Income and Corporation Taxes Act 1988

Section 176(9).

SCHEDULE 8 U.K. M1 PROFIT-RELATED PAY SCHEMES: CONDITIONS FOR REGISTRATION

Marginal Citations

M1 Source—987 (No.2) Sch.1

Form U.K.

1 The terms of the scheme must be set out in writing.

Employer and employment unit U.K.

2 The scheme must identify the scheme employer.

3 If the scheme employer does not pay the emoluments of all the employees to whom the scheme relates, the scheme must identify each of the persons who pays the emoluments of any of those employees.

4 (1) The scheme must identify the undertaking to which the scheme relates and that undertaking must be one which is carried on with a view to profit.

(2) The references in sub-paragraph (1) above to an undertaking include references to part of an undertaking; and the provisions of a scheme identifying part of an undertaking must do so in such a way as to distinguish it, otherwise than by name only, from other parts of the undertaking.

Employees U.K.

5 The scheme must contain provisions by reference to which the employees to whom the scheme relates may be identified.

6 The scheme must contain provisions ensuring that no payments are made under it by reference to a profit period if the employees to whom the scheme relates constitute less than 80 per cent. of all the employees in the employment unit at the beginning of that profit period, but for this purpose any person who is at that time within paragraph 7 or 8 below shall not be counted.

7 (1) The scheme must contain provisions ensuring that no payments are made under it to any person who is employed in the employment unit by a company and who has F1 . . . a material interest in the company.

(2) For the purposes of this paragraph a person shall be treated as having a material interest [F2 in a company if he, either on his own or with one or more associates,or if any associate of his with or without such other associates,—

(a) is the beneficial owner of, or able, directly or through the medium ofother companies, or by any other indirect means to control, more than 25 percent. of the ordinary share capital of the company, or

(b) in the case of a close company, possesses, or is entitled to acquire, such rights as would, in the event of the winding-up of the company or in any other circumstances, give an entitlement to receive more than 25 per cent. of the assets which would then be available for distribution among the participators].

(3) In this paragraph—

• "associate" has the same meaning as in section 417(3) and (4) [F3 , but subject to sub-paragraph (4) below]; F4 . . .

• "control" has the meaning given by section 840; [F5 and

• “participator” has the meaning given by section 417(1)]

and the definition of "control" in section 840 applies (with the necessary modifications) in relation to a company which is an unincorporated association as it applies in relation to one that is not.

[F6 (4) For the purposes of this paragraph, where an employee of a company has an interest in shares or obligations of the company as a beneficiary of an employee benefit trust, the trustees shall not be regarded as associates of his by reason only of that interest unless sub-paragraph (8) below applies in relation to him.

(5) A trust is an employee benefit trust for the purposes of this paragraph if—

(a) all or most of the employees of the company are eligible to benefit under it, and

(b) none of the property subject to it has been disposed of on or after 14th March 1989 (whether by sale, loan or otherwise) except in the ordinary course of management of the trust or in accordance with sub-paragraph (6) below.

(6) Property is disposed of in accordance with this sub-paragraph if—

(a) it is applied for the benefit of—

(i) individual employees or former employees of the company,

(ii) spouses, former spouses, widows or widowers of employees or former employees of the company,

(iii) relatives, or spouses of relatives, of persons within sub-paragraph (i) or (ii) above, or

(iv) dependants of persons within sub-paragraph (i) above,

(b) it is applied for charitable purposes, or

(c) it is transferred to the trustees of an approved profit sharing scheme (within the meaning of section 187), of another employee benefit trust, or of a qualifying employee share ownership trust (within the meaning of Schedule 5 to the Finance Act 1989),

and the property applied or transferred consists of any of the ordinary share capital of the company or of money paid outright.

(7) In sub-paragraph (6)(a)(iii) above “relative” means parent or remoter forebear, child or remoter issue, brother, sister, uncle, aunt, nephew or niece.

(8) This sub-paragraph applies in relation to an employee if at any time on or after 14th March 1989—

(a) the employee, either on his own or with any one or more of his associates,or

(b) any associate of his, with or without other such associates,

has been the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 25per cent. of the ordinary share capital of the company.

