F1F1SCHEDULE 8
Part I Introductory
Group plans
2
(1)
An employee share ownership plan established by a company that controls other companies (a “parent company”) may extend to all or any of those other companies.
In this Schedule a plan established by a parent company which so extends is referred to as a “group plan".
(2)
In relation to a group plan a “participating company” means the parent company or any other company to which for the time being the plan is expressed to extend.
Application for approval
4
(1)
Where an employee share ownership plan has been established, on the application of the company the Inland Revenue shall approve the plan if they are satisfied that it meets the requirements of this Schedule.
(2)
An application for approval must contain such particulars and be supported by such evidence as the Inland Revenue may require.
Appeal against refusal of approval
5
(1)
If the Inland Revenue refuse to approve the plan, the company may appeal to the Special Commissioners.
(2)
Notice of appeal must be given to the Inland Revenue within 30 days after their decision was notified to the company.
(3)
If the Special Commissioners allow the appeal they may direct the Inland Revenue to approve the plan with effect from such date (but not earlier than the application for approval) as the Commissioners may specify.
Part II General requirements
Introduction
6
The plan must meet the requirements of—
paragraph 7 (the purpose of plan);
paragraph 8 (all-employee nature of plan);
paragraph 9 (participation on same terms);
paragraph 10 (no preferential treatment for directors, etc.);
paragraph 11 (no further conditions);
paragraph 12 (no loan arrangements).
The purpose of the plan
7
(1)
The purpose of the plan must be to provide benefits to employees in the nature of shares in a company which give them a continuing stake in that company.
(2)
The plan must not contain, and the operation of the plan must not involve, features which are neither essential nor reasonably incidental to that purpose.
All-employee nature of plan
8
(1)
The plan must provide that every employee who—
(a)
meets the requirements mentioned in Part III (eligibility of individuals) in relation to an award of shares under the plan, and
(b)
is chargeable to tax under Case I of Schedule E in respect of the employment by reference to which he satisfies the condition in paragraph 14 (the employment requirement),
is eligible to participate in the award, and invited to do so.
(2)
The plan must not contain any feature which has or would have the effect of discouraging any description of employees within sub-paragraph (1) from participating in an award of shares under the plan.
This does not apply to any provision required or authorised by this Schedule.
(3)
The plan may provide that an employee who—
(a)
meets the requirements mentioned in Part III (eligibility of individuals) in relation to an award of shares under the plan, but
(b)
is not chargeable to tax as mentioned in sub-paragraph (1)(b),
is eligible to participate in the award, and may be invited to do so.
(4)
For the purposes of this Schedule an individual is a “qualifying employee”, in relation to an award of shares, if—
(a)
he is eligible to participate in the award, and
(b)
either—
(i)
he must be invited to participate in the award (see sub-paragraph (1)), or
(ii)
under the plan he may be invited to participate in the award (see sub-paragraph (3)) and has been so invited.
Participation on same terms
9
(1)
The requirement of this paragraph is—
(a)
that every employee who is invited to participate in an award must be invited to participate on the same terms, and
(b)
that those who do participate must actually do so on the same terms.
(2)
The requirement of this paragraph is infringed by the awarding of free shares by reference to factors other than those mentioned in sub-paragraph (3).
(3)
The requirement of this paragraph is not infringed by the awarding of free shares by reference to an employee’s—
(a)
remuneration,
(b)
length of service, or
(c)
hours worked.
This is subject to sub-paragraph (4).
(4)
Where the awarding of free shares is by reference to more than one of the factors mentioned in sub-paragraph (3) the requirement of this paragraph is infringed unless—
(a)
each factor gives rise to a separate entitlement related to the level of remuneration, length of service or (as the case may be) hours worked, and
(b)
the total entitlement is the sum of those separate entitlements.
(5)
In the case of an award of free shares which provides for performance allowances, this paragraph has effect as provided in paragraph 29 (performance allowances: method one) or, as the case may be, paragraph 30 (performance allowances: method two).
For this purpose “performance allowance” has the meaning given in paragraph 25(1).
No preferential treatment for directors etc.
10
(1)
The first requirement of this paragraph is that no feature of the plan must have or be likely to have the effect of conferring benefits wholly or mainly—
(a)
on directors, or
(b)
on employees receiving higher levels of remuneration.
(2)
The second requirement of this paragraph is that in the case of a plan established by a company that is a member of a group, the identity of the company (or, if it is a group plan, the participating companies) must not be such that the plan has or is likely to have the effect of conferring benefits wholly or mainly—
(a)
on employees of companies that are members of the group who receive higher levels of remuneration, or
(b)
on directors of such companies.
(3)
This paragraph is subject to paragraph 9(3) (award of shares by reference to remuneration etc.).
No further conditions
11
No conditions, other than those required or permitted by this Schedule, may be imposed on an employee’s participation in an award of shares under the plan.
No loan arrangements
12
(1)
The arrangements for the plan must not make any provision, or be in any way associated with any provision made, for loans to some or all of the employees of—
(a)
the company, or
(b)
in the case of a group plan, any participating company,
and the operation of the plan must not be in any way associated with such loans.
(2)
For the purposes of sub-paragraph (1) “arrangements” includes any scheme, agreement, undertaking or understanding, whether or not legally enforceable.
Part III Eligibility of individuals
Introduction
13
(1)
The plan must provide that an individual may only participate in an award of shares if—
(a)
in the case of free shares, he is eligible to participate in the award at the time it is made, and
(b)
in the case of partnership or matching shares—
(i)
if there is no accumulation period, he is eligible to participate in the award at the time the partnership share money relating to the award is deducted, and
(ii)
if there is an accumulation period, he is eligible to participate in the award at the time of the first deduction of partnership share money relating to the award.
(2)
For the purposes of sub-paragraph (1), in the case of an award of matching shares the deduction of partnership share money “relating” to the award is the deduction relating to the award of partnership shares to which the matching shares relate.
(3)
An individual is eligible to participate in an award of shares under the plan if and only if—
(a)
the requirements of the plan are met as to—
(i)
employment (see paragraph 14),
(ii)
no material interest (see paragraph 15), and
(iii)
not participating in other schemes (see paragraph 16), and
(b)
in a case where the individual is not within paragraph 8(1) (employees who must be invited to participate in the award), any further eligibility requirements of the plan are met.
The employment requirement
14
(1)
The plan must provide that an individual is not eligible to participate in an award of shares unless—
(a)
he is an employee of the company or, in the case of a group plan, of a participating company, and
(b)
where the plan provides for a qualifying period, he has at all times during that period been an employee F2of a qualifying company
F3(1A)
Except in the case of a group plan, a qualifying company means—
(a)
the company, or
(b)
a company that when the individual was employed by it was an associated company—
(i)
of the company, or
(ii)
of another company qualifying under this paragraph.
F3(1B)
In the case of a group plan, a qualifying company means—
(a)
a company that is a participating company at the end of the qualifying period, or
(b)
a company that when the individual was employed by it was a participating company, or
(c)
a company that when the individual was employed by it was an associated company of—
(i)
a company qualifying under paragraph (a) or (b), or
(ii)
another company qualifying under this paragraph.
(2)
If the plan provides for a qualifying period, that period must be—
(a)
in the case of free shares, a period of not more than 18 months ending with the date on which the award is made,
(b)
in the case of partnership or matching shares—
(i)
if the plan does not provide for an accumulation period, a period of not more than 18 months ending with the deduction of partnership share money relating to the award, and
(ii)
if the plan provides for an accumulation period, a period of not more than six months ending with the start of the accumulation period relating to the award.
