by P with a view to a later relevant step being taken by P or any other person (on or following the meeting of any condition or otherwise) in relation to—

(i) that sum of money or asset, or

(ii) any sum of money or asset which may arise or derive (directly or indirectly) from it, or

(b) a sum of money or asset otherwise starts being held by or on behalf of P, specifically with a view, so far as P is concerned, to a later relevant step being taken by P or any other person (on or following the meeting of any condition or otherwise) in relation to—

(i) that sum of money or asset, or

(ii) any sum of money or asset which may arise or derive (directly or indirectly) from it.

(2) For the purposes of subsection (1)(a) and (b) it does not matter—

(a) if details of the later relevant step have not been worked out (for example, details of the sum of money or asset which will or may be the subject of the step or details of how or when or by whom or in whose favour the step will or may be taken),

(b) if any condition which would have to be met before the later relevant step is taken might never be met, or

(c) if A, or any person linked with A, has no legal right to have a relevant step taken in relation to any sum of money or asset mentioned in subsection (1)(a)(i) or (ii) or (b)(i) or (ii) (as the case may be).

(3) For the purposes of subsection (1)(b) it does not matter whether or not the sum of money or asset in question has previously been held by or on behalf of P on a basis which is different to that mentioned in subsection (1)(b).

554C

(1) A person (“P”) takes a step within this section if P—

(a) pays a sum of money to a relevant person,

(aa) acquires a right to a payment of a sum of money, or to a transfer of assets, where there is a connection (direct or indirect) between the acquisition of the right and—

(i) a payment made, by way of a loan or otherwise, to a relevant person, or

(ii) a transfer of assets to a relevant person,

(ab) releases or writes off the whole or a part of—

(i) a loan made to a relevant person, or

(ii) an acquired right of the kind mentioned in paragraph (aa),”.

(b) transfers an asset to a relevant person,

(d) makes available a sum of money or asset for use, or makes it available under an arrangement which permits its use—

(i) as security for a loan made or to be made to a relevant person, or

(ii) otherwise as security for the meeting of any liability, or the performance of any undertaking, which a relevant person has or will have, or

(e) grants to a relevant person a lease of any premises the effective duration of which is likely to exceed 21 years.

(2) In subsection (1) “relevant person”—

(a) means A or a person chosen by A or within a class of person chosen by A, and

(b) includes, if P is taking a step on A's behalf or otherwise at A's direction or request, any other person.

(3) In subsection (2) references to A include references to any person linked with A.

(3A) For the purposes of subsection (1) “loan” includes—

(a) any form of credit, and

(b) a payment that is purported to be made by way of a loan.

(3B) Subsection (3C) applies where a person (“T”) acquires from another person (“L”) (whether or not for consideration)—

(a) a right to payment of the whole or part of a loan where T is the person liable (at the time of the acquisition of the right) to repay the loan, or

(b) a right to payment of a sum of money, or to a transfer of assets, where T is the person liable (at the time of the acquisition of the right) to pay the sum, or transfer the assets.

(3C) L is to be treated for the purposes of subsection (1)(ab) as releasing—

(a) in a case within subsection (3B)(a), the loan or the relevant part of it;

(b) in a case within subsection (3B)(b), the right or the relevant part of it.

(4) The following assets are within this subsection—

(a) securities,

(b) interests in securities, and

as defined in section 420 for the purposes of Chapters 1 to 5 of Part 7; and in subsection (1)(c) “acquires” is to be read in accordance with section 421B(2)(a).

(5) For the purposes of subsection (1)(d)—

(a) references to making a sum of money or asset available are references to making it available in any way, however informal,

(b) it does not matter if the relevant person has no legal right to have the sum of money or asset used as mentioned, and

(6) Subsections (7) and (8) apply for the purpose of determining the likely effective duration of a lease of any premises granted to a relevant person (“the original lease”) for the purposes of subsection (1)(e).

(7) If there are circumstances which make it likely that the original lease will be extended for any period, the effective duration of the original lease is to be determined on the assumption that the original lease will be so extended.

(8) Further, if—

(a) A is, or is likely to become, entitled to a later lease, or the grant of a later lease, of the same premises, or

(b) it is otherwise likely that A will be granted a later lease of the same premises,

the original lease is to be treated as continuing until the end of the later lease (and subsection (7) also applies for the purpose of determining the duration of the later lease).

(9) In subsection (8)—

(a) references to A include references to—

(i) any person linked with A, and

(ii) the person to whom the original lease was granted where the original lease was not granted to A or any person linked with A, and

(b) references to the same premises include references to any premises which include the whole or part of the same premises.

(10) In this section “lease” and “premises” have the same meaning as they have in Chapter 4 of Part 3 of ITTOIA 2005.

554D

(1) A person (“P”) takes a step within this section if, without transferring the asset to the relevant person, P—

(a) at any time, makes an asset available for a relevant person to benefit from in a way which is substantially similar to the way in which the relevant person would have been able to benefit from the asset had the asset been transferred to the relevant person at that time, or

(b) at or after the end of the relevant period, makes an asset available for a relevant person to benefit from.

(2) If—

(a) before the end of the relevant period, P makes available an asset for a relevant person to benefit from, and

(b) at the end of the relevant period, P continues to make the asset available for the relevant person to benefit from,

P is treated as taking a step within this section by virtue of subsection (1)(b) at the end of the relevant period.

(3) For the purposes of subsections (1) and (2)—

(a) references to making an asset available are references to making it available in any way, however informal,

(b) it does not matter if the relevant person has no legal right to benefit from the asset, and

(4) In subsections (1) and (2) “the relevant period” means the period of two years starting with the day on which A's employment with B ceases.

(5) In subsections (1) and (2) “relevant person”—

(a) means A or a person chosen by A or within a class of person chosen by A, and

(b) includes, if P is taking a step on A's behalf or otherwise at A's direction or request, any other person.

