Grant of share option was not employment related

The taxpayer produced software for the fund management sector. In 2006 it granted N share options as part of an equity raising exercise. At that time N’s company Quest was providing advisory services to the taxpayer. The options were ‘effectively payment for services which had been provided in the process of the fundraising exercise’ instead of a fee. In 2007 it became clear that the taxpayer was in financial difficulty the 2006 option agreements were novated and fresh less valuable options issued to N. In economic terms this meant that the original options were diluted. N was appointed its chairman.

The issue was whether the 2007 option granted when N was already appointed as a director of the taxpayer was an employment-related securities option within ITEPA 2003 s 471(3). 

The First-tier Tribunal noted that the terms of N’s appointment as director were set...