(3)
For the purposes of sub-paragraph (2), in the case of an award of matching shares the deduction of partnership share money or accumulation period “relating” to the award is the deduction or period relating to the award of partnership shares to which the matching shares relate.
(4)
In relation to an award, the same qualifying period must apply in relation to all employees of the company or, in the case of a group plan, of the participating companies.
(5)
Subject to sub-paragraphs (2) and (4), the plan may authorise the company to specify different qualifying periods in respect of different awards of shares.
The “no material interest" requirement
15
(1)
The plan must provide that an individual is not eligible to participate in an award of shares if he has, or has within the preceding twelve months had, a material interest in—
(a)
a close company whose shares may be awarded under the plan, or
(b)
a company which has control of such a company or is a member of a consortium which owns such a company.
(2)
For the purposes of this paragraph an individual is regarded as having a material interest in a company if—
(a)
the individual,
(b)
the individual together with one or more associates of his, or
(c)
any associate of the individual’s, with or without any other such associates,
has a material interest in the company.
(3)
This paragraph is supplemented—
(a)
as regards the meaning of “material interest”, by paragraphs 17 to 19, and
(b)
as regards the meaning of “associate”, by paragraph 20 (read with paragraphs 21 and 22).
Meaning of “material interest"
17
(1)
For the purposes of paragraph 15 (the “no material interest” requirement) a material interest in a company means—
(a)
beneficial ownership of, or the ability to control, directly or through the medium of other companies or by any other indirect means, more than 25% of the ordinary share capital of the company; or
(b)
where the company is a close company, possession of or entitlement 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% of the assets that would then be available for distribution among the participators.
(2)
In this paragraph—
“close company” includes a company that would be a close company but for—
(a)
section 414(1)(a) of the Taxes Act 1988 (exclusion of companies not resident in the United Kingdom), or
(b)
section 415 of that Act (exclusion of certain quoted companies); and
“participator” has the meaning given by section 417(1) of that Act.
(3)
This paragraph is supplemented by paragraph 18 (options etc.) and paragraph 19 (shares held by trustees of approved profit sharing scheme etc.).
Material interest: options etc.
18
(1)
For the purposes of paragraph 17(1) (meaning of material interest) a right to acquire shares (however arising) is treated as a right to control them.
(2)
In any case where—
(a)
the shares attributed to an individual consist of or include shares which he or another person has a right to acquire, and
(b)
the circumstances are such that if that right were to be exercised the shares acquired would be shares which were previously unissued and which the company is contractually bound to issue in the event of the exercise of the right,
then in determining at any time prior to the exercise of the right whether the number of shares attributed to the individual exceeds a particular percentage of the ordinary share capital of the company, that ordinary share capital shall be taken to be increased by the number of unissued shares referred to in paragraph (b).
(3)
The references in sub-paragraph (2) to the shares attributed to an individual are to the shares which in accordance with paragraph 17(1)(a) fall to be brought into account in his case to determine whether their number exceeds a particular percentage of the company’s ordinary share capital.
Meaning of “associate"
20
(1)
In paragraph 15 (the “no material interest” requirement) “associate”, in relation to a person, means—
(a)
any relative or partner of that person,
(b)
the trustee or trustees of any settlement in relation to which that person, or any relative of his (living or dead), is or was a settlor, and
(c)
where that person is interested in any shares or obligations of the company which are subject to any trust, or are part of the estate of a deceased person, the trustee or trustees of the settlement concerned or (as the case may be) the personal representatives of the deceased.
(2)
In sub-paragraph (1)(a) and (b) “relative” means husband or wife, parent or remoter forebear, child or remoter issue, or brother or sister.
(3)
In sub-paragraph (1)(b) “settlor” and “settlement” have the same meaning as in Chapter IA of Part XV of the Taxes Act 1988 (see section 660G(1) and (2)).
Meaning of “associate": trustees of employee benefit trust
21
(1)
This paragraph applies for the purposes of paragraph 20(1)(c) (meaning of “associate”: trustees of settlement) where an individual is interested as a beneficiary of an employee benefit trust in shares or obligations of a company (“the relevant company”) in relation to which it falls to be determined whether that individual has an interest.
(2)
The trustees of the employee benefit trust are not regarded as associates of the individual by reason only of his being so interested if neither—
(a)
the individual, nor
(b)
the individual together with one or more associates of his, nor
(c)
any associate of the individual’s, with or without any other such associates,
has at any time on or after 14th March 1989 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 25% of the ordinary share capital of the company.
(3)
In this paragraph “employee benefit trust” has the same meaning as in paragraph 7 of Schedule 8 to the Taxes Act 1988.
(4)
Sub-paragraphs (9) to (12) of that paragraph apply for the purposes of this paragraph in relation to an individual as they apply for the purposes of that paragraph in relation to an employee.
(5)
In sub-paragraph (2)(b) and (c) “associate" does not include the trustees of an employee benefit trust by reason only that the individual has an interest in shares or obligations of the trust.
Meaning of “associate": trustees of discretionary trust
22
(1)
This paragraph applies for the purposes of paragraph 20(1)(c) (meaning of “associate”: trustees of settlement) where—
(a)
the person in question (“the beneficiary”) is one of the objects of a discretionary trust, and
(b)
the property subject to the trust has at any time consisted of, or included, shares or obligations of the company (“the relevant company”) in relation to which it falls to be determined whether that person has an interest.
(2)
If—
(a)
the beneficiary has ceased to be eligible to benefit under the discretionary trust by reason of—
(i)
an irrevocable disclaimer or release executed by him, or
(ii)
the irrevocable exercise by the trustees of a power to exclude him from the objects of the trust,
(b)
immediately after the beneficiary ceased to be so eligible, no associate of his was interested in the shares or obligations of the relevant company which were subject to the trust, and
(c)
during the period of twelve months ending with the date when the beneficiary ceased to be so eligible, neither he nor any associate of his received any benefit under the trust,
the beneficiary is not regarded by reason only of the matters mentioned in sub-paragraph (1) as having been interested in the shares or obligations of the relevant company at any time during the period of twelve months mentioned in paragraph (c).
(3)
In sub-paragraph (2) “associate” has the meaning given by paragraph 20, but with the omission of sub-paragraph (1)(c) of that paragraph (trusts and estates).
Part IV Free shares
Introduction
23
If the plan provides for free shares it must comply with the requirements of this Part of this Schedule.
Maximum annual award
24
(1)
The plan must provide that the initial market value of the free shares awarded to a participant in any tax year cannot exceed £3,000.
(2)
For this purpose the “initial market value” of shares means their market value on the date on which they are awarded.
(3)
For the purposes of this paragraph the market value of shares subject to restrictions or risk of forfeiture shall be determined as if there were no such restriction or risk.
For this purpose shares are “subject to risk of forfeiture” if the interest that may be acquired is only conditional within the meaning of section 140C of the Taxes Act 1988.
Performance allowances
25
(1)
Sub-paragraph (2) applies if the plan provides for performance allowances, that is for—
(a)
whether or not free shares will be awarded to an individual, or
(b)
the number or value of free shares awarded,
to be conditional on performance targets being met.
(2)
Where this sub-paragraph applies—
(a)
the requirements of—
paragraph 26 (performance allowances: general application),
paragraph 27 (performance measures and targets), and
paragraph 28 (performance allowances: information to be given to employees), and
(b)
the requirements of either paragraph 29 (method one) or paragraph 30 (method two),
must be complied with.