(6) In subsection (5) references to A include references to any person linked with A.

(7) The following factors (among others) may be taken into account in determining whether a step within this section is taken by virtue of subsection (1)(a)—

(a) any limitations on the way in which the relevant person may benefit from the asset,

(b) the period over which the asset is being made available and (if relevant) the extent to which that period covers the expected remaining useful life of the asset,

(d) the extent to which the relevant person may benefit from any proceeds arising from the disposal of the asset or otherwise have a say in the way the proceeds are used.

Exclusions

554E

(1) Chapter 2 does not apply by reason of a relevant step if the step is taken under any of the following—

(a) a Schedule 2 SIP (within the meaning of Chapter 6 of Part 7),

(b) a Schedule 3 SAYE option scheme (within the meaning of Chapter 7 of Part 7),

(d) an arrangement the sole purpose of which is the provision of excluded benefits (as defined in section 393B(3)),

(e) an arrangement the sole purpose of which is the making of payments which are to be disregarded in the calculation mentioned in regulation 25 of the Social Security (Contributions) Regulations 2001 (S.I. 2001/1004) by virtue of paragraph 12 of Part 10 of Schedule 3 to those Regulations (as that paragraph has effect by virtue of regulation 2(3) of the Social Security (Contributions) (Amendment No. 9) Regulations 2007 (S.I. 2007/2905)),

(f) a pension scheme set up by a government outside the United Kingdom for the benefit of its employees or primarily for their benefit,

(g) a registered pension scheme, or

(h) an arrangement the sole purpose of which is the making of payments (within the meaning of Chapter 3 of Part 4 of FA 2004 (see section 161(2) of that Act))—

(i) to which section 161(4) of FA 2004 applies in relation to a registered pension scheme (or a registered pension scheme which has been wound up), and

(ii) which are authorised in relation to that scheme by section 160(1) of FA 2004.

(2) Subject to subsection (4), subsection (3) applies to a relevant step taken by a person (“P”) if—

(a) the relevant step is not taken under an arrangement mentioned in subsection (1)(a) to (c), and

(b) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

(3) Chapter 2 does not apply by reason of the relevant step if the step is taken solely for the purpose of—

(a) acquiring or holding shares—

(i) to be awarded under a Schedule 2 SIP, or

(ii) to be provided pursuant to options granted under a Schedule 3 SAYE option scheme or a Schedule 4 CSOP scheme, or

(b) providing shares pursuant to—

(i) an award of shares under a Schedule 2 SIP, or

(ii) an option granted under a Schedule 3 SAYE option scheme or a Schedule 4 CSOP scheme.

(4) Subsection (3) does not apply to the relevant step if, immediately before or after the step is taken—

(a) the total number of shares of any type held, in relation to the Schedule 2 SIP, the Schedule 3 SAYE option scheme or the Schedule 4 CSOP scheme, by P and any other persons for purposes within subsection (3)(a) and (b), exceeds

(b) the maximum number of shares of that type which might reasonably be expected to be required, in relation to the Schedule 2 SIP, the Schedule 3 SAYE option scheme or the Schedule 4 CSOP scheme, for those purposes over the period of ten years starting with the day on which the relevant step is taken.

(5) Terms used in subsections (2) to (4) have the same meaning as they have in Chapter 6, 7 or 8 of Part 7 (as the case may be).

(6) Chapter 2 does not apply by reason of a relevant step taken by a person (“P”) if—

(a) the relevant step is taken for the sole purpose of—

(i) granting qualifying options under an EMI arrangement,

(ii) acquiring or holding shares to be provided pursuant to qualifying options granted under an EMI arrangement, or

(iii) providing shares pursuant to qualifying options granted under an EMI arrangement, and

(b) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

(7) But subsection (6) does not apply to the relevant step if, immediately before or after the step is taken—

(a) the total number of shares of any type held, in relation to the EMI arrangement, by P and any other persons for purposes within subsection (6)(a)(i) to (iii), exceeds

(b) the maximum number of shares of that type which might reasonably be expected to be required, in relation to the EMI arrangement, for those purposes over the period of ten years starting with the day on which the relevant step is taken.

(8) In subsections (6) and (7) “EMI arrangement” means an arrangement under which qualifying options are granted.

(9) Terms used in subsections (6) to (8) have the same meaning as in Chapter 9 of Part 7.

(10) Subsection (11) applies if—

(a) a person (“P”) takes a relevant step within section 554B by reason of which Chapter 2 would apply apart from subsection (3) or (6), and

(b) at any time (“the relevant time”) the sum of money or asset (or any part of it) which is the subject of the relevant step—

(i) ceases to be held by or on behalf of P solely for purposes within subsection (3)(a) and (b) or (6)(a)(i) to (iii), but

(ii) continues to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

(11) This Part has effect as if a relevant step within section 554B were taken at the relevant time—

(a) the subject of which is the sum of money or asset (or the part of it) mentioned in subsection (10)(b), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(12) Chapter 2 does not apply by reason of a relevant step taken by the Independent Parliamentary Standards Authority in relation to a member of the House of Commons.

554F

(1) Chapter 2 does not apply by reason of a relevant step which is the payment of a sum of money by way of a loan if—

(a) the loan is a loan on ordinary commercial terms within the meaning of section 176, ignoring conditions B and C in that section, and

(b) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

(2) Chapter 2 does not apply by reason of a relevant step taken by a person (“P”), which is not the payment of a sum of money by way of a loan, if—

(a) the step is taken for the sole purpose of a transaction which P has with A and which P entered into in the ordinary course of P's business,

(b) a substantial proportion of P's business involves similar transactions with members of the public,

(c) the terms on which P entered into the transaction with A are substantially the same as the terms on which P normally enters into similar transactions with members of the public, and

(d) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

(3) For the purposes of subsection (2)(b) and (c) a transaction is “similar” if it is of the same or a similar type to the transaction which P has with A.

