Income and Corporation Taxes Act 1988

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—

(a) those who are not required under the terms of their employment to work in the employment unit for 20 hours or more a week;

(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.