Performance allowances: general application
26
If the plan provides for performance allowances in relation to an award it must make provision for such allowances for all qualifying employees in relation to that award.
Performance allowances: measures and targets
27
(1)
If the plan provides for performance allowances the following requirements must be met with respect to performance measures and performance targets.
(2)
The performance measures used must—
(a)
be based on business results or other objective criteria, and
(b)
be fair and objective measures of the performance of the units to which they are or may be applied.
(3)
The performance targets must be set for performance units comprising one or more employees.
(4)
For the purposes of an award of free shares under the plan an employee must not be a member of more than one performance unit.
Performance allowances: information to be given to employees
28
(1)
If the plan provides for performance allowances in relation to an award of shares, the plan must require the company—
(a)
to notify each employee participating in the award of the performance targets and measures which, under the plan, will be used to determine the number or value of free shares awarded to him; and
(b)
to notify all qualifying employees of the company or, in the case of a group plan, of any participating company, in general terms, of the performance measures to be used to determine the number or value of free shares to be awarded to each employee participating in the award.
(2)
The notices must be given as soon as reasonably practicable.
(3)
The company may exclude from the notice mentioned in sub-paragraph (1)(b) any information the disclosure of which the company reasonably considers would prejudice commercial confidentiality.
Performance allowances: method one
29
(1)
The requirements of this paragraph are that if the plan provides for performance allowances in relation to an award of shares—
(a)
at least 20% of the shares in the award must be awarded without reference to performance in accordance with the requirement of paragraph 9 (participation on same terms),
(b)
the remaining shares must be awarded by reference to performance, and
(c)
the highest number of shares within paragraph (b) awarded to an individual must be not more than four times the highest number of shares within paragraph (a) awarded to an individual.
(2)
In determining for the purposes of sub-paragraph (1)(a) whether the requirement of paragraph 9 (participation on same terms) is met the shares to which sub-paragraph (1)(a) above applies are treated as a separate award of free shares.
(3)
Where the plan meets the requirements of sub-paragraph (1), the requirement of paragraph 9 (participation on same terms) does not apply to any provision of the plan relating to the awarding of shares within sub-paragraph (1)(b).
(4)
If free shares of different classes are awarded, the requirements of sub-paragraph (1) apply separately in relation to each class.
Performance allowances: method two
30
(1)
The requirements of this paragraph are that in relation to an award of free shares under the plan—
(a)
some or all of the shares must be awarded by reference to performance; and
(b)
the awarding of the shares to qualifying employees who are members of the same performance unit must meet the requirement of paragraph 9 (participation on same terms).
(2)
In determining for the purposes of sub-paragraph (1)(b) whether the requirement of paragraph 9 (participation on same terms) is met the free shares awarded in respect of each performance unit are treated as a separate award of free shares.
(3)
If this method is used nothing in paragraph 9 (participation on same terms) requires the awarding of shares to members of different performance units to be on the same terms.
The holding period
31
(1)
The plan must require the company in respect of each award of free shares to specify a period (“the holding period”) during which a participant is bound by contract with the company—
(a)
to permit his free shares to remain in the hands of the trustees, and
(b)
not to assign, charge or otherwise dispose of his beneficial interest in the shares.
(2)
The holding period—
(a)
must be a period of at least three years but not more than five years, beginning with the date on which the shares in question are awarded to the participant, and
(b)
must be the same in respect of all shares in the same award.
(3)
The plan may authorise the company to specify different holding periods from time to time.
But it must prevent the company from increasing the holding period specified in respect of free shares that have been awarded under the plan.
(4)
The participant’s obligations with respect to the holding period—
(a)
come to an end if during the period he ceases to be in relevant employment, and
(b)
are subject to—
paragraph 32 (power to authorise trustees to accept general offers etc.);
paragraph 73 (meeting PAYE obligations); and
paragraph 121(5) (termination of plan: early removal of shares with participant’s consent).
Holding period: power to authorise trustees to accept general offers etc.
32
A participant may direct the trustees to do any of the following during the holding period—
(a)
to accept an offer for any of his free shares (“”) if the acceptance or agreement will result in a new holding being equated with the original shares for the purposes of capital gains tax; or
(b)
to accept an offer of a qualifying corporate bond (whether alone or with other assets or cash or both) for his free shares if the offer forms part of such a general offer as is mentioned in paragraph (c); or
(c)
to accept an offer of cash, with or without other assets, for his free shares if the offer forms part of a general offer which is made to holders of shares of the same class as his or of shares in the same company and which is made in the first instance on a condition such that if it is satisfied the person making the offer will have control of that company, within the meaning of section 416 of the Taxes Act 1988; or
(d)
to agree to a transaction affecting his free shares or such of them as are of a particular class, if the transaction would be entered into pursuant to a compromise, arrangement or scheme applicable to or affecting—
(i)
all the ordinary share capital of the company or, as the case may be, all the shares of the class in question, or
(ii)
all the shares, or all the shares of the class in question, which are held by a class of shareholders identified otherwise than by reference to their employment or their participation in an approved employee share ownership plan.
Part V Partnership shares
Introduction
33
If the plan provides for partnership shares it must comply with the requirements of this Part of this Schedule.
Deductions from salary
35
(1)
The plan must provide for a partnership share agreement to be given effect by deductions from the employee’s salary.
Amounts so deducted are referred to in this Part of this Schedule as “partnership share money".
(2)
The partnership share agreement must specify—
(a)
what amounts are to be deducted, and
(b)
at what intervals.
This does not prevent the employee and the company agreeing to vary those amounts or intervals.
(3)
For the purposes of sub-paragraph (2)(a) the agreement may specify a percentage of the employee’s salary.
(4)
The plan must require the employer company to calculate the amounts and intervals having regard to the provisions of paragraph 36 (maximum amount of deductions from salary).
For this purpose “the employer company" is the company by reference to which the employee meets the requirement of paragraph 14 (the employment requirement) in relation to the plan.
Maximum amount of deductions
36
(1)
The amount of partnership share money deducted from an employee’s salary must not exceed—
(a)
£125 in any month, or
(b)
where the salary is not paid at monthly intervals, such amount as bears to £125 the same proportion as the pay interval in question bears to one month.
(2)
The amount of partnership share money deducted from an employee’s salary must not exceed 10% of the employee’s salary.
This means—
(a)
if the plan does not provide for an accumulation period, 10% of the salary payment from which the deduction is made;
(b)
if the plan provides for an accumulation period, 10% of the total of the employee’s salary payments over that period.
(3)
The plan may authorise the company to specify lower limits than those specified in sub-paragraphs (1) and (2).
Different limits may be specified in relation to different awards of shares.
(4)
Any amount deducted in excess of that allowed by sub-paragraph (1) or (2), or any lower limit in the plan, must be paid over to the employee as soon as practicable.
Minimum amount of deductions
37
(1)
The plan may provide that the amount to be deducted in pursuance of a partnership share agreement in any month must not be less than a minimum amount specified in the plan.
(2)
The specified minimum amount must not be greater than £10.
(3)
Sub-paragraphs (1) and (2) apply whatever the intervals at which the employee is paid.
Notice of possible effect of deductions on benefit entitlement
38
(1)
The plan must provide that the company may not enter into a partnership share agreement with an employee unless the agreement contains a notice under this paragraph.
(2)
A notice under this paragraph is a notice in a prescribed form containing prescribed information as to the possible effect of deductions on an employee’s entitlement to social security benefits, statutory sick pay and statutory maternity pay.
(3)
In this paragraph “prescribed” means prescribed by regulations made by the Board.
