The Social Security (Contributions) (Amendment No. 3) Regulations 2003

Amendment of the principal Regulations

4.—(1) Amend Part 9 of Schedule 3 (share incentives to be disregarded in the computation of earnings)(1) as follows.

(2) In paragraph 16 (exercise, assignment or release of options acquired before 6th April 1999)—

(a)in sub-paragraph (1) for the words from “chargeable to tax under Schedule E by virtue of section 135 of the Taxes Act” to the end substitute—

• “chargeable to tax as employment income by virtue of section 476 or section 477 of the Income Tax (Earnings and Pensions) Act 2003(2).

• A payment is not disregarded by virtue of this paragraph if—

  (a)

  each of the conditions in sub-paragraphs (2) to (5) is met; or

  (b)

  paragraph 17 applies to it.”; and

(b)in sub-paragraph (4) for “section 136(1) of the Taxes Act” substitute “section 485 of the Income Tax (Earnings and Pensions) Act 2003”.

(3) At the end of Part 9 add—

“Payments resulting from exercise, assignment or release of options which are not disregarded by virtue of paragraph 16

17.—(1) This paragraph applies to a payment—

(a)made on or after 10th April 2003, and

(b)which would otherwise fall to be disregarded by virtue of paragraph 16 of this Part,

where the market value of the shares has been increased by more than 10% by things done, on or after 6th April 1999, otherwise than for genuine commercial purposes.

(2) For the purposes of sub-paragraph (1) “the shares” includes—

(a)the shares subject to the right currently being exercised; and

(b)where the right to acquire shares held on 6th April 1999 has been replaced by a subsequent right, includes the shares subject to the replacement right and any subsequent replacement right.

(3) The following are among the things that are, for the purposes of this paragraph, done otherwise than for genuine commercial purposes—

(a)anything done as part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax or of contributions under the Act; and

(b)any transaction between companies which, at the time of the transaction, are members of the same group on terms which are not such as might be expected to be agreed between persons acting at arm’s length.

(4) But sub-paragraph (3)(b) does not apply to a payment for group relief within the meaning given in section 402(6) of the Taxes Act(3).

(5) In sub-paragraph (3)(b) “group” means a body corporate and its 51% subsidiaries (within the meaning of section 838 of the Taxes Act), and other expressions used in this paragraph which are defined in, or for the purposes of, paragraph 16 have the same meaning here as they have in that paragraph.”.