(4) In subsection (2)(b) and (c) “members of the public” means members of the public at large with whom P deals at arm's length.

(5) In this section references to A include references to any person linked with A.

(6) See paragraph 25 of Schedule 11 to F(No. 2)A 2017 for provision about exclusions where a loan is made on ordinary commercial terms and the relevant step is within paragraph 1 of that Schedule.

554G

(1) Chapter 2 does not apply by reason of a relevant step taken by a person (“P”) if—

(a) the step is not taken under a pension scheme,

(b) the step is taken for the sole purpose of a transaction which P has with A and which P entered into in the ordinary course of P's business,

(i) a substantial proportion of P's business involves making similar loans to members of the public,

(ii) the transaction with A is part of a package of benefits which is available to a substantial proportion of B's employees, and

(iii) subsection (3) does not apply,

(d) if the step is not the payment of a sum of money by way of a loan, the transaction with A is part of a package of benefits which is available—

(i) to a substantial proportion of B's employees, or

(ii) to a substantial proportion of those employees of B whose status as employees of B is comparable with A's status as an employee of B (taking into account (for example) levels of seniority, types of duties and levels of remuneration),

(e) the terms on which similar transactions are offered by P under the package of benefits mentioned in paragraph (c)(ii) or (d) (as the case may be) are generous enough to enable substantially all of the employees of B to whom the package is available to take advantage of what is offered (if they want to),

(f) the terms on which P entered into the transaction with A are substantially the same as the terms on which P normally enters into similar transactions with employees of B under the package of benefits,

(g) if B is a company, a majority of B's employees to whom the package of benefits is available do not have a material interest (as defined in section 68) in B, and

(h) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

(2) For the purposes of subsection (1)(c)(i)—

(a) a loan is “similar” if it is made for the same or similar purposes as the loan which is the subject of the relevant step, and

(b) “members of the public” means members of the public at large with whom P deals at arm's length.

(3) This subsection applies if any feature of the package of benefits mentioned in subsection (1)(c)(ii) has or is likely to have the effect that, of the employees of B to whom the package is available, it is employees within subsection (4) on whom benefits under the package will be wholly or mainly conferred.

(4) The employees within this subsection are—

(a) directors,

(b) senior employees,

(c) employees who receive, or as a result of the package of benefits are likely to receive, the higher or highest levels of remuneration, and

(d) if B is a company and is a member of a group of companies, any employees not within paragraph (b) or (c) who—

(i) are senior employees in the group, or

(ii) receive, or as a result of the package of benefits are likely to receive, the higher or highest levels of remuneration in the group.

(5) For the purposes of subsection (1)(e) and (f) a transaction is “similar” if it is of the same or a similar type to the transaction which P has with A.

(6) If the relevant step is not the payment of a sum of money by way of a loan, in this section references to employees of B are references to those employees of B whose duties of employment are performed in the United Kingdom; and for this purpose duties performed outside the United Kingdom the performance of which is merely incidental to the performance of duties in the United Kingdom are to be treated as performed in the United Kingdom.

(7) In this section (apart from subsection (1)(d)(ii)) references to A include references to any person linked with A.

(8) See paragraph 29 of Schedule 11 to F(No. 2)A 2017 for provision about exclusions for transactions under employee benefit packages in a case in which the relevant step is within paragraph 1 of that Schedule.

554H

(1) This section applies if—

(a) on a date (“the award date”) A is awarded remuneration (“the deferred remuneration”) in respect of A's employment with B,

(b) the main purpose of the award is not the provision of relevant benefits (within the meaning of Chapter 2 of Part 6, but ignoring section 393B(2)(a)),

(c) the deferred remuneration is awarded on terms (“the deferred remuneration terms”) the main purpose of which is to defer the provision to A of the deferred remuneration to a specified date (“the vesting date”) which is after the award date, while providing that the award of the deferred remuneration is revoked if specified conditions are not met on or before the vesting date,

(d) the vesting date is not more than five years after the award date,

(e) as at the award date, there is a reasonable chance that the award of the deferred remuneration will be revoked because not all the specified conditions will be met on or before the vesting date,

(f) if the deferred remuneration were to be provided to A by any person on the award date, that action would, for the purposes of Part 11, be a payment of PAYE employment income of A in respect of A's employment with B,

(g) before the end of the vesting date, a person (“P”) takes a relevant step within section 554B by reason of which Chapter 2 would apply apart from this section,

(h) on the taking of the relevant step, the sum of money or asset which is the subject of the step represents the deferred remuneration or any part of it (and nothing else), and

(i) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.

(2) In addition to the provision relating to revocation required by subsection (1)(c) (which must be included), the deferred remuneration terms may also provide that the award of the deferred remuneration is partly revoked if specified conditions are not met on or before the vesting date.

(3) Chapter 2 does not apply by reason of the relevant step mentioned in subsection (1)(g).

(4) In the following subsections “the earmarked deferred remuneration” means the deferred remuneration so far as, on the taking of the relevant step mentioned in subsection (1)(g), it is represented by the sum of money or asset which is the subject of the step as mentioned in subsection (1)(h).

(5) Subsection (6) applies if, at any time (“the relevant time”)—

(a) any sum of money or asset held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b) which represents any of the earmarked deferred remuneration ceases to represent that earmarked deferred remuneration or a part of it (because the remuneration is to be provided to A in another way or its award has been revoked or for any other reason), but

(b) the sum of money or asset continues to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

(6) This Part has effect as if a relevant step within section 554B were taken at the relevant time—

(a) the subject of which is—

(i) the sum of money or asset mentioned in subsection (5), and

(ii) a just and reasonable proportion of any relevant income (see subsection (12)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(7) Subsection (8) applies if neither subsection (10) nor subsection (11) applies to the earmarked deferred remuneration or to a part of it.