(9) Where—

(a) on or after 14th March 1989 an employee of a company, or an associate of his, receives a payment (“the relevant payment”) from the trustees of anemployee benefit trust, and

(b) at any time during the period of three years ending with the day on whichthe relevant payment is received, the property subject to the trust consists of or includes any part of the ordinary share capital of the company,

the employee or associate shall be treated for the purposes of sub-paragraph (8) above as if he were the beneficial owner of the appropriate percentage of the ordinary share capital of the company on the day on which the relevant payment is received (in addition to any percentage of that share capital of which he is actually the beneficial owner on that day).

(10) For the purposes of sub-paragraph (9) above, the appropriate percentage is—

where—

• A is the smaller of—

  • (a) the aggregate of the relevant payment and any other payments received by the employee or associates of his from the trustees of the trust during the period of 12 months ending with the day on which the relevant payment is received, and

  • (b) the aggregate of the distributions made to the trustees of the trust by the company in respect of its ordinary share capital during the period of three years ending with the day on which the relevant payment is received; and

• B is the aggregate of—

  • (a) any distributions made by the company in respect of its ordinary share capital during the period of 12 months ending with the day on which the relevant payment is received,

  • (b) any distributions so made during the period of 12 months immediately preceding that mentioned in paragraph (a) above, and

  • (c) any distributions so made during the period of 12 months immediately preceding that mentioned in paragraph (b) above,

divided by the number of the periods mentioned in paragraphs (a) to (c) above in which distributions were so made.

(11) Where—

(a) an employee or associate is treated by sub-paragraph (9) above as if he were the beneficial owner of a percentage of the ordinary share capital of a company by reason of receiving the relevant payment from the trustees of a trust, and

(b) that employee, or an associate of his, has, during the period of 12 months ending with the day on which the relevant payment is received, received one or more payments from trustees of another employee benefit trust or trusts satisfying the requirement in paragraph (b) of sub-paragraph (9) above,

that sub-paragraph shall have effect in relation to the employee or associate mentioned in paragraph (a) above as if he had received the payment from the trustees of the trust or of each of the trusts mentioned in paragraph (b) above (or where more than one payment has been received from the trustees of a trust, the last of the payments) on the day on which the relevant paymentis received.

(12) In sub-paragraphs (8) to (11) above “associate”, in relation to an employee, does not include the trustees of an employee benefit trust by reason only that the employee has an interest in shares or obligations of the trust.]

Textual Amendments

F1 Words in Sch. 8 para. 7(1) repealed (27.7.1989) by Finance Act 1989 (c. 26), Sch. 4 para. 9(2), Sch. 17 Pt. 4

F2 Words in Sch. 8 para. 7(2) substituted (with effect in accordance with Sch. 12 para. 18(4) of the amending Act) by Finance Act 1989 (c. 26), Sch. 12 para. 18(2)

F3 Words in Sch. 8 para. 7(3) inserted (27.7.1989) by Finance Act 1989 (c. 26), Sch. 4 para. 9(3)

F4 Word in Sch. 8 para. 7(3) repealed (with effect in accordance with Sch. 12 para. 18(4) of the amending Act) by Finance Act 1989 (c. 26), Sch. 12 para. 18(3), Sch. 17 Pt. 5, Note 6

F5 Words in Sch. 8 para. 7(3) inserted (with effect in accordance with Sch. 12 para. 18(4) of the amending Act) by Finance Act 1989 (c. 26), Sch. 12 para. 18(3)

F6 Sch. 8 para. 7(4)-(12) inserted (27.7.1989) by Finance Act 1989 (c. 26), Sch. 4 para. 9(4)

Modifications etc. (not altering text)

C1 Sch. 8 para. 7(9)-(12) applied (27.7.1989) by Finance Act 1989 (c. 26), Sch. 5 para. 16(6)

C2 Sch. 8 para. 7(9)-(12) applied (28.7.2000) by Finance Act 2000 (c. 17), Sch. 14 para. 35(4)

8 The persons within this paragraph are any of the following employees who are excluded by the scheme from receiving any payment of profit-related pay—

F7 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) those who have not been employed by a relevant employer for a minimum period (of not more than three years) specified in the scheme;

and for this purpose “relevant employer” means the scheme employer or any person who pays the emoluments of any of the employees to whom the scheme relates.

