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EIM45395 | Employment income provided through third parties: exclusions: earmarking for employee share schemes: specified exit events: Section 554K exclusion for expected awards: fall-back charge if award is delayed

From HM Revenue & Customs · Employment Income Manual

Section 554K(3) and (4) ITEPA 2003

A fall-back charge may apply if a relevant step comes within the Section 554K exclusion for expected awards but the award is delayed.

It makes no difference whether the award is of relevant shares or of a sum of money calculated by reference to the market value of relevant shares.

Conditions

Section 554K(3) states when this fall-back charge applies.

  • 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.

  • Broadly speaking, earmarked shares are still held with a view to the meeting of an award within one of the Section 554K exclusions. More precisely as at the end of the final award date, any of the earmarked shares continue to be held by or on behalf of the relevant third person solely with a view to the meeting of an award of relevant shares or a sum of money (calculated by reference to the market value of relevant shares) which meets one of two alternative conditions.

  • The first condition is that this award is to be made to A as mentioned in Section 554K(1)(a) and is to meet the requirements of Section 554K(1)(b) to (e).

  • The second condition is that this award is expected to be made to A as mentioned in Section 554K(1)(a) and, if this award is made, it will meet the requirements of Section 554K(1)(b) to (e).

On Section 554K(1)(a) to (e), see EIM45385.

The fall-back charge

Section 554K(4) deems a relevant step to be taken with the following features.

  • The relevant step is within Section 554B.

  • It is taken at the end of the final award date.

  • The subject of the relevant step is:

  • the shares which continue to be held as discussed above, and

  • any ‘relevant income’ in relation to those shares. See EIM45475.

  • The relevant step gives rise to Part 7A income.

The relevant step gives rise to Part 7A income subject to the exclusion in Section 554A(4) (see EIM45095) and any relevant reliefs.