(8) This Part has effect as if a relevant step within section 554B were taken at the end of the vesting date—

(a) the subject of which is—

(i) a sum of money of the notional PAYE amount, and

(ii) a just and reasonable proportion of any relevant income (see subsection (12)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(9) In subsection (8)(a) “the notional PAYE amount” means the amount which the payment of PAYE employment income would have been had, as the case may be—

(a) the earmarked deferred remuneration, or

(b) the part of it to which neither subsection (10) nor subsection (11) applies,

been provided to A at the end of the vesting date in a way which is, for the purposes of Part 11, a payment of PAYE employment income of A in respect of A's employment with B.

(10) This subsection applies to the earmarked deferred remuneration so far as it is provided to A before the end of the vesting date in a way which is, for the purposes of Part 11, a payment of PAYE employment income of A in respect of A's employment with B.

(11) This subsection applies to the earmarked deferred remuneration so far as, before the end of the vesting date, the award of the earmarked deferred remuneration is revoked in accordance with the deferred remuneration terms.

(12) In subsections (6)(a)(ii) and (8)(a)(ii) “relevant income” means any income—

(a) which, before the relevant time or the end of the vesting date (as the case may be)—

(i) arises (directly or indirectly) from a sum of money or asset held by or on behalf of P representing any of the earmarked deferred remuneration, and

(ii) is the subject of a relevant step within section 554B taken by P by reason of which Chapter 2 would apply apart from section 554Q, and

(b) which, at the relevant time or the end of the vesting date (as the case may be), continues to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

554I

(1) Sections 554J and 554K are about steps within section 554B taken in relation to awards of certain shares or securities or of sums of money determined by reference to the market value of certain shares or securities.

(2) Sections 554L and 554M are about steps within section 554B taken in relation to grants of rights to acquire certain shares or securities or to receive sums of money determined by reference to the market value of certain shares or securities.

(3) Sections 554J to 554M apply only if B is a company.

(4) In those sections—

“relevant benefits” has the same meaning as in Chapter 2 of Part 6, but ignoring section 393B(2)(a),

“relevant shares” means—shares (including stock) in B,instruments issued by B which are securities for the purposes of Chapters 1 to 5 of Part 7 within section 420(1)(b), orunits in a collective investment scheme (as defined in section 420(2)) managed by B which are securities for the purposes of Chapters 1 to 5 of Part 7 within section 420(1)(e), and

“trading company” means a company the business of which consists wholly or mainly in the carrying on of a trade.

(5) If B is a member of a group of companies, in the definition of “relevant shares” in subsection (4) references to B are to be read as including references to any other company which is a member of that group.

(6) For the purposes of sections 554K and 554M an exit event occurs if—

(a) shares in the relevant company are admitted to trading on a stock exchange,

(b) all the shares in the relevant company, or a substantial proportion of them, are disposed of to persons none of whom is connected with any of the persons making any disposal,

(c) if the relevant company is a trading company (as defined in subsection (4)), the company's trade, or a substantial proportion of it, is transferred to a person who is not a relevant connected person,

(d) the relevant company's assets, or a substantial proportion of them, are disposed of to a person who is not a relevant connected person,

(e) the winding up of the relevant company starts, or

(f) a person (“P”) who controls the relevant company ceases to control it, so long as no person connected with P starts to control it.

(7) For the purposes of subsection (6)—

(a) “the relevant company” means—

(i) if the relevant shares mentioned in section 554K(1)(a)(i) or (ii) or 554M(1)(a)(i) or (ii) are shares (including stock), the company in which they are shares, or

(ii) if the relevant shares so mentioned are instruments within paragraph (b) of the definition of “relevant shares” in subsection (4), the company by which those instruments are issued,

(b) “relevant connected person” means a person who—

(i) is connected with the relevant company, or

(ii) is a shareholder in the relevant company or is connected with a shareholder in the relevant company,

(i) the relevant company ceases to carry on the trade or the proportion of it, and

(ii) on that occurring, the other person starts to carry on the trade or the proportion of it, and

(d) section 12(7) of CTA 2009 applies for the purpose of determining when the winding up of the relevant company starts.

554J

(1) This section applies if—

(a) there is an arrangement (“B's employee share scheme”) under which, in respect of A's employment with B, an award may be made to A of—

(i) relevant shares, or

(ii) a sum of money the amount of which is to be determined by reference to the market value of any relevant shares at the time the sum is to be paid,

(b) the main purpose of the award of the relevant shares or sum of money would not be the provision of relevant benefits,

(c) the award of the relevant shares or sum of money would be on terms (“the deferred award terms”) the main purpose of which is to defer the receipt of the shares by A, or the payment of the sum of money to A, to a specified date (“the vesting date”) which is after the date (“the award date”) on which the award is made, while providing that the award is revoked if specified conditions are not met on or before the vesting date,

(d) the vesting date would not be more than ten years after the award date, and

(e) as at the award date, there would be a reasonable chance that the award of the relevant shares or sum of money will be revoked because not all the specified conditions will be met on or before the vesting date.

(2) In addition to the provision relating to revocation required by subsection (1)(c) (which must be included), the deferred award terms may also provide that the award of the relevant shares or sum of money is partly revoked if specified conditions are not met on or before the vesting date.