Plan with no accumulation period
40
(1)
If the plan does not provide for an accumulation period, it must provide for partnership share money to be applied by the trustees in acquiring partnership shares on behalf of the employee on the acquisition date.
(2)
For this purpose “the acquisition date” means the date set by the trustees in relation to the award of partnership shares, being a date within 30 days after the last date on which the partnership share money to be applied in acquiring the shares was deducted.
(3)
The number of shares awarded to each employee must be determined in accordance with the market value of the shares on the acquisition date.
(4)
Any surplus partnership share money remaining after the acquisition of shares by the trustees—
(a)
may with the agreement of the employee be carried forward and added to the amount of the next deduction, and
(b)
in any other case must be paid over to the employee as soon as practicable.
(5)
This paragraph is subject to paragraph 43 (restriction imposed on number of shares awarded).
Plan with accumulation period
41
(1)
The plan may provide for accumulation periods not exceeding twelve months.
(2)
Where it does so—
(a)
the partnership share agreement must specify when each accumulation period begins and ends (the beginning of the first period being not later than the date on which the first deduction is made), and
(b)
the accumulation period which applies in relation to each award of partnership shares must be the same for all individuals who are eligible to participate in the award.
(3)
The partnership share agreement may specify that an accumulation period comes to an end on the occurrence of a specified event.
This is subject to sub-paragraph (2)(b).
(4)
Where the plan provides for accumulation periods, it may also provide that if—
(a)
during an accumulation period, a transaction occurs in relation to any of the shares (“the original holding”) to be acquired under a partnership share agreement which results in a new holding of shares being equated with the original holding for the purposes of capital gains tax, and
(b)
the employee gives his consent for the purposes of this sub-paragraph,
the partnership share agreement shall have effect after the time of that transaction as if it were an agreement for the purchase of shares comprised in the new holding.
Application of money deducted in accumulation period
42
(1)
This paragraph applies if the plan provides for one or more accumulation periods.
(2)
The plan must provide for the partnership share money deducted in each period to be applied by the trustees in acquiring partnership shares on behalf of the employee on the acquisition date.
This is subject to sub-paragraphs (6) and (7).
(3)
In sub-paragraph (2) “the acquisition date” means the date set by the trustees in relation to the award of partnership shares, being a date within 30 days after the end of the accumulation period which applies in relation to the award.
(4)
The number of shares awarded to each employee must be determined in accordance with the lower of—
(a)
the market value of the shares at the beginning of the accumulation period, and
(b)
the market value of the shares on the acquisition date.
(5)
Any surplus partnership share money remaining after the acquisition of shares by the trustees—
(a)
may with the agreement of the employee be carried forward to the next accumulation period, and
(b)
in any other case must be paid over to the employee as soon as practicable.
(6)
The plan must provide that where—
(a)
partnership share money has been deducted in an accumulation period, and
(b)
the employee ceases to be in relevant employment during that period,
the partnership share money is paid over to the individual as soon as practicable.
(7)
The partnership share agreement may provide that, where an accumulation period comes to an end on the occurrence of a specified event, the partnership share money deducted in that period must be paid over to the individual as soon as practicable instead of being applied in acquiring shares.
(8)
This paragraph is subject to paragraph 43 (restriction imposed on number of shares awarded).
Stopping and re-starting deductions
44
(1)
The plan must provide that an employee may at any time give notice in writing to the company to stop deductions in pursuance of a partnership share agreement.
(2)
The plan must also provide that an employee who has stopped deductions may subsequently give notice in writing to the company to re-start deductions in pursuance of the agreement, but may not make up deductions that have been missed.
(3)
If the plan makes provision for one or more accumulation periods, it may prevent an employee re-starting deductions more than once in any accumulation period.
(4)
The plan must provide that unless a later date is specified in the notice—
(a)
the company must within 30 days of receiving a notice within sub-paragraph (1), ensure that no further deductions are made by it under the partnership share agreement;
(b)
the company must on receiving a notice within sub-paragraph (2) re-start deductions under the partnership share agreement not later than the re-start date.
(5)
For the purposes of sub-paragraph (4)(b) “the re-start date” is the date of the first deduction due under the partnership share agreement more than 30 days after receipt of the notice within sub-paragraph (2).
Meaning of “salary"
48
References in this Part of this Schedule to an employee’s “salary" are to such of the emoluments of the employment by reference to which he is eligible to participate in the plan as are liable to be paid under deduction of tax pursuant to section 203 of the Taxes Act 1988 (PAYE)[F6or which would be if that individual were within the scope of Schedule E], after deducting amounts included by virtue of Chapter II of Part V of that Act (expenses and benefits in kind) F7or which would have been had the individual been within the scope of Schedule E, or would be so liable apart from this Schedule.
Part VI Matching shares
Introduction
49
If the plan provides for matching shares it must comply with the requirements of this Part of this Schedule.
Application of provisions relating to holding period etc.
52
The provisions of paragraphs 31 and 32 as to the holding period and related matters apply in relation to matching shares as they apply to free shares.
Part VII Reinvestment of cash dividends
Reinvestment
53
(1)
The plan may provide that where the company so directs—
(a)
all cash dividends in respect of plan shares held on behalf of participants must be applied in acquiring further shares on their behalf, or
(b)
all cash dividends in respect of plan shares held on behalf of participants who elect to reinvest their dividends must be applied in acquiring further shares on their behalf.
This is referred to in this Part of this Schedule as “reinvestment" and the further plan shares acquired are referred to in this Schedule as “dividend shares".
(2)
The company may revoke a direction.
(3)
Where cash dividends in respect of plan shares held on behalf of a participant are not required to be reinvested under the plan, the plan must require the dividends to be paid over to the participant as soon as practicable.
(4)
This paragraph is subject to paragraph 54 (limit on amount reinvested).
Limit on amount reinvested
54
(1)
The plan must provide that the total dividend reinvestment in respect of any participant cannot exceed £1,500 in any tax year.
(2)
For this purpose “the total dividend reinvestment" in respect of a participant is the sum of—
(a)
the amount applied by the trustees in acquiring dividend shares on behalf of the participant under the plan, and
(b)
the amount applied by the trustees of other employee share ownership plans that are—
(i)
established by the company or an associated company, and
(ii)
approved under this Schedule,
in acquiring dividend shares on his behalf.
(3)
If the amounts received by the trustees exceed the limit in sub-paragraph (1), the plan must provide for the balance to be paid over to the participant as soon as practicable.
Certain amounts not reinvested to be carried forward
58
(1)
Any amount that is not reinvested—
(a)
because the amount of the cash dividend to which the participant is entitled is not sufficient to acquire a share, or
(b)
because there is an amount remaining after acquiring one or more dividend shares on the participant’s behalf,
may be retained by the trustees and carried forward to be added to the amount of the next cash dividend to be reinvested, but shall be held by them so as to be separately identifiable for the purposes of sub-paragraphs (2) and (3).
(2)
An amount retained under this paragraph shall be paid over to the participant—
(a)
if or to the extent that it is not reinvested within the period of three years beginning with the date on which the dividend was paid, or
(b)
if during that period the participant ceases to be in relevant employment, or
(c)
if during that period a plan termination notice is issued in respect of the plan.
(3)
An amount required to be paid over to the participant under sub-paragraph (2) shall be paid over as soon as practicable.
(4)
For the purposes of this paragraph an amount carried forward under this paragraph derived from an earlier cash dividend is treated as reinvested before an amount derived from a later cash dividend.
