Grant of option was not employment related

In 2006 the taxpayer granted N share options as part of an equity raising exercise. These were in effect payment for advisory services instead of a fee. In 2007 the taxpayer was in financial difficulty so the 2006 option agreements were novated and new less valuable options issued to N who was appointed its chairman.

The issue was whether the 2007 option was an employment-related securities option within ITEPA 2003 s 471 – as contended by HMRC.

Allowing the taxpayer’s appeal the First-tier Tribunal found an option granted to a company’s director was not an employment-related securities option. However the Upper Tribunal disagreed saying it was an employment-related securities option. The taxpayer appealed.

Lord Malcolm in the Court of Session said the statutory provisions should be applied in ‘a purposive fashion and adopting a realistic view of the facts’. The company did not grant...