Textual Amendments

F7 Sch. 8 para. 8(a) repealed (with effect in accordance with s. 137(6) of the repealing Act) by Finance Act 1995 (c. 4), s. 137(1), Sch. 29 Pt. 8(20), Note

Profit periods U.K.

9 The scheme must identify the accounting period or periods by reference to which any profit-related pay is to be calculated.

10 (1) Subject to sub-paragraphs (2) and (3) below, any such accounting period must be a period of 12 months.

(2) If the scheme is a replacement scheme, the first of two profit periods may be a period of less than 12 months, but the scheme may not provide for more than two profit periods.

(3) The scheme may make provision for a profit period to be abbreviated where registration of the scheme is cancelled with effect from a day after the beginning of the period; and a scheme making such provision may exclude the operation of all or any of the provisions of paragraph 13(4) and (5) or (as the case may be) paragraph 14(3)(b), (4) and (5) below in relation to the determination of the distributable pool for an abbreviated period.

(4) For the purposes of this paragraph, a scheme is a replacement scheme if—

(a) it succeeds another scheme (or two or more other schemes) registration of which was cancelled under section 178(1)(a) on the ground of a change in the employment unit or in the circumstances relating to the scheme; and

(b) that change occurred not more than three months before the beginning of the first (or only) profit period of the new scheme, and the Board are satisfied that it was not brought about with a view to the registration of the new scheme or in circumstances satisfying the conditions in section 177(1)(a), (b) and (c); and

(c) not less than one half of the employees to whom the new scheme relates were employees to whom the previous scheme (or any of the previous schemes) related at the time of that change.

Distributable pool U.K.

11 The scheme must contain provisions by reference to which the aggregate sum that may be paid to employees in respect of a profit period (“the distributable pool”) may be determined.

12 Except where the scheme is a replacement scheme (within the meaning of paragraph 10 above), the provisions for the determination of the distributable pool must employ either the method specified in paragraph 13 below (“method A”) or the method specified in paragraph 14 below (“method B”).

13 (1) Method A is that the distributable pool is equal to a,fixedF8 percentage of the profits of the employment unit in the profit period.

[F9 (1A) That percentage must be a fixed percentage specified in the scheme and, if the scheme relates to more than one period, must be the same for each period.]

(2) That percentage must be such that, on the assumption as to profits mentioned in sub-paragraph (3)below, it will produce a distributable pool equal to not less than 5per cent. of the standard pay of the employment unitF10 .

(3) The assumption referred to in sub-paragraph (2)above is that the profits in the profit period are the same as those in a base year specified in the scheme; and that base year must be a period of 12months ending at a time within the period of two years immediately preceding the profit period, or the first of the profit periods, to which the scheme relatesF10 .

(4) Notwithstanding sub-paragraph (1) above, a scheme employing method A may include provision for disregarding profits in the profit period so far as they exceed 160 per cent. (or such greater percentage as may be specified in the scheme) of—

(a) if the profit period is the first or only period to which the scheme relates, the profits for [F11 a base year specified in the scheme];

(b) in any other case, the profits for the previous profit period.

(5) Notwithstanding sub-paragraph (1) above, a scheme employing method A may include provision to the effect that there shall be no distributable pool if the profits in the profit period are less than an amount specified in, or ascertainable by reference to, the scheme; but that amount [F12 must not exceed the profits for a base year specified in the scheme.]

[F13 (6) The base year referred to in sub-paragraph (4)(a) and sub-paragraph (5) above must be a period of 12 months ending at a time within the period of two years immediately preceding the profit period, or the first of the profit period, to which the scheme relates]

[F14 (7) Any provision included in a scheme by virtue of sub-paragraph (4) or (5) above may take effect either from the scheme’s first profit period or from any later profit determined in accordance with the scheme.]