Part VIII Types of share that may be used
Introduction
59
The requirements of the following paragraphs must be met with respect to any shares that may be awarded under the plan (“”)—
paragraph 60 (must be ordinary share capital);
paragraph 61 (requirement as to listing etc.);
paragraph 62 (shares must be fully paid up and not redeemable);
paragraph 63 (only certain kinds of restriction allowed);
paragraph 67 (prohibited companies).
Requirement as to listing etc.
61
Eligible shares must be—
(a)
shares of a class listed on a recognised stock exchange; or
(b)
shares in a company which is not under the control of another company; or
(c)
shares in a company which is under the control of a company (other than a company which is, or would if resident in the United Kingdom be, a close company) whose shares are listed on a recognised stock exchange.
Only certain kinds of restriction allowed
63
(1)
Eligible shares must not be subject to any restrictions other than—
(a)
those involved in there being a holding period (see paragraphs 31, 52 and 57); or
(b)
those affecting all ordinary shares in the company; or
(c)
those permitted by—
paragraph 64 (voting rights),
paragraph 65 (provision for forfeiture), or
paragraph 66 (pre-emption conditions).
(2)
For this purpose there is a restriction if there is any contract, agreement, arrangement or condition—
(a)
by which a person’s freedom to dispose of the shares or of any interest in them or of the proceeds of their sale or to exercise any right conferred by them is restricted, or
(b)
by which such a disposal or exercise may result in any disadvantage to him or to a person connected with him,
subject to sub-paragraphs (3) and (4).
(3)
Any discretion of the directors under the articles of association of the company to refuse to accept the transfer of shares shall be disregarded for the purposes of this paragraph if the directors—
(a)
have undertaken to the Inland Revenue not to exercise it in such a way as to discriminate against participants, and
(b)
have notified all qualifying employees of the existence of the undertaking.
(4)
There shall also be disregarded for the purposes of this paragraph so much of any contract, agreement, arrangement or condition as contains provisions similar in purpose and effect to any of the provisions of the Model Code as (for the time being) set out in the listing rules issued by the competent authority for listing in the United Kingdom under section 74(4) of the M3Financial Services and Markets Act 2000.
Permitted restrictions: voting rights
64
Eligible shares may be shares carrying no voting rights or limited voting rights.
Permitted restrictions: provision for forfeiture
65
(1)
Free or matching shares may be subject to provision for forfeiture in the following circumstances.
(2)
Provision may be made for forfeiture—
(a)
on the participant ceasing to be in relevant employment at any time in the forfeiture period,
(b)
on the participant withdrawing the shares from the plan in that period, or
(c)
in the case of matching shares, on the participant withdrawing the partnership shares in respect of which those shares were awarded from the plan within that period,
otherwise than by reason of an event within paragraph 87(2) (circumstances in which there is no charge to tax on shares ceasing to be subject to plan).
(3)
In sub-paragraph (2) “the forfeiture period” means the forfeiture period specified in the plan being a period of not more than three years beginning with the date on which the shares were awarded to the participant.
(4)
Forfeiture may not be linked to the performance of any person or persons.
(5)
The same provision for forfeiture must apply in relation to all free or matching shares included in the same award under the plan.
(6)
In this Schedule “provision for forfeiture” means any provision to the effect that a participant shall cease to be beneficially entitled to the shares on the occurrence of certain events, and references to forfeiture shall be construed accordingly.
Permitted restrictions: pre-emption conditions
66
(1)
If the requirements of this paragraph are met, eligible shares may be subject to provision requiring shares—
(a)
that were awarded to an employee under the plan, and
(b)
that are held by an employee or a permitted transferee,
to be offered for sale on the employee ceasing to be in relevant employment.
(2)
For the purposes of sub-paragraph (1)(b) a “permitted transferee” means a person to whom, under the articles of association of the company, the employee is permitted to transfer the shares.
(3)
The requirements of this paragraph are that under the articles of association of the company—
(a)
the same provision applies to all employees of the company or, in the case of a parent company, to all employees of that company or any company of which that company has control;
(b)
the shares are required to be offered for sale at a specified consideration; and
(c)
anyone disposing of shares of the same class (whether or not as an employee) is required to offer the shares for sale on no better terms.
Prohibited companies
67
(1)
Eligible shares must not be shares—
(a)
in an employer company, or
(b)
in a company that—
(i)
has control of an employer company, and
(ii)
is under the control of a person or persons within sub-paragraph (2)(b)(i) in relation to an employer company.
(2)
For the purposes of this paragraph a company is “an employer company” if—
(a)
the business carried on by it consists substantially in the provision of the services of persons employed by it, and
(b)
the majority of those services are provided to—
(i)
a person who has, or two or more persons who together have, control of the company, or
(ii)
a company associated with the company.
(3)
For the purposes of sub-paragraph (2)(b)(ii) a company shall be treated as associated with another company if both companies are under the control of the same person or persons.
(4)
For the purposes of sub-paragraphs (1) to (3)—
(a)
references to a person include a partnership, and
(b)
where a partner, alone or together with others, has control of a company, the partnership shall be treated as having like control of that company.
(5)
For the purposes of this paragraph the question whether a person controls a company shall be determined in accordance with section 416(2) to (6) of the Taxes Act 1988.
Part IX The trustees
Establishment of trustees
68
(1)
The plan must provide for the establishment of a body of persons resident in the United Kingdom (“the trustees”) who are required by the plan—
(a)
in the case of free or matching shares, to acquire shares and appropriate them to employees in accordance with the plan;
(b)
in the case of partnership shares, to apply partnership share money in acquiring shares on behalf of employees in accordance with the plan; and
(c)
in the case of dividend shares, to apply cash dividends in acquiring shares on behalf of participants in accordance with the plan.
(2)
The functions of the trustees with respect to shares held by them must be regulated by a trust (“the plan trust”)—
(a)
which is constituted under the law of a part of the United Kingdom, and
(b)
the terms of which are embodied in an instrument which complies with the requirements of this Part of this Schedule.
(3)
The instrument must not contain any terms which are neither essential nor reasonably incidental to complying with the requirements of this Part of this Schedule.
Power of trustees to borrow
69
The trust instrument may provide that the trustees have power to borrow—
(a)
to acquire shares for the purposes of the plan, and
(b)
for such other purposes as may be specified in the trust instrument.
General duties of trustees
71
(1)
The trust instrument must require the trustees—
(a)
to dispose of a participant’s plan shares, and
(b)
to deal with any right conferred in respect of any of his plan shares to be allotted other shares, securities or rights of any description,
only pursuant to a direction given by or on behalf of the participant.
This is subject to sub-paragraph (3) and to any provision made in the plan in accordance with paragraph 73 (meeting PAYE obligations).
(2)
The plan may provide for participants to give such general directions, to such effect and in such terms, as are specified in the plan.
(3)
The trust instrument must, in the case of a participant’s plan shares that are free, matching or dividend shares, prohibit the trustees from disposing of any of those shares (whether to the participant or otherwise) at any time during the holding period, unless the participant has at that time ceased to be in relevant employment.
This is subject to—
paragraph 32 (holding period: power to authorise trustees to accept general offers etc.);
paragraph 72 (power of trustees to raise funds to subscribe for rights issue);
paragraph 73 (meeting PAYE obligations);
paragraph 121(5) (termination of plan: early removal of shares with participant’s consent).
(4)
The trust instrument must require the trustees to pay over to the participant as soon as practicable any money or money’s worth received by them in respect of or by reference to any of his shares, other than money’s worth consisting of new shares within the meaning of paragraph 115 (company reconstructions).