(3) Chapter 2 does not apply by reason of a relevant step within section 554B (by reason of which it would otherwise apply) taken by a person (“P”) if—

(a) the subject of the relevant step is relevant shares (“earmarked shares”) which are earmarked, or otherwise start being held, solely with a view to the meeting of—

(i) an award of relevant shares or a sum of money made to A under B's employee share scheme as mentioned in subsection (1)(a) in relation to which the requirements of subsection (1)(b) to (e) are met, or

(ii) an award of relevant shares or a sum of money which is expected to be made to A under B's employee share scheme as mentioned in subsection (1)(a) and in relation to which the requirements of subsection (1)(b) to (e) would be met,

(b) the number of relevant shares of any type which are earmarked shares does not exceed the maximum number of relevant shares of that type which might reasonably be expected to be needed for meeting the award or expected award, and

(4) If the relevant step mentioned in subsection (3) is taken in relation to an expected award as mentioned in subsection (3)(a)(ii), subsection (5) applies if—

(a) the award is not made before the end of the date (“the final award date”) falling immediately after the period of three months starting with the date on which P takes the relevant step, and

(b) as at the end of the final award date, any of the earmarked shares continue to be held by or on behalf of P solely on the basis mentioned in subsection (3)(a).

(5) This Part has effect as if a relevant step within section 554B were taken at the end of the final award date—

(a) the subject of which is—

(i) the shares which continue to be held as mentioned in subsection (4)(b), and

(ii) any relevant income in relation to those shares (see subsection (13)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(6) Subsection (7) applies if, at any time (“the relevant time”)—

(a) any of the earmarked shares cease to be held by or on behalf of P solely on the basis mentioned in subsection (3)(a), but

(b) the shares continue to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

(7) This Part has effect as if a relevant step within section 554B were taken at the relevant time—

(a) the subject of which is—

(i) the shares mentioned in subsection (6), and

(ii) any relevant income in relation to those shares (see subsection (13)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(8) Subsection (9) applies if—

(a) the relevant step mentioned in subsection (3) is taken in relation to an award which has been made as mentioned in subsection (3)(a)(i), or

(b) the relevant step mentioned in subsection (3) is taken in relation to an expected award as mentioned in subsection (3)(a)(ii) and the award is made before the end of the final award date.

(9) This Part has effect as if a relevant step within section 554B were taken at the end of the vesting date—

(a) the subject of which is—

(i) any of the earmarked shares to which none of subsections (10) to (12) applies, and

(ii) any relevant income in relation to any of the earmarked shares mentioned in sub-paragraph (i) (see subsection (13)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(10) This subsection applies to any earmarked shares if—

(a) A receives the shares before the end of the vesting date, and

(b) the receipt of the shares by A gives rise to employment income of A which is chargeable to income tax or which is exempt income.

(11) This subsection applies to any earmarked shares if—

(a) the sum of money mentioned in subsection (1)(a)(ii) (or a part of it) is paid to A before the end of the vesting date,

(b) the payment of the sum to A gives rise to employment income of A which is chargeable to income tax or which is exempt income, and

(c) the payment represents the proceeds of the disposal of the shares, or the payment is made from another source and, correspondingly, the shares are no longer held by any person in relation to the award.

(12) This subsection applies to any earmarked shares if—

(a) before the end of the vesting date, the award (or any part of it) is revoked in accordance with the deferred award terms, and

(b) correspondingly, the shares are no longer held by any person in relation to the award.

(13) In subsections (5)(a)(ii), (7)(a)(ii) and (9)(a)(ii) “relevant income”, in relation to any earmarked shares, means any income—

(a) which, before the relevant step is treated as being taken by subsection (5), (7) or (9) (as the case may be)—

(i) arises (directly or indirectly) from the shares, and

(ii) is the subject of a relevant step within section 554B taken by P by reason of which Chapter 2 would apply apart from section 554Q, and

(b) which, at the time the relevant step is treated as being taken, continues to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

554K

(1) This section applies if—

(a) there is an arrangement (“B's employee share scheme”) under which, in respect of A's employment with B, an award may be made to A of—

(i) relevant shares, or

(ii) a sum of money the amount of which is to be determined by reference to the market value of any relevant shares at the time the sum is to be paid,

(b) the main purpose of the award would not be the provision of relevant benefits,

(i) shares (including stock) in, or

(ii) instruments within paragraph (b) of the definition of “relevant shares” in section 554I(4) issued by,

a trading company or a company which controls a trading company,

(d) the award would be on terms the main purpose of which is to ensure—

(i) that the relevant shares are received, or

(ii) that the sum of money is paid,

only if a specified exit event, or an exit event within a specified description, occurs, and

(e) as at the time the award is made, there would be a reasonable chance that the specified exit event, or an exit event within the specified description, will occur.

(2) Chapter 2 does not apply by reason of a relevant step within section 554B (by reason of which it would otherwise apply) taken by a person (“P”) if—

(a) the subject of the relevant step is relevant shares (“earmarked shares”) which are earmarked, or otherwise start being held, solely with a view to the meeting of—

(i) an award of relevant shares or a sum of money made to A under B's employee share scheme as mentioned in subsection (1)(a) in relation to which the requirements of subsection (1)(b) to (e) are met, or

(ii) an award of relevant shares or a sum of money which is expected to be made to A under B's employee share scheme as mentioned in subsection (1)(a) and in relation to which the requirements of subsection (1)(b) to (e) would be met,

(b) the number of relevant shares of any type which are earmarked shares does not exceed the maximum number of relevant shares of that type which might reasonably be expected to be needed for meeting the award or expected award, and

(3) If the relevant step mentioned in subsection (2) is taken in relation to an expected award as mentioned in subsection (2)(a)(ii), subsection (4) applies if—

(a) the award is not made before the end of the date (“the final award date”) falling immediately after the period of three months starting with the date on which P takes the relevant step, and

(b) as at the end of the final award date, any of the earmarked shares continue to be held by or on behalf of P solely on the basis mentioned in subsection (2)(a).