Textual Amendments

F8 Repealed by 1989 ss.61and 187and Schs.4 para.10(2)(a)and 17 Part IV.

F9 1989 s.61and Sch.4 para.10(2)(b)(i).

F10 Repealed by 1989 ss.61and 187and Schs.4 para.10(1), (2)(a)and 17 Part IV.

F11 1989 s.61and Sch.4 para.10(2)(b)(ii).Previously

“the base year referred to in sub-paragraph (3) above”.

F12 1989 s.61and Sch.4 para.10(2)(b)(iii).Previously

“must be less than the amount which would produce a distributable pool of 5 per cent. of the standard pay of the employment unit”.

F13 1989 s.61and Sch.4 para.10(2)(b)(iv).Previously

“(6) The references in this paragraph to the standard pay of the employment unit are references to the amount which the scheme employer, at the time when he applies for registration of the scheme, reasonably estimates will be the annual equivalent of the pay, at the beginning of the profit period or first profit period, of the employees to whom the scheme will then relate; and for this purpose an estimate shall (in the absence of evidence to the contrary) be taken to be a reasonable one if it is based on the most recent information available to the employer as to the monthly or annual pay of the relevant employees.”.

F14 1989 s.61and Sch.4 para.11.

13A (1) Where a scheme includes provision by virtue of paragraph 13(4) or (5) above the scheme must be so framed that in arriving at the profits for the base year or for the previous profit period any profit-related pay and any secondary Class I contributions in respect of it are accorded the same accountancy treatment as is accorded to any profit-related pay and any secondary Class I contributions in respect of it in arriving at the profits in the profit period.

(2) In sub-paragraph (1) above—

(a) “profit-related pay” means profit-related pay under whatever scheme;

(b) “secondary Class I contributions” means secondary Class I contributions under Part I of the Social Security Act 1975 or Part I of the Social Security (Northern Ireland) Act 1975 or Part I of the Social Security Contributions and Benefits Act 1992 or Part I of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.

(3) Sub-paragraph (1) above shall apply notwithstanding anything in paragraph 19 below.

(4) Where a scheme includes provision by virtue of paragraph 13(4) above the scheme must also include provision that if the pay for the profit period is less than the pay for the base year or for the previous profit period (as the case may be) the percentage to be applied for the purposes of the provision included by virtue of paragraph 13(4) above shall be the increased percentage (instead of any other percentage).

(5) The increased percentage must be one arrived at by—

(a) taking the percentage that would be applied for the purposes of the provision included by virtue of paragraph 13(4) above apart from the provision included by virtue of sub-paragraph (4) above, and

(b) adding the percentage found by expressing the difference in pay as a percentage of the profits for the base year or for the previous profit period (as the case may be).

(6) For the purposes of this paragraph—

(a) the pay for the profit period or for the previous profit period or for the base year is the pay paid to employees in respect of employment in the period or year concerned in the employment unit concerned;

(b) the difference in pay is the difference between the pay for the profit period and the pay for the previous profit period or for the base year (as the case may be);

and any profit-related pay shall be ignored in applying paragraph (a) above.

14 (1) Method B is that the distributable pool is—

(a) if the profit period is the first or only profit period to which the scheme relates, a percentage of a notional pool of an amount specified in the scheme;

(b) in any other case, a percentage of the distributable pool for the previous profit period.

(2) The amount of the notional pool referred to in sub-paragraph (1)above must not be less than 5per cent. of the standard pay of the employment unitF15 .

(3) The percentage referred to in sub-paragraph (1) above must be either—

(a) that arrived at by expressing the profits in the profit period as a percentage of the profits in the preceding period of 12 months; or

(b) the percentage mentioned in paragraph (a) above reduced (if it is more than 100) or increased (if it is less than 100) by a specified fraction of the difference between it and 100;

and the reference in paragraph (b) above to a specified fraction is a reference to a fraction of not more than one half specified in the scheme.

