Prior to Finance Act 2003, the test as to whether the legislation could charge gains to Income Tax, as opposed to CGT, was usually whether the shares or other securities were acquired ‘by reason of employment’. This factual test made it very easy for directors to claim that their shares were ‘founders’ shares' and not acquired by reason of their employment and in that way to take employment reward associated with those shares out of the charge to Income Tax and NICs. To prevent this, Finance Act 2003 introduced a deeming provision based on the one that existed for the notional loans and stop-loss legislation in the old ICTA88/S162 (Chapters 8 and Part 3 ITEPA 2003).

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