Debevoise & Plimpton LLP
5 Experts
19 Contributions by Debevoise & Plimpton LLP Experts
PRACTICE NOTES
The aim of this Practice Note is to outline the principal age discrimination issues that may emerge when designing and running different kinds of employee share schemes. It covers the core rules on direct and indirect age discrimination, highlights possible exemptions and justifications, and considers particular age-related points that can arise with employee share schemes. The emphasis is on how arrangements are structured and administered, viewed through the lens of age-related risks. It does so without straying beyond the share scheme context.
Age discrimination—the basic principles
The Equality Act 2010 (EqA 2010) provides the legal framework governing age (as well as other forms of) discrimination. In essence, two types of unlawful age discrimination are relevant: direct discrimination and indirect discrimination. There are also distinct notions of harassment linked to age and victimisation connected to age discrimination; however, these are unlikely to be pertinent to
Share Incentives
PRACTICE NOTES
What is a captive?
Captive insurance is a self-insurance approach. A captive insurance company, put simply, is an insurer or reinsurer owned by the ultimate policyholder (or reinsurance policyholder) whose exposures it covers. As a regulated (re)insurer in its home jurisdiction, a captive can accept risks like any other market participant; however, its defining feature is that it writes risks arising solely or largely from its corporate owner or within its wider group. HM Treasury notes that, in 2021, there were about 7000 captives worldwide, with premiums of roughly US$69bn.
Captive arrangements span the spectrum from straightforward to highly intricate.
The most basic model is a single company owning a single captive to which it insures its risks.
More layered designs may see risks ceded to a fronting insurer (typically an independent third party) and then reinsured back to the
Insurance & Reinsurance
PRACTICE NOTES
STOP PRESS: Abolition of non-dom regime and remittance basis of taxation from 2025–26 : Finance Act 2025 abolished the remittance basis of taxation and replaced it with a residence-based regime from 6 April 2025
The reforms bring in a new Foreign Income and Gains (FIG) regime and revise the rules governing overseas workday relief. For further detail on these measures, refer to Practice Note: The abolition of the remittance basis of taxation from 2025–26.
The foreign service exemption is, in essence, an income tax relief for termination payments where both of the following are met:
the employee performed all or part of their employment overseas (described in the legislation as ‘foreign service’), and
the employee is not UK resident in the tax year in which their employment ends
This second condition applies to terminations taking place on or after 6 April 2018. Before that date, the
Tax
PRACTICE NOTES
From 6 April 2017, the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (the Regulations), SI 2017/172, came into effect. Under these Regulations, SI 2017/172, large private and voluntary sector employers—those with 250 or more employees on 5 April each year—must publicly disclose certain gender pay gap data for relevant employees. This Practice Note examines how pay and benefits delivered through various employee share plans are treated for gender pay gap reporting and, in particular, how such plans are considered when assessing bonus pay and the gender bonus gap...
Gender pay gap reporting—basic principles
The Regulations, SI 2017/172 apply to all relevant employers. Relevant employers are private and voluntary sector employers with 250 or more employees as at 5 April each year. The term ‘relevant employer’ is defined as an employer with more than 250 employees on the relevant snapshot date of 5 April each year, but the
Share Incentives
PRACTICE NOTES
What is a Micklefield clause?
It is now typical for employee share schemes to state that, when employment ends (or when an employee gives or is given notice of termination), any outstanding share awards are forfeited and any outstanding share options lapse. It is likewise increasingly standard for these schemes (and at times employment contracts) to include provisions by which the employee agrees to waive any entitlement to compensation for the loss of those awards on termination of employment. Such provisions are commonly called Micklefield clauses, taking their name from the leading authority on their effectiveness, Micklefield v SAC Technology Limited. More and more, these clauses are also framed to seek to preclude claims an employee might otherwise pursue alleging an unlawful exercise of discretions by the company under the employee share plan, and are deliberately drafted to capture attempts to challenge the way such
Share Incentives
PRACTICE NOTES
The tax treatment of payments in lieu of notice (PILONs)
Significant changes to sections 402–404 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) took effect on 6 April 2018. In essence, every PILON—whether made under an express or implied contractual PILON clause or made without any such provision—is now fully taxable and liable to both employee and employer National Insurance contributions (NICs). This position is delivered through a requirement for employers to perform a post-employment notice pay (PENP) calculation. As set out below, that calculation enables employers to determine which portion of a termination payment falls within the tax charge. Consequently, the pre‑2018 distinction between PILONs paid under a contractual PILON clause (previously wholly taxable) and PILONs not paid under a contractual provision (which could access the £30,000 tax exemption and were entirely outside NICs) no longer applies, save for
Tax
PRACTICE NOTES
Redundancy
Redundancy is among the five routes by which an employer may unilaterally bring an employment contract to an end, in circumstances where that termination may constitute a potentially fair dismissal.