(4) Notwithstanding sub-paragraph (1) above, a scheme employing method B may include provision for disregarding profits in the profit period so far as they exceed 160 per cent. (or such greater percentage as may be specified in the scheme) of the profits in the preceding period of 12 months.

(5) Notwithstanding sub-paragraph (1) above, a scheme employing method B may include provision to the effect that there shall be no distributable pool if the profits in the profit period are less than an amountspecified inF16 , or ascertainable by reference to, the scheme; but that amount [F17 must not exceed the profits in the period of 12 months immediately preceding the first or only profit period to which the scheme relates.]

(6) Where by virtue of a provision of the kind described in sub-paragraph (5) above there is no distributable pool for a profit period, any comparison required in accordance with sub-paragraph (1)(b) to be made with the distributable pool for that period shall be made with what would have been the pool but for sub-paragraph (5).

(7) In this paragraph “standard pay of the employment unit” has the same meaning as it has in paragraph 13aboveF18 .

[F19 (8) Any provision included in a scheme by virtue of sub-paragraph (3)(b), (4) or (5) above may take effect either from the scheme’s first profit period or from any later profit period determined in accordance with the scheme.]

Textual Amendments

F15 Repealed by 1989 ss.61and 187, Schs.4 para.10(1)and 17 Part IV.

F16 Repealed by 1989 ss.61and 187, Schs.4 paras.10(2)(a), 12and 17 Part IV.

F17 1989 s.61and Sch.4 para.10(2)(c).Previously

“must be less than the amount which would produce a distributable pool of 5 per cent. of the standard pay of the employment unit.”.

F18 Repealed by 1989 ss.61and 187, Schs.4 paras.10(2)(a), 12and 17 Part IV.

F19 1989 s.61and Sch.4 para.13.

14A (1) Where a scheme includes provision to give effect to paragraph 14(3) above or provision by virtue of paragraph 14(4) above the scheme must be so framed that in arriving at the profits in the preceding period of 12 months any profit-related pay and any secondary Class I contributions in respect of it are accorded the same accountancy treatment as is accorded to any profit-related pay and any secondary Class I contributions in respect of it in arriving at the profits in the profit period.

(2) Where a scheme includes provision by virtue of paragraph 14(5) above the scheme must be so framed that in arriving at the profits in the relevant period of 12 months any profit-related pay and any secondary Class I contributions in respect of it are accorded the same accountancy treatment as is accorded to any profit-related pay and any secondary Class I contributions in respect of it in arriving at the profits in the profit period; and for this purpose the relevant period of 12 months is the period of 12 months immediately preceding the first or only profit period to which the scheme relates.

(3) In sub-paragraphs (1) and (2) above—

(a) “profit-related pay” means profit-related pay under whatever scheme;

(b) “secondary Class I contributions” means secondary Class I contributions under Part I of the Social Security Contributions and Benefits Act 1992 or Part I of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.

(4) Sub-paragraphs (1) and (2) above shall apply notwithstanding anything in paragraph 19 below.

(5) Where a scheme includes provision by virtue of paragraph 14(4) above the scheme must also include provision that if the pay for the profit period is less than the pay for the preceding period of 12 months the percentage to be applied for the purposes of the provision included by virtue of paragraph 14(4) above shall be the increased percentage (instead of any other percentage).

(6) The increased percentage must be one arrived at by—

(a) taking the percentage that would be applied for the purposes of the provision included by virtue of paragraph 14(4) above apart from the provision included by virtue of sub-paragraph (5) above, and

(b) adding the percentage found by expressing the difference in pay as a percentage of the profits in the preceding period of 12 months.

(7) For the purposes of this paragraph—

(a) the pay for the profit period or for the preceding period of 12 months is the pay paid to employees in respect of employment in the period concerned in the employment unit concerned;

(b) the difference in pay is the difference between the pay for the profit period and the pay for the preceding period of 12 months;

and any profit-related pay shall be ignored in applying paragraph (a) above.

15 If the scheme is a replacement scheme (within the meaning of paragraph 10 above), it must provide for the distributable pool for a profit period to be equal to a specified percentage of the profits for the period.

Payment from distributable pool etc. U.K.

