Income Tax (Earnings and Pensions) Act 2003

700 PAYE: gains from share options

(1) This section applies if—

(a) a gain is realised by the exercise, assignment or release of a right to acquire shares, and

(b) as a result, an amount is chargeable on any person (“the relevant person”) by virtue of section 476 or 477 (charge on exercise etc. of share option).

(2) In the case of the exercise of a right to acquire shares, section 696 has effect as if the relevant person were being provided with PAYE income in the form of the shares—

(a) at the time the relevant person acquires the shares in the exercise of the right, and

(b) in respect of the employment because of which the relevant person was granted the right.

(3) In the case of the assignment or release of a right to acquire shares, sections 684 to 691 and 696 have effect—

(a) in so far as the consideration for the assignment or release takes the form of a payment, as if so much of that payment as does not exceed—

(i) the relevant proportion of the amount chargeable by virtue of section 476 or 477 in respect of the assignment or release of the right, less

(ii) the amount of any relief likely to be available under section 481 (deductible amount in respect of secondary Class 1 contributions met by employee),

were a payment of PAYE income of the relevant person; and

(b) in so far as that consideration consists in the provision of an asset, as if the provision of the asset were the provision of PAYE income in the form of the asset—

(i) to the relevant person, and

(ii) in respect of the employment because of which the relevant person was granted the right.

(4) Section 696 as applied by subsection (2) or (3) has effect as if the reference in subsection (2) of that section to the amount of income likely to be PAYE income in respect of the provision of the asset were a reference to—

(a) the relevant proportion of the amount chargeable by virtue of section 476 or 477 in respect of the exercise, assignment or release of the right, less

(b) the amount of any relief likely to be available under section 481.

(5) PAYE regulations may make provision for excluding payments from the scope of subsection (3)(a) in such circumstances as may be specified in the regulations.

(6) In this section—

• “asset” includes anything to which subsection (7) applies;

• “the relevant proportion” means the proportion that so much of the consideration as takes the form of a payment, or (as the case may be) consists in the provision of an asset, bears to the whole consideration;

and anything to which subsection (7) applies is treated as a readily convertible asset for the purposes of section 696 as applied by subsection (3)(b) or (4).

(7) This subsection applies to—

(a) any cash voucher;

(b) any non-cash voucher —

(i) which is capable of being exchanged for anything which, if provided to the employee at the time when the voucher is received, would fall to be regarded as a readily convertible asset, or

(ii) which (but for section 701(2)(b)) would fall itself to be regarded as a readily convertible asset; and

(c) any credit-token which is capable of being used to obtain—

(i) money, or

(ii) anything which, if provided to the employee at the time when the token is used, would fall to be regarded as a readily convertible asset.

(8) Expressions used in this section and section 476 or 477 have the same meanings in this section as in that section.