This is subject to—
(a)
the provisions of Part VII (reinvestment of cash dividends);
(b)
the trustees’ obligations under paragraphs 95 and 96 (PAYE: shares ceasing to be subject to the plan and capital receipts); and
(c)
the trustees’ PAYE obligations.
Power of trustees to raise funds to subscribe for rights issue
72
(1)
The trustees may dispose of some of the rights arising under a rights issue in order to be able to obtain sufficient funds to exercise other such rights.
This power is subject to paragraph 71(1) (duty to act in accordance with participant’s directions).
(2)
In this paragraph references to rights arising under a rights issue are to rights conferred in respect of a participant’s plan shares to be allotted, on payment, other shares or securities or rights of any description in the same company.
Meeting PAYE obligations
73
(1)
The plan must make provision to ensure that, where a PAYE obligation is imposed on the trustees as a result of any of a participant’s plan shares ceasing to be subject to the plan, the trustees are able to meet that obligation—
(a)
by disposing of—
(i)
any of those shares, or
(ii)
any of the participant’s remaining plan shares (if any), or
(b)
by virtue of the participant paying to the trustees a sum equal to the amount required to discharge the obligation.
(2)
In sub-paragraph (1) the reference to a PAYE obligation includes an obligation under paragraph 95 (PAYE: shares ceasing to be subject to the plan).
(3)
In sub-paragraph (1)(a) the reference to disposing of shares includes the acquisition of the shares by the trustees for the purposes of the trust.
(4)
A disposal of any of the participant’s plan shares in accordance with provision made under sub-paragraph (1)(a)(ii) may give rise to a charge to tax under—
paragraph 81 (charge on free or matching shares ceasing to be subject to plan);
paragraph 86 (charge on partnership shares ceasing to be subject to plan); or
paragraph 93 (charge on dividend shares ceasing to be subject to plan).
Deemed disposal by trustees on disposal of beneficial interest
74
(1)
If at any time the participant’s beneficial interest in any of his shares is disposed of, the shares in question shall be treated for the purposes of this Schedule as having been disposed of at that time by the trustees for the like consideration as was obtained for the disposal of the beneficial interest.
(2)
For this purpose there is no disposal of the participant’s beneficial interest if and at the time when—
(a)
in England and Wales or Northern Ireland, that interest becomes vested in any person on the insolvency of the participant or otherwise by operation of law, or
(b)
in Scotland, that interest becomes vested in a judicial factor, in a trustee of the participant’s sequestrated estate or in a trustee for the benefit of the participant’s creditors.
(3)
If a disposal of shares falling within this paragraph is not at arm’s length, the proceeds of the disposal shall be taken for the purposes of this Schedule to be equal to the market value of the shares at the time of the disposal.
Duties of trustees in relation to tax liabilities
75
(1)
The trust instrument must require the trustees—
(a)
to maintain such records as may be necessary for the purposes of—
(i)
their own PAYE obligations, or
(ii)
the PAYE obligations of the employer company so far as they relate to the plan,
(b)
where the participant becomes liable to income tax under Case V of Schedule D, Schedule E or Schedule F by reason of the occurrence of any event, to inform him of any facts relevant to determining that liability.
(2)
For the purposes of this paragraph—
“employer company” has the same meaning as in paragraph 95 (PAYE: shares ceasing to be subject to the plan); and
“PAYE obligations” includes obligations conferred on the trustees by paragraphs 95 and 96 (PAYE: shares ceasing to be subject to plan and capital receipts).
Part X Income tax
Introduction
77
(1)
The provisions of this Part of this Schedule apply for income tax purposes in relation to an approved employee share ownership plan.
This is subject to sub-paragraph (2).
(2)
Nothing in this Part applies to an individual if, at the time of the award in question, he is not chargeable to tax under Schedule E in respect of the employment by reference to which he meets the requirement of paragraph 14 (the employment requirement) in relation to the plan.
Charge on disposal of beneficial interest during the holding period
82
(1)
Where free or matching shares cease to be subject to the plan by virtue of a participant, in breach of his obligations under paragraph 31(1)(b), assigning, charging or otherwise disposing of his beneficial interest in those shares—
(a)
paragraph 81 does not apply, and
(b)
the participant is chargeable to income tax under Schedule E on the market value of the shares when they cease to be subject to the plan.
F9(2)
Where the participant is charged to tax under sub-paragraph (1) the tax due shall be reduced by the amount or aggregate amount of any tax paid on any capital receipts within paragraph 79 in respect of those shares.
Reinvestment of cash dividend on behalf of participant
89
(1)
The amount applied by the trustees in acquiring dividend shares on behalf of a participant is not treated as income of the participant for any tax purposes.
(2)
The participant has no entitlement to a tax credit in respect of the amounts of dividends so applied.
(3)
Sub-paragraphs (1) and (2) do not affect—
(a)
any charge under paragraph 93(1) (charge on dividend shares ceasing to be subject to plan), or
(b)
any entitlement to a tax credit in respect of the amount so charged.
(4)
Section 234A(4) of the Taxes Act 1988 (information relating to distributions to be provided by nominee) shall not apply in relation to any amount applied by the trustees in acquiring dividend shares on behalf of a participant.
This is subject to paragraph 93(4).
Repayment of excess cash dividend
90
Section 234A(4) to (11) of the Taxes Act 1988 (information relating to distributions to be provided by nominee) shall apply in relation to the balance of any cash dividend paid over to the participant under paragraph 54(3) as if it were a payment to which subsection (4)(b) of that section applies.
Treatment of cash dividend retained for reinvestment
91
(1)
An amount retained under paragraph 58(1) (amount of cash dividend not reinvested) shall not be treated as income of the participant for any tax purposes.
(2)
The participant has no entitlement to a tax credit in respect of any such amount.
(3)
This paragraph does not affect any charge—
(a)
under paragraph 92 (treatment of cash dividend retained and then later paid out), or
(b)
paragraph 93 (charge on dividend shares ceasing to be subject to plan),
or any tax credit in respect of an amount so charged.
Treatment of cash dividend retained and then later paid out
92
(1)
Where a cash dividend is paid over to a participant under paragraph 58(2) (cash dividend paid over if not reinvested), the participant is chargeable to tax on that amount—
(a)
under Schedule F, or
(b)
to the extent that the dividend is a foreign cash dividend, under Case V of Schedule D,
for the tax year in which the dividend is paid over to him.
(2)
For the purposes of determining the tax credit (if any) to which the participant is entitled under section 231 of the Taxes Act 1988 (tax credits for certain recipients of qualifying distributions), the reference in subsection (1) of that section to the tax credit fraction in force when the distribution is made shall be read as a reference to the fraction in force when the dividend is paid over to him.
(3)
Section 234A(4) to (11) of the Taxes Act 1988 (information relating to distributions to be provided by nominee) shall apply in relation to an amount paid under paragraph 58(2) as if—
(a)
it were a payment to which subsection (4)(b) of that section applies, and
(b)
the cash dividend had been paid when the payment was paid over to the participant under paragraph 58(2).
PAYE: capital receipts
96
(1)
Where the trustees receive a sum of money which constitutes (or forms part of) a capital receipt in respect of which a participant is chargeable to income tax under Schedule E, in accordance with this Part of this Schedule, when it is received by him—
(a)
the trustees shall pay out of that sum of money to the employer company an amount equal to that on which income tax is so payable, and
(b)
the employer company shall then pay over that amount to the participant, but in so doing shall make a PAYE deduction.