16 The scheme must provide for the whole of the distributable pool to be paid to employees in the employment unit.

17 The scheme must make provision as to when payments will be made to employees.

18 (1) The provisions of the scheme must be such that employees participate in the scheme on similar terms.

(2) For the purposes of sub-paragraph (1) above, the fact that the payments to employees vary according to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that they do not participate on similar terms.

Ascertainment of profits U.K.

19 (1) The scheme must provide for the preparation of a profit and loss account in respect of—

(a) each profit period of the employment unit; and

(b) any other period the profits for which must be ascertained for the purposes of this Chapter.

(2) The profit and loss account must give a true and fair view of the profit or loss of the employment unit for the period to which it relates.

(3) Subject to sub-paragraph (2) above, the requirements of Schedule 4 to the M2 Companies Act 1985 shall apply (with any necessary modifications) to a profit and loss account prepared for the purposes of the scheme as they apply to a profit and loss account of a company for a financial year.

(4) Notwithstanding the preceding provisions of this paragraph, a profit and loss account prepared for the purposes of the scheme must not make any deduction, in arriving at the profits or losses of the employment unit, for the remuneration of any person excluded from the scheme by virtue of paragraph 7 above.

[F20 (4A) In sub-paragraph (4) above “remuneration”, in relation to a person, includes fees and percentages, any sums paid by way of expenses allowance (insofar as those sums are charged to income tax), any contributions paid in respect of him under any pension scheme and the estimated value of any other benefits received by him otherwise than in cash.]

(5) Notwithstanding the preceding provisions of this paragraph, if the scheme so provides in relation to any of the items listed in sub-paragraph (6) below, a profit and loss account prepared for the purposes of the scheme may, in arriving at the profits or losses of the employment unit—

(a) leave the item out of account notwithstanding that Schedule 4 to the Companies Act 1985 requires it to be taken into account; or

(b) take the item into account notwithstanding that Schedule 4 to the Companies Act 1985 requires it to be left out of account.

(6) The items referred to in sub-paragraph (5) above are—

(a) interest receivable and similar income;

(b) interest payable and similar charges;

(c) goodwill;

(d) tax on profit or loss on ordinary activities (but not any penalty under the Taxes Acts);

(e) research and development costs;

[F21 (f) profit-related pay payable under the scheme, and profit-related pay payable under any other registered scheme if it is one to which paragraph 21 below applies;

(ff) secondary Class 1 contributions under Part I of the Social Security Act 1975 or Part I of the Social Security (Northern Ireland) Act 1975 in respect of profit-related pay payable under the scheme;]

(g) F22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(h) F22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(j) F22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(k) F22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F23 (l) any exceptional items which fall within sub-paragraph (6A) below and should in accordance with any accounting practices regarded as standard be shown separately on the face of the profit and loss account.]

[F24 (6A) The items are—

(a) profits or losses on the sale or termination of an operation;

(b) costs of a fundamental reorganisation or restructuring having a material effect on the nature and focus of the employment unit’s operations;

(c) profits or losses on the disposal of fixed assets; and

(d) the effect on tax of any of the items mentioned in paragraphs (a) to (c) above.]

(7) References in this paragraph to Schedule 4 to the M3 Companies Act 1985 shall be construed, in relation to Northern Ireland, as references to Schedule 4 to the M4 Companies (Northern Ireland) Order 1986.

Textual Amendments

F20 1989 s.61and Sch.4 para.14(2).

F21 1989 s.61and Sch.4 para.14(3).Previously

“(f) profit-related pay payable under the scheme;”.

F22 Sch. 8 para. 19(6)(g)-(k) repealed (with effect in accordance with s. 136(5)-(11) of the repealing Act) by Finance Act 1995 (c. 4), s. 136(2), Sch. 29 Pt. 8(19), Note

F23 Sch. 8 para. 19(6)(l) inserted (with effect in accordance with s. 136(5)-(11) of the amending Act) by Finance Act 1995 (c. 4), s. 136(3)

F24 Sch. 8 para. 19(6A) inserted (with effect in accordance with s. 136(5)-(11) of the amending Act) by Finance Act 1995 (c. 4), s. 136(4)

Marginal Citations

M2 1985 c. 6.