The other four potentially fair grounds for dismissal are:
the employee lacks the capability to perform the role
the employee’s conduct renders continued employment untenable
the employee cannot remain in the post without breaching a legal restriction
the residual category of ‘some other substantial reason’
Section 309 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) provides that, save for earnings, no charge to income tax on employment income arises by reason of a redundancy payment or an approved contractual payment, except to the extent that Chapter 3 of Part 6 (payments and benefits on termination of employment, etc) applies...
Tax
PRACTICE NOTES
Certain sums paid when an employment or office ends can be received free of tax. In practice, many of these reliefs are easily overlooked. A termination payment may escape tax because it fits within the £30,000 exemption, because the whole amount is specifically relieved by statute, or because it is not regarded as employment income at all.
These reliefs apply only to payments that would otherwise be taxable as termination payments within section 401 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). They do not extend to amounts chargeable under other provisions as earnings, benefits, payments for restrictive covenants, or sums from an employer financed retirement benefits scheme, as those other charging rules (ITEPA 2003, ss 62, 63–214, 225 and 394) take precedence—see Practice Note: Termination payments and tax. Those statutory charging rules in ITEPA 2003, ss 62, 63–214, 225 and 394
Tax
PRACTICE NOTES
Practice Note: Termination payments taxed as earnings
The starting point for any termination payment or benefit is to determine whether, on basic principles, it is chargeable as earnings or an emolument of an office or employment under section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). That issue must be decided before looking at any other charging provisions. For the principles to apply when deciding if a payment linked to the termination of an office or employment is taxable as earnings (or emoluments) under ITEPA 2003, s 62, see Practice Note: Termination payments taxed as earnings. This Practice Note concentrates on the specific deeming rules in ITEPA 2003, Part 6, Chapter 3, which subject to income tax payments and benefits on the termination of, or a change in the duties or functions of, an office or employment that are not
Tax
PRACTICE NOTES
The aim of this Practice Note is to set out the main issues that arise for employee share schemes on a transaction to which the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006), SI 2006/246 apply. It addresses how TUPE affects these schemes in the UK.
TUPE—Key Provisions
TUPE 2006, SI 2006/246 applies where there is a ‘relevant transfer’. Broadly speaking, and in very broad terms, this encompasses two principal scenarios:
business transfers, ie the transfer of an undertaking, business, or a part of one, situated in the UK immediately before the transfer, to another person, where an economic entity is transferred and which retains its identity
a service provision change, meaning a change in service provider, ie a client outsourcing work to a contractor, bringing the work back in-house, or allocating that work to a different
Share Incentives
PRACTICE NOTES
As this Practice Note outlines, termination payments come in numerous forms, and the first task at the outset is to determine whether the particular payment is chargeable as earnings under section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), or instead falls within alternative charging provisions in ITEPA 2003, before assessing if the £30,000 exemption in ITEPA 2003, s 403, can apply to that payment in the circumstances.
In everyday understanding, 'tax' typically embraces National Insurance contributions (NICs), because NICs reduce disposable funds much like conventional taxation.
Accordingly, the NICs consequences must be weighed when judging the financial efficiency of any such payment. However, as NICs are governed by their own statutory regime, which does not mirror the tax code, their treatment should always be addressed separately when reviewing a termination payment. This separation ensures clarity and helps prevent
Tax
PRACTICE NOTES
Restrictive covenants or undertakings
These are promises employees make during employment or on leaving, limiting their behaviour or activities. Following historic debate over whether payments for such covenants or undertakings fell within general earnings under the relevant income tax legislation, a dedicated charging provision ensures that any sums connected with current, future, or past employments or offices are treated as taxable earnings...
Tax treatment
Section 225 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) brings into charge payments made to an individual for agreeing to restrictive covenants...