This is subject to sub-paragraph (3).
(2)
For the purposes of this paragraph “the employer company” means F12the company which employs the participant in relevant employment at the time the trustees receive the sum of money referred to in sub-paragraph (1) (or, if the participant is not employed in relevant employment at that time, the company which last employed him in relevant employment before that time), provided that that company is one to whom the PAYE regulations (within the meaning of section 203L(3) of the Taxes Act 1988) at that time apply
(3)
Where the trustees receive a sum of money to which sub-paragraph (1) applies but—
(a)
there is no company which falls within sub-paragraph (2), or
(b)
the Inland Revenue are of the opinion that it is impracticable for the company which falls within that sub-paragraph to make a PAYE deduction and accordingly direct that this sub-paragraph shall apply,
then, in paying over to the participant the capital receipt, the trustees shall make a PAYE deduction in respect of an amount equal to that on which income tax is payable as mentioned in sub-paragraph (1) as if the participant were a former employee of the trustees.
(4)
In a case where sub-paragraph (3) applies, section 203C of the Taxes Act 1988 (PAYE: employee of non-UK employer) does not apply.
(5)
For the purposes of this paragraph “PAYE deduction” means a deduction required by regulations under section 203 of the Taxes Act 1988.
Part XI Capital gains tax
Introduction
97
The provisions of this Part apply for capital gains tax purposes in relation to an approved employee share ownership plan.
Gains accruing to trustees
98
(1)
Any gain accruing to the trustees is not a chargeable gain if the shares—
(a)
are shares in relation to which the requirements of Part VIII are met, and
(b)
are awarded to employees, or acquired on their behalf as dividend shares, in accordance with the plan within the relevant period.
(2)
If the shares are readily convertible assets at the time they are acquired by the trustees, the relevant period is the period of two years beginning with the date on which the shares are acquired by the trustees.
(3)
If at the time of their acquisition by the trustees the shares are not readily convertible assets, the relevant period is—
(a)
the period of five years beginning with the date on which the shares were acquired, or
(b)
if within that period the shares in question become readily convertible assets, the period of two years beginning with the date on which they did so,
whichever ends first.
(4)
For the purposes of determining whether shares are awarded to employees within the relevant period, shares acquired by the trustees at an earlier time are taken to be awarded to employees before shares of the same class acquired by the trustees at a later time.
This is subject to paragraph 76(1) (treatment of shares acquired from an employee share ownership trust).
Participant absolutely entitled as against trustees
99
(1)
A participant is treated for capital gains tax purposes as absolutely entitled as against the trustees to any shares awarded to him under the plan.
(2)
This applies notwithstanding anything in the plan or the trust instrument.
Disposal of rights under rights issue
104
(1)
Any gain accruing on the disposal of rights under paragraph 72 (power of trustees to raise funds to subscribe for rights issue) is not a chargeable gain.
(2)
Sub-paragraph (1) does not apply to a disposal of rights unless similar rights are conferred in respect of all ordinary shares in the company.
Part XII Corporation tax deductions
Introduction
105
References in this Part of this Schedule to deductions are to deductions by a company in calculating for the purposes of corporation tax the profits of a trade carried on by it.
This is subject to paragraph 114 (application of provisions to expenses of management of investment companies etc.).
Cases in which no deduction is allowed
108
(1)
No deduction is allowed under paragraph 106 or 107 in the following cases.
(2)
No deduction is allowed in respect of shares awarded to an individual who is not a Schedule E taxpayer at the date the shares are awarded to him under the plan.
A “Schedule E taxpayer” means an individual who—
(a)
is chargeable to tax under Schedule E in respect of emoluments from the employment by reference to which he is eligible to participate in the award, or
(b)
would be so chargeable if any such emoluments were remitted to the United Kingdom.
(3)
No deduction is allowed in respect of shares that are liable to depreciate substantially in value for reasons that do not apply generally to shares in the company.
(4)
No deduction is allowed if a deduction has been made—
(a)
by the company, or
(b)
by an associated company of the company,
in respect of the provision of the same shares for this or another trust.
This applies whatever the nature or purpose of the other trust and whatever the basis on which the deduction was made.
(5)
For the purposes of determining whether the same shares have been provided to more than one trust, if shares have been acquired by the trustees of the plan trust on different days it shall be assumed that those acquired on an earlier day are awarded under the plan before those acquired by the trustees on a later day.
Deduction for costs of setting up the plan
111
(1)
A deduction is allowed under this paragraph for expenses incurred by a company in establishing an employee share ownership plan which is approved by the Inland Revenue.
(2)
No deduction may be made under this paragraph if—
(a)
any employee acquires rights under the plan, or
(b)
the trustees acquire any shares for the purposes of the plan,
before the Inland Revenue approve the plan.
(3)
If Inland Revenue approval of the plan is given more than nine months after the end of that period of account in which the expenses are incurred, the expenses are treated for the purposes of this paragraph as incurred in the period in which the approval is given.
(4)
No other deduction is allowed in respect of expenses for which a deduction is allowed under this paragraph.
Deductions for contributions to running expenses of plan
112
(1)
Nothing in this Part of this Schedule affects any deduction for expenses incurred by a company in contributing to the expenses of the trustees in operating an approved employee share ownership plan.
(2)
For this purpose the expenses of the trustees in operating the plan—
(a)
do not include expenses in acquiring shares for the purposes of the trust, other than incidental acquisition costs, but
(b)
do include the payment of interest on money borrowed by them for that purpose.
(3)
In sub-paragraph (2)(a) “incidental acquisition costs” means any fees, commission, stamp duty and similar incidental costs attributable to the acquisition of the shares.
F13Deduction for contribution to plan trust
112A
(1)
A deduction is allowed to a company under this paragraph where—
(a)
on or after the day on which this paragraph comes into force the company makes a payment to the trustees of an approved employee share ownership plan in order to enable them to acquire shares in the company or a company which controls it,
(b)
the payment is applied by the trustees to acquire such shares,
(c)
the shares are not acquired from a company, and
(d)
the condition in sub-paragraph (2) is met in relation to the company in which the shares are acquired.
(2)
The condition in this sub-paragraph is that, at the end of the period of twelve months beginning with the date of the acquisition, the trustees hold shares in the company for the plan trust that—
(a)
constitute not less than 10 per cent of the ordinary share capital of the company; and
(b)
carry rights to not less than 10 per cent of—
(i)
any profits available for distribution to shareholders of the company;
(ii)
any assets of that company available for distribution to its shareholders in the event of a winding-up.
(3)
For the purposes of sub-paragraph (2), shares that have been appropriated to, and acquired on behalf of, an individual under the plan shall continue to be treated as held by the trustees of the plan trust for the beneficiaries of that trust until such time as they cease to be subject to the plan (within the meaning of this Schedule).
(4)
A deduction allowed under this paragraph—
(a)
is of an amount equal to the amount of the payment referred to in sub-paragraph (1), and
(b)
must be made for the period of account in which the condition in sub-paragraph (2) is met.
(5)
No other deduction is allowed for any amount in respect of which a deduction has been made under this paragraph (except as specified in paragraph 112B(3)).
F14Withdrawal of deduction under paragraph 112A
112B
(1)
The Inland Revenue may by notice direct that the benefit of a deduction made under paragraph 112A is withdrawn where—
(a)
30 per cent of the shares acquired by virtue of the payment in respect of which the deduction is made have not been awarded under the plan before the end of the period of five years beginning with the date of acquisition, or
(b)
all the shares acquired by virtue of that payment have not been so awarded before the end of the period of ten years beginning with that date.