M3 1985 c. 6.

M4 S.I. 1986/1032 (N.I. 6).

19A (1) The Treasury may by order amend paragraph 19 above so as to add to, delete or vary any of the items mentioned in sub-paragraph (6) of that paragraph.

(2) In this paragraph references to an order are references to an order under sub-paragraph (1) above.

(3) Subject to sub-paragraphs (4) to (8) below, any amendment or amendments made by virtue of an order shall have effect in relation to the preparation, for the purposes of a scheme, of a profit and loss account in respect of a period beginning on or after the day on which the order comes into force.

(4) Any amendment or amendments made by virtue of an order shall not have effect in relation to an existing scheme unless, before the end of the period of 6 months beginning with the day on which the order comes into force, the scheme is altered to take account of the amendment or amendments.

(5) Sub-paragraphs (6) to (8) below apply where, before the end of the period mentioned in sub-paragraph (4) above, an existing scheme is altered as mentioned in that sub-paragraph.

(6) The provision made by the scheme in compliance with paragraph 20(1) below shall not prevent a profit and loss account being prepared in accordance with the alteration.

(7) Where the distributable pool would but for this sub-paragraph be determined by reference—

(a) to an amount shown in a profit and loss account prepared in accordance with the altered scheme, and

(b) to an amount shown in a profit and loss account (“an earlier account”) prepared in accordance with the scheme in a form in which it stood before the alteration,

then, for the purposes of the determination of the pool, the amount shown in the earlier account shall be recalculated using the same method as that used to calculate the amount mentioned in paragraph (a) above.

(8) The alteration of the existing scheme shall be treated as being within subsection (8) of section 177B.

(9) An order may include such supplementary, incidental or consequential provisions as appear to the Treasury to be necessary or expedient.

(10) In this paragraph “an existing scheme”, in relation to an order, means a scheme which, immediately before the day on which the order comes into force, is a registered scheme.

20 (1) The scheme must provide that, in preparing a profit and loss account for the purposes of this Schedule, no changes may be made from the accounting policies used in preparing accounts for any earlier period relevant for those purposes, or in the methods of applying those policies, if the effect of the changes (either singly or taken together) would be that the amount of profits (or losses) differed by more than 5 per cent. from what would be that amount if no changes were made.

(2) Sub-paragraph (1) above has effect subject to paragraph 19(2) above.

Parts of undertakings U.K.

[F25 21 (1) This paragraph shall apply to a scheme if the employment unit is a part of an undertaking, and the scheme states that the profits or losses of the unit are for the purposes of the scheme to be taken to be equivalent to those of the whole undertaking (which must be identified by the scheme).

(2) Where this paragraph applies to a scheme, this Schedule shall have effect as if any reference to the profits or losses of the employment unit were a reference to the profits or losses of the undertakings of which it forms part.]

Textual Amendments

F25 1989 s.61and Sch.4 para.15.

22 (1) Where paragraph 21 above applies to a scheme, the scheme must contain provisions ensuring that no payments are made under it by reference to a profit period unless, at the beginning of that profit period,—

(a) there is at least one other registered scheme which relates to employees employed in the same undertaking as that of which the employment unit forms part, and

(b) the number of the employees to whom the scheme relates does not exceed 33 per cent. of the number of the employees to whom that other scheme relates (or if there is more than one other scheme, the aggregate number of the employees to whom they relate).

(2) Another registered scheme shall be disregarded for the purposes of sub-paragraph (1) above—

(a) if paragraph 21 above applies to it, or

(b) if, by virtue of provisions of the kind described in paragraph 6 above, no payments could be made under it by reference to the profit period concerned.

(3) Where paragraph 21 above applies to two or more schemes relating to employment units which are parts of the same undertaking, an employee to whom another scheme relates shall not be counted for the purposes of sub-paragraph (1)(b) above in connection with more than one of those schemes.