Tax
PRACTICE NOTES
Where a employee may have prospective claims against the employer under the Employment Rights Act 1996 (ERA 1996) or other employment legislation, or might otherwise pursue a breach of contract claim, the parties can conclude a settlement agreement to terminate the employment on the terms specified in that document (although, on a limited number of occasions under employment law, certain claims cannot be compromised by a settlement agreement). Senior managers/shareholders can likewise execute settlement agreements if they depart when the employing business is sold. For a model settlement agreement (with drafting notes), see Precedents: Settlement agreement (employment) or Settlement agreement (employment) (short form). By agreeing a settlement, the employer gains assurance that the employee will not bring a future claim against the employer. Among other matters, the settlement agreement will address all sums and benefits due, or agreed, to be paid to the
Tax
PRACTICE NOTES
Depending on the facts, a sum paid or a benefit given on the termination of an office or employment can be taxed in full, taxed in part, or, in limited cases, be wholly exempt. For a summary of the potential tax treatments of termination payments, see Practice Note: Termination payments and tax. The starting point for any termination sum is to consider whether it is chargeable, on basic principles, as earnings from, or an emolument of, an office or employment under section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) or instead falls within other provisions of ITEPA 2003 that deem specified categories of termination payments to be earnings. For instance, since 6 April 2018, ITEPA 2003, s 402B has treated non-contractual payments in lieu of notice (PILONs) as earnings for tax purposes under UK law...
Tax
PRECEDENTS
1
Should the [ Board OR Remuneration Committee ], at any point in time within [ three ] years from the date a bonus has been paid to you, in its sole and absolute discretion conclude that any event set out in sub-clauses 1.1 to 1.4 of this clause has arisen, it may demand that you repay some or all of the pertinent bonus payment (irrespective of whether you remain in employment with the Company or any other Group Company), with such repayment to be carried out strictly in line with clause 2:
1.1 [ the Company or any other Group Company being required to materially restate all or part of its financial statements OR your gross negligence, fraud, dishonesty or other misconduct having caused or helped to cause the Company or any other Group Company to materially restate all or part of its
Share Incentives
PRECEDENTS
Parties
This Agreement is made on [ date ] between the following parties as set out below:
[ name of employer ] [ Limited OR Plc ], a company incorporated in [ England and Wales ] (registered number [ registered number ]), whose registered office is at [ registered office address ] (the Company); and
[ name of executive ] of [ address of executive ] (the Executive).
Together they are referred to as Parties.
Background
The Company and the Executive are parties to the [ Employment Agreement OR Bonus Agreement ] (as defined below), under which the Executive may receive a discretionary annual bonus.
The Executive has received a conditional award of the Bonus (as defined below) for [ insert relevant year/performance period ].
The Company and the Executive intend to enter into this Agreement to describe the
Share Incentives
PRECEDENTS
During employment, the employee may receive rights, in accordance with and conditional upon the rules from time to time of [ name of option/equity scheme ] or any profit sharing, share incentive, share option, bonus or phantom option scheme run by the Company or any other Group Company, relating to shares in the Company or any other Group Company (the Award) as determined under the applicable plan rules...
Share Incentives
PRECEDENTS
1 Details of Awards
As at the Termination Date, you retain awards granted in respect of shares of [ [ the Company ] OR [ name of parent company ] OR under [ the Company ] OR [ name of parent company ] ] under the employee share plan[s], as follows:
[ an option over [ number and class ] shares pursuant to the [ name of share option plan ] (the Share Option Plan), granted to you on [ date ], and exercisable at [ exercise price ] per share (the Option); ]
[ an award of [ number and class ] shares under the [ name of share plan ] (the Share Award Plan), granted to you on [ date ] (the Award); and ]
[ insert details of any other option or awards ].
2 Awards remaining subject to Plan rules
You
Share Incentives
PRECEDENTS
FORTHCOMING CHANGE:
On 26 November 2025, within Budget 2025, it was confirmed that from April 2029, only the first £2,000 per year of any pension payment made under a salary sacrifice arrangement will be exempt from National Insurance contributions (NICs). Employee sums put through salary sacrifice above £2,000 a year will attract both employer and employee NICs, so any amount over £2,000 will, for NICs, be treated in the same way as other employee workplace pension contributions. Employer contributions remain unchanged, and income tax relief is unaffected. Employers will be required to report the total amount of salary sacrificed via existing payroll software, with HMRC committing to engage with stakeholders...
Share Incentives
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