(4) This Part has effect as if a relevant step within section 554B were taken at the end of the final award date—

(a) the subject of which is—

(i) the shares which continue to be held as mentioned in subsection (3)(b), and

(ii) any relevant income in relation to those shares (see subsection (12)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(5) Subsection (6) applies if, at any time (“the relevant time”)—

(a) any of the earmarked shares cease to be held by or on behalf of P solely on the basis mentioned in subsection (2)(a), but

(b) the shares continue to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

(6) This Part has effect as if a relevant step within section 554B were taken at the relevant time—

(a) the subject of which is—

(i) the shares mentioned in subsection (5), and

(ii) any relevant income in relation to those shares (see subsection (12)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(7) Subsection (8) applies if—

(a) the relevant step mentioned in subsection (2) is taken in relation to an award which has been made as mentioned in subsection (2)(a)(i), or

(b) the relevant step mentioned in subsection (2) is taken in relation to an expected award as mentioned in subsection (2)(a)(ii) and the award is made before the end of the final award date,

and the specified exit event, or an exit event within the specified description, occurs.

(8) This Part has effect as if a relevant step within section 554B were taken at the end of the exit period—

(a) the subject of which is—

(i) any of the earmarked shares to which neither subsection (9) nor subsection (10) applies, and

(ii) any relevant income in relation to any of the earmarked shares mentioned in sub-paragraph (i) (see subsection (12)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(9) This subsection applies to any earmarked shares if—

(a) A receives the shares before the end of the exit period, and

(b) the receipt of the shares by A gives rise to employment income of A which is chargeable to income tax or which is exempt income.

(10) This subsection applies to any earmarked shares if—

(a) the sum of money mentioned in subsection (1)(a)(ii) (or a part of it) is paid to A before the end of the exit period,

(b) the payment of the sum to A gives rise to employment income of A which is chargeable to income tax or which is exempt income, and

(c) the payment represents the proceeds of the disposal of the shares, or the payment is made from another source and, correspondingly, the shares are no longer held by any person in relation to the award.

(11) In subsections (8), (9)(a) and (10)(a) “the exit period” means the period of six months starting with the date on which the exit event occurs.

(12) In subsections (4)(a)(ii), (6)(a)(ii) and (8)(a)(ii) “relevant income”, in relation to any earmarked shares, means any income—

(a) which, before the relevant step is treated as being taken by subsection (4), (6) or (8) (as the case may be)—

(i) arises (directly or indirectly) from the shares, and

(ii) is the subject of a relevant step within section 554B taken by P by reason of which Chapter 2 would apply apart from section 554Q, and

(b) which, at the time the relevant step is treated as being taken, continues to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

554L

(1) This section applies if—

(a) there is an arrangement (“B's employee share scheme”) under which, in respect of A's employment with B, a right (“a relevant share option”) may be granted to A—

(i) to acquire relevant shares, or

(ii) to receive a sum of money the amount of which is to be determined by reference to the market value of any relevant shares at the time the sum is to be paid,

(b) the main purpose of the grant of the relevant share option would not be the provision of relevant benefits,

(c) the grant would be made on terms (“the deferred grant terms”) the main purpose of which is to ensure that the relevant share option is not exercisable by A before a specified date (“the vesting date”) which is after the date (“the grant date”) on which the grant is made, while providing that the relevant share option is not to be exercisable at all by A if specified conditions are not met on or before the vesting date,

(d) the vesting date would not be more than ten years after the grant date, and

(e) as at the grant date, there would be a reasonable chance that the relevant share option will not be exercisable at all by A because not all the specified conditions will be met on or before the vesting date.

(2) In addition to the provision relating to revocation required by subsection (1)(c) (which must be included), the deferred grant terms may also provide that the relevant share option may be exercised by A only in part if specified conditions are not met on or before the vesting date.

(3) Chapter 2 does not apply by reason of a relevant step within section 554B (by reason of which it would otherwise apply) taken by a person (“P”) if—

(a) the subject of the relevant step is relevant shares (“earmarked shares”) which are earmarked, or otherwise start being held, solely with a view to providing relevant shares, or paying a sum of money, pursuant to—

(i) a relevant share option granted to A under B's employee share scheme as mentioned in subsection (1)(a) in relation to which the requirements of subsection (1)(b) to (e) are met, or

(ii) a relevant share option which is expected to be granted to A under B's employee share scheme as mentioned in subsection (1)(a) and in relation to which the requirements of subsection (1)(b) to (e) would be met,

(b) the number of relevant shares of any type which are earmarked shares does not exceed the maximum number of relevant shares of that type which might reasonably be expected to be needed for providing shares, or paying a sum of money, pursuant to the relevant share option which is granted or expected to be granted, and

(4) If the relevant step mentioned in subsection (3) is taken in relation to an expected grant of a relevant share option as mentioned in subsection (3)(a)(ii), subsection (5) applies if—

(a) the grant is not made before the end of the date (“the final grant date”) falling immediately after the period of three months starting with the date on which P takes the relevant step, and

(b) as at the end of the final grant date, any of the earmarked shares continue to be held by or on behalf of P solely on the basis mentioned in subsection (3)(a).

(5) This Part has effect as if a relevant step within section 554B were taken at the end of the final grant date—

(a) the subject of which is—

(i) the shares which continue to be held as mentioned in subsection (4)(b), and

(ii) any relevant income in relation to those shares (see subsection (15)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(6) Subsection (7) applies if, at any time (“the relevant time”)—

(a) any of the earmarked shares cease to be held by or on behalf of P solely on the basis mentioned in subsection (3)(a), but

(b) the shares continue to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

(7) This Part has effect as if a relevant step within section 554B were taken at the relevant time—

(a) the subject of which is—

(i) the shares mentioned in subsection (6), and

(ii) any relevant income in relation to those shares (see subsection (15)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(8) Subsection (9) applies if—

(a) the relevant step mentioned in subsection (3) is taken in relation to a grant of a relevant share option made as mentioned in subsection (3)(a)(i), or

(b) the relevant step mentioned in subsection (3) is taken in relation to an expected grant of a relevant share option as mentioned in subsection (3)(a)(ii) and the grant is made before the end of the final grant date.