23 (1) In a case where—

(a) paragraph 21 above applies to a scheme, and

(b) method A (specified in paragraph 13 above) is employed for the purposes of the scheme,

the scheme must contain provisions which comply with this paragraph and which apply as regards each profit period to which the scheme relates.

(2) The scheme must ensure that no payments are made under it by reference to a given profit period if the percentage mentioned in paragraph 13(1) above exceeds the permitted percentage.

(3) The scheme must ensure that the permitted percentage is a percentage found by—

(a) taking the pay paid to employees in respect of employment in the relevant year in the employment unit to which the other scheme mentioned in paragraph 22(1)(a) above relates or (if there are two or more other schemes) the aggregate of the pay paid to employees in respect of employment in the relevant year in the employment units to which the other schemes relate;

(b) taking the profit-related pay paid to employees in respect of employment in the relevant year in the employment unit to which the other scheme mentioned in paragraph 22(1)(a) above relates or (if there are two or more other schemes) the aggregate of the profit-related pay paid to employees in respect of employment in the relevant year in the employment units to which the other schemes relate;

(c) taking the pay paid to employees in respect of employment in the relevant year in the employment unit to which the scheme mentioned in paragraph 21 above relates;

(d) taking the fraction whose denominator is equal to the number of whole pounds found under paragraph (a) above and whose numerator is equal to the number of whole pounds found under paragraph (b) above;

(e) multiplying the amount found under paragraph (c) above by the fraction found under paragraph (d) above;

(f) taking the profits for the relevant year of the undertaking mentioned in paragraph 21 above;

(g) expressing the amount found under paragraph (e) above as a percentage of the amount found under paragraph (f) above;

(h) taking the percentage found under paragraph (g) above as the permitted percentage.

(4) The scheme must ensure that the relevant year is a period of 12 months identified in the scheme and ending at a time within the period of two years immediately preceding the given profit period.

24 (1) In a case where—

(a) paragraph 21 above applies to a scheme, and

(b) method B (specified in paragraph 14 above) is employed for the purposes of the scheme,

the scheme must contain provisions which comply with this paragraph and which apply as regards each profit period to which the scheme relates.

(2) The scheme must ensure that no payments are made under it by reference to the first or only profit period to which the scheme relates if the notional pool mentioned in paragraph 14(1)(a) above exceeds the permitted limit.

(3) The scheme must also ensure that no payments are made under it by reference to a given profit period other than the first if the distributable pool for the previous profit period (mentioned in paragraph 14(1)(b) above) exceeds the permitted limit.

(4) The scheme must ensure that the permitted limit is a limit found by—

(a) taking the pay paid to employees in respect of employment in the relevant year in the employment unit to which the other scheme mentioned in paragraph 22(1)(a) above relates or (if there are two or more other schemes) the aggregate of the pay paid to employees in respect of employment in the relevant year in the employment units to which the other schemes relate;

(b) taking the profit-related pay paid to employees in respect of employment in the relevant year in the employment unit to which the other scheme mentioned in paragraph 22(1)(a) above relates or (if there are two or more other schemes) the aggregate of the profit-related pay paid to employees in respect of employment in the relevant year in the employment units to which the other schemes relate;

(c) taking the pay paid to employees in respect of employment in the relevant year in the employment unit to which the scheme mentioned in paragraph 21 above relates;

(d) taking the fraction whose denominator is equal to the number of whole pounds found under paragraph (a) above and whose numerator is equal to the number of whole pounds found under paragraph (b) above;

(e) multiplying the amount found under paragraph (c) above by the fraction found under paragraph (d) above;

(f) taking the amount found under paragraph (e) above as the permitted limit.

(5) The scheme must ensure that the relevant year is—

(a) a period of 12 months identified in the scheme and ending at a time within the period of two years immediately preceding the first or only profit period to which the scheme relates (in the case of provisions contained in the scheme by virtue of sub-paragraph (2) above);

(b) a period of 12 months identified in the scheme and ending at a time within the period of two years immediately preceding the given profit period (in the case of provisions contained in the scheme by virtue of sub-paragraph (3) above).