Introduction Details of the Schedule New section 226D of ITEPA: Shareholder or connected person having material interest in company
19.New section 226D of ITEPA prevents an employee shareholder benefiting from the deemed payment set out in new section 226B of ITEPA where they, or persons connected with them, have a material interest in their employer or a parent of their employer; or have had such a material interest at any time in the 12 months prior to the acquisition of the employee shareholder shares. New subsections (1) and (2) set out this condition.
20.New subsections (4) and (5) define a material interest for the purposes of this condition. New subsection (4) provides that an individual has a material interest in a company if at least 25 per cent of the voting rights in that company are exercisable by that individual, by persons connected with that individual, or by the individual and persons connected with them together. New subsection (5) provides that in the case of a close company, an individual has a material interest if, in any circumstances, at least 25 per cent of the net assets of the company would be available for distribution to that individual, persons connected with that individual, or the individual and persons connected with them together.
21.New subsection (7) provides that for the purposes of this condition, an individual has a material interest in a company if they, or persons connected with them, have an entitlement to acquire rights that would give them a material interest in the company. This also applies where an individual and any connected persons together have such an entitlement.
22.New subsection (8) provides that for the purposes of this condition, an individual has a material interest in a company if there are arrangements in place that would enable them, or persons connected with them, to acquire such an interest. This also applies where such arrangements would enable an individual and any connected persons together to acquire a material interest in a company.
23.Paragraphs 4 to 11 and paragraph 15 of the Schedule make amendments to various provisions of ITEPA to take into account employee shareholder shares and ensure that, where relevant, amounts treated as earnings under new section 226A of ITEPA are treated in the same way as other earnings from the employment.
24.Paragraph 12 amends section 479 of ITEPA to make clear that when calculating tax chargeable in relation to employee shareholder shares acquired pursuant to an employment-related securities option, the £2,000 payment deemed to have been made by the employee shareholder under new section 226B of ITEPA is regarded as the amount of consideration given for the shares, subject to the restrictions set out at new sections 226C and 226D of ITEPA.
25.Paragraphs 13 and 14 make clear that this is also the case in relation to employee shareholder shares acquired pursuant to a share option granted under the Enterprise Management Incentives tax advantaged employee share scheme, for which special rules apply when calculating any amounts of tax to be charged.
26.Paragraph 16 introduces new section 385A of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA).