Options not exercised

The taxpayer was made redundant in December 2007. She had been granted four company share options during her employment.

The employer had not complied with its reporting obligations and the taxpayer accepted a payment of £14 692 in settlement of her option rights. The employer operated PAYE on the sum.

The taxpayer claimed the payment produced the same outcome as if she had exercised her options in the normal way and should therefore be treated the same way: not subject to tax as stated in HMRC’s January 2008 guidance Approved Company Securities Option Plans.

HMRC disagreed saying the payment a chargeable event within ITEPA 2003 s 477 and was liable to tax.

The First-tier Tribunal called the Revenue’s guidance “as illiterate and as potentially misleading as any official publication that we have come across” but said the payment was taxable under s 477.

The taxpayer had...