(9) This Part has effect as if a relevant step within section 554B were taken at the end of the final exercise date—

(a) the subject of which is—

(i) any of the earmarked shares to which none of subsections (10) to (13) applies, and

(ii) any relevant income in relation to any of the earmarked shares mentioned in sub-paragraph (i) (see subsection (15)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(10) This subsection applies to any earmarked shares if—

(a) the relevant share option becomes exercisable (in whole or in part) by A before the end of the vesting date,

(b) A exercises the option (wholly or partly) before the end of the final exercise date and, as a result, receives the shares, and

(i) which is chargeable to income tax or would be chargeable apart from Chapter 5B of Part 2, or

(ii) which is exempt income.

(11) This subsection applies to any earmarked shares if—

(a) the relevant share option becomes exercisable (in whole or in part) by A before the end of the vesting date,

(b) A exercises the option (wholly or partly) before the end of the final exercise date and, as a result, a sum of money is paid to A as mentioned in subsection (1)(a)(ii),

(i) which is chargeable to income tax or would be chargeable apart from section 474, or

(ii) which is exempt income, and

(d) the payment represents the proceeds of the disposal of the shares, or the payment is made from another source and, correspondingly, the shares are no longer held by any person in relation to the relevant share option.

(12) This subsection applies to any earmarked shares if—

(a) in accordance with the deferred grant terms, before the end of the vesting date, the relevant share option ceases to be exercisable by A (in whole or in part), and

(b) correspondingly, the shares are no longer held by any person in relation to the relevant share option.

(13) This subsection applies to any earmarked shares if—

(a) the relevant share option becomes exercisable by A (in whole or in part) before the end of the vesting date but the option lapses (in whole or in part) before the end of the final exercise date, and

(b) correspondingly, the shares are no longer held by any person in relation to the relevant share option.

(14) In subsections (9) to (13) “the final exercise date” means the date which is ten years after the grant date.

(15) In subsections (5)(a)(ii), (7)(a)(ii) and (9)(a)(ii) “relevant income”, in relation to any earmarked shares, means any income—

(a) which, before the relevant step is treated as being taken by subsection (5), (7) or (9) (as the case may be)—

(i) arises (directly or indirectly) from the shares, and

(ii) is the subject of a relevant step within section 554B taken by P by reason of which Chapter 2 would apply apart from section 554Q, and

(b) which, at the time the relevant step is treated as being taken, continues to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

554M

(1) This section applies if—

(a) there is an arrangement (“B's employee share scheme”) under which, in respect of A's employment with B, a right (“a relevant share option”) may be granted to A—

(i) to acquire relevant shares, or

(ii) to receive a sum of money the amount of which is to be determined by reference to the market value of any relevant shares at the time the sum is to be paid,

(b) the main purpose of the grant of the relevant share option would not be the provision of relevant benefits,

(i) shares (including stock) in, or

(ii) instruments within paragraph (b) of the definition of “relevant shares” in section 554I(4) issued by,

a trading company or a company which controls a trading company,

(d) the grant would be made on terms (“the deferred grant terms”) the main purpose of which is to ensure that the relevant share option is exercisable by A only if a specified exit event, or an exit event within a specified description, occurs, and

(e) as at the time the grant is made, there would be a reasonable chance that the specified exit event, or an exit event within the specified description, will occur.

(2) Chapter 2 does not apply by reason of a relevant step within section 554B (by reason of which it would otherwise apply) taken by a person (“P”) if—

(a) the subject of the relevant step is relevant shares (“earmarked shares”) which are earmarked, or otherwise start being held, solely with a view to providing relevant shares, or paying a sum of money, pursuant to—

(i) a relevant share option granted to A under B's employee share scheme as mentioned in subsection (1)(a) in relation to which the requirements of subsection (1)(b) to (e) are met, or

(ii) a relevant share option which is expected to be granted to A under B's employee share scheme as mentioned in subsection (1)(a) and in relation to which the requirements of subsection (1)(b) to (e) would be met,

(b) the number of relevant shares of any type which are earmarked shares does not exceed the maximum number of relevant shares of that type which might reasonably be expected to be needed for providing shares, or paying a sum of money, pursuant to the relevant share option which is granted or expected to be granted, and

(3) If the relevant step mentioned in subsection (2) is taken in relation to an expected grant of a relevant share option as mentioned in subsection (2)(a)(ii), subsection (4) applies if—

(a) the grant is not made before the end of the date (“the final grant date”) falling immediately after the period of three months starting with the date on which P takes the relevant step, and

(b) as at the end of the final grant date, any of the earmarked shares continue to be held by or on behalf of P solely on the basis mentioned in subsection (2)(a).

(4) This Part has effect as if a relevant step within section 554B were taken at the end of the final grant date—

(a) the subject of which is—

(i) the shares which continue to be held as mentioned in subsection (3)(b), and

(ii) any relevant income in relation to those shares (see subsection (14)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(5) Subsection (6) applies if, at any time (“the relevant time”)—

(a) any of the earmarked shares cease to be held by or on behalf of P solely on the basis mentioned in subsection (2)(a), but

(b) the shares continue to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

(6) This Part has effect as if a relevant step within section 554B were taken at the relevant time—

(a) the subject of which is—

(i) the shares mentioned in subsection (5), and

(ii) any relevant income in relation to those shares (see subsection (14)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(7) Subsection (8) applies if—

(a) the relevant step mentioned in subsection (2) is taken in relation to a grant of a relevant share option made as mentioned in subsection (2)(a)(i), or

(b) the relevant step mentioned in subsection (2) is taken in relation to an expected grant of a relevant share option as mentioned in subsection (2)(a)(ii) and the grant is made before the end of the final grant date,

and the specified exit event, or an exit event within the specified description, occurs.

(8) This Part has effect as if a relevant step within section 554B were taken at the end of the exit period—

(a) the subject of which is—

(i) any of the earmarked shares to which none of subsections (9) to (11) applies, and

(ii) any relevant income in relation to any of the earmarked shares mentioned in sub-paragraph (i) (see subsection (14)), and

(b) by reason of which Chapter 2 is to apply (subject only to section 554A(4)).

(9) This subsection applies to any earmarked shares if—

(a) A exercises the relevant share option (wholly or partly) before the end of the exit period and, as a result, receives the shares, and

(b) the receipt of the shares gives rise to employment income of A—

(i) which is chargeable to income tax or would be chargeable apart from Chapter 5B of Part 2, or

(ii) which is exempt income.

(10) This subsection applies to any earmarked shares if—

(a) A exercises the relevant share option (wholly or partly) before the end of the exit period and, as a result, a sum of money is paid to A as mentioned in subsection (1)(a)(ii),

(b) the payment of the sum gives rise to employment income of A—

(i) which is chargeable to income tax or would be chargeable apart from Chapter 5B of Part 2, or

(ii) which is exempt income, and

(c) the payment represents the proceeds of the disposal of the shares, or the payment is made from another source and, correspondingly, the shares are no longer held by any person in relation to the relevant share option.

(11) This subsection applies to any earmarked shares if—

(a) the relevant share option becomes exercisable by A before the end of the exit period but the option lapses (in whole or in part) at or before the end of that period, and

(b) correspondingly, the shares are no longer held by any person in relation to the relevant share option.

(12) In subsections (8), (9)(a), (10)(a) and (11)(a) “the exit period” means—

(a) the period of six months starting with the date on which the exit event occurs, or

(b) if it ends earlier, the period during which the relevant share option is exercisable by A in accordance with the deferred grant terms.

(13) If the exit event is an event within section 554I(6)(a), in subsection (12)(a) the reference to six months is to be read as a reference to five years.

(14) In subsections (4)(a)(ii), (6)(a)(ii) and (8)(a)(ii) “relevant income”, in relation to any earmarked shares, means any income—

(a) which, before the relevant step is treated as being taken by subsection (4), (6) or (8) (as the case may be)—

(i) arises (directly or indirectly) from the shares, and

(ii) is the subject of a relevant step within section 554B taken by P by reason of which Chapter 2 would apply apart from section 554Q, and

(b) which, at the time the relevant step is treated as being taken, continues to be held by or on behalf of P on the basis mentioned in section 554B(1)(a) or (b).

554N

(1) Chapter 2 does not apply by reason of a relevant step the subject of which is employment-related securities if—

(a) by virtue of the step, the securities are acquired by a person, and

(b) section 425(2) applies... to the acquisition.

(2) Chapter 2 does not apply by reason of a relevant step the subject of which is an employment-related securities option if—

(a) by virtue of the step, the option is acquired by a person, and

(b) section 475(1) applies... to the acquisition.

(3) Terms used in subsection (1) or (2) have the same meaning as they have in Chapter 2 or 5 of Part 7 (as the case may be).

(4) Chapter 2 does not apply by reason of an event within subsection (5) if by virtue of the event an amount counts as employment income of A in respect of A's employment with B.

(5) The events within this subsection are—

(a) a chargeable event for the purposes of section 426, 438 or 476,

(b) an event which gives rise to the discharge of a notional loan for the purposes of section 446U, or

(6) Chapter 2 does not apply by reason of an event to which subsection (4) would apply apart from section 421B(6), ... 429, 430A(5)(b), 443... or 477(2) or apart from an election under section 430 or 431.

(7) Subsection (11) applies if there is an acquisition of an asset within section 554C(4)(a) or (b) (“the relevant asset”) and—

(a) relevant consideration is given by A for the relevant asset of an amount equal to or greater than the market value of the relevant asset at the time of the acquisition, or

(b) ignoring any relevant consideration given for the relevant asset, the acquisition gives rise (or would give rise) to earnings of A within Chapter 1 of Part 3 , or an amount treated under section 226A as earnings of A, from A's employment with B—

(i) the amount of which is equal to or greater than the market value of the relevant asset at the time of the acquisition, and

(ii) which are not exempt income.

(8) In subsection (7) “relevant consideration”—

(a) means consideration—

(i) which is given before, or at or about, the time of the acquisition, and

(ii) which is money or money's worth, but

(b) does not include—

(i) a promise to do anything, or

(ii) the performance of any duties of, or in connection with, an employment.

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Income Tax (Earnings and Pensions) Act 2003

Excluded activities: shipbuilding

20A

Excluded activities: producing coal

20B

Excluded activities: producing steel

20C

395A

105A

105B

Definitions of “C” and “I” for the purposes of section 24A(14)

124A

Scope of this Chapter

Health-screening and medical check-ups

320B

Related employments

556A

Case outside this Chapter

Taxable amount under Chapter 4

Meaning of “intellectual property” and “transfer”

173A

290A

290B

293A

Case outside this Chapter

Associated persons

The UK permanent establishment requirement

14A

413A

270B

304A

318AA

Monitoring schemes

326A

“Convertible securities”

Part 7A — Employment income provided through third parties

CHAPTER 1 — Application etc

Application: main case

554A

Relevant steps

554B

554C

554D

Exclusions

554E

554F

554G

554H

554I

554J

554K

554L

554M

554N