(2)
The effect of a direction under sub-paragraph (1)(a) or (b) is that the amount of the deduction is treated as a trading receipt of the company for the period of account in which the direction is given.
(3)
However, where—
(a)
the Inland Revenue give a direction under sub-paragraph (1)(a) or (b) in respect of any deduction, and
(b)
at any time after the giving of the direction, all the shares acquired by virtue of the payment in respect of which the deduction was made are awarded under the plan,
a further deduction is allowed under this sub-paragraph to the company which made the payment.
(4)
A deduction under sub-paragraph (3)—
(a)
is of an amount equal to the amount of the payment referred to in that sub-paragraph, and
(b)
must be made for the period of account in which sub-paragraph (3)(b) is first satisfied.
(5)
No other deduction is allowed in respect of any amount for which a deduction has been made under sub-paragraph (3).
(6)
Where—
(a)
a deduction is made under paragraph 112A or sub-paragraph (3) in respect of a payment for the acquisition of shares, but
(b)
shares are awarded under the plan to an individual who at the time is not a Schedule E taxpayer (as defined by paragraph 108(2)),
an amount equal to the appropriate proportion of the deduction is treated as a trading receipt of the company for the period of account in which the shares are so awarded.
(7)
For the purposes of sub-paragraph (6), the appropriate proportion of the deduction is the proportion which the number of shares awarded to the individual bears to the total number of shares acquired by virtue of the payment.
(8)
For the purposes of this paragraph, where shares are acquired by the trustees on different days, it shall be assumed that those acquired on an earlier day are awarded to employees under the plan before those acquired by the trustees on a later day.
Withdrawal of deductions on withdrawal of approval
113
(1)
If approval of an employee share ownership plan is withdrawn the Inland Revenue may by notice to a company direct that the benefit of any deductions under paragraph 106 (deduction for providing free or matching shares) or 107 (deduction for contributing to additional expenses in providing partnership shares) in relation to the plan is also withdrawn.
(2)
The effect of the direction is that the aggregate amount of the deductions is treated as a trading receipt of that company for the period of account in which the Inland Revenue give notice of the withdrawal of approval.
Application of provisions to expenses of management of investment companies etc.
114
(1)
The provisions of this Part apply in relation to—
(a)
investment companies, and
(b)
companies to which section 75 of the Taxes Act 1988 (management expenses) applies by virtue of section 76 of that Act (insurance companies),
in accordance with the following provisions.
(2)
The provisions of this Part which allow a deduction in calculating the profits of a trade apply to treat amounts as disbursed as expenses of management.
(3)
Paragraph 113(2) (effect of direction as to withdrawal of deductions) applies as if the reference to a trading receipt for the period of account in which the Inland Revenue give notice of the withdrawal of approval were a reference to profits or gains chargeable to tax under Case VI of Schedule D arising when the Inland Revenue give notice of the withdrawal.
Part XIII Supplementary provisions
Company reconstructions
115
(1)
This paragraph applies where there occurs in relation to any of the participant’s plan shares (“the original holding”)—
(a)
a transaction which results in a new holding being equated with the original holding for the purposes of capital gains tax, or
(b)
a transaction that would have that result but for the fact that what would be the new holding consists of or includes a qualifying corporate bond,
other than a transaction within sub-paragraph (2).
A transaction in relation to which this paragraph applies is referred to below as a “company reconstruction".
(2)
Where an issue of shares of any of the following descriptions (in respect of which a charge to income tax arises) is made as part of a company reconstruction, those shares shall be treated for the purposes of this paragraph as not forming part of the new holding—
(a)
redeemable shares or securities issued as mentioned in section 209(2)(c) of the Taxes Act 1988;
(b)
share capital issued in circumstances such that section 210(1) of that Act applies;
(c)
share capital to which section 249 of that Act applies.
(3)
In this paragraph—
“”, in relation to any new shares, means the shares in respect of which the new shares are issued or which the new shares otherwise represent;
“” means shares comprised in the new holding which were issued in respect of, or otherwise represent, shares comprised in the original holding;
“original holding” has the meaning given by sub-paragraph (1).
(4)
Subject to the following provisions of this paragraph, in relation to an employee share ownership plan, references in this Schedule to a participant’s plan shares shall be construed, after the time of the company reconstruction, as being or, as the case may be, as including references to any new shares.
(5)
For the purposes of this Schedule—
(a)
a company reconstruction shall be treated as not involving a disposal of shares comprised in the original holding,
(b)
the date on which any new shares are to be treated as having been awarded to the participant shall be that on which the corresponding shares were awarded,
(c)
the conditions in Part VIII shall be treated as fulfilled with respect to any new shares if they were (or were treated as) fulfilled with respect to the corresponding shares, and
(d)
the provisions of Part X (income tax) and Part XI (capital gains tax) shall apply in relation to the new shares as they would have applied to the corresponding shares.
Where the corresponding shares were dividend shares, the reference in paragraph (b) to the shares being awarded shall be read as a reference to the shares being acquired on behalf of the participant.
(6)
Sub-paragraphs (4) and (5) are subject to paragraph 116 (treatment of shares acquired under rights issue).
(7)
For the purposes of this Schedule if, as part of a company reconstruction, trustees become entitled to a capital receipt, their entitlement to the capital receipt shall be taken to arise before the new holding comes into being.
(8)
In the context of a new holding, any reference in this Schedule to shares includes securities and rights of any description which form part of the new holding for the purposes of Chapter II of Part IV of the M10Taxation of Chargeable Gains Act 1992.
Power to require information
Exemptions from stamp duty and stamp duty reserve tax
117
(1)
The Inland Revenue may by notice require any person to provide them with such information as they reasonably require for the performance of their functions under this Schedule and as the person to whom the notice is addressed has or can reasonably obtain.
(2)
The power conferred by this paragraph extends, in particular, to—
(a)
information to enable the Inland Revenue—
(i)
to decide whether to approve an employee share ownership plan or withdraw an approval already given, or
(ii)
to determine the liability to tax, including capital gains tax, of any person who has participated in a plan; and
(b)
information about the administration of a plan and any proposed alteration of the terms of a plan.
(3)
The notice must require the information to be provided within a specified time, which must not be less than three months.
(4)
In section 98 of the M11Taxes Management Act 1970 (penalties in connection with returns, etc.), in the first column of the table, after the final entry insert— “
paragraph 117 of Schedule 8 to the Finance Act 2000
”
.
Withdrawal of approval
118
(1)
If any disqualifying event occurs in relation to an approved employee share ownership plan, the Inland Revenue may by notice to the company withdraw the approval with effect from the time at which the disqualifying event occurred or such later time as the Inland Revenue may specify.
(2)
The following are disqualifying events—
(a)
a contravention in relation to the operation of the plan of any of the requirements of this Schedule, the plan itself or the plan trust;
(b)
any alteration being made in a key feature of the plan, or in the terms of the plan trust, without the approval of the Inland Revenue;
(c)
if the plan provides for performance allowances in accordance with paragraph 30 (method two), the setting, in respect of an award of shares, of performance targets that, at the time they are set in accordance with the plan, cannot reasonably be viewed as being comparable;
(d)
any alteration being made in the share capital of the company whose shares are the subject of the plan, or in the rights attaching to any shares of that company, that materially affects the value of participants’ plan shares;
(e)
shares of a class of which shares have been awarded to participants receiving different treatment in any respect from the other shares of that class;
(f)
the trustees, the company or, in the case of a group plan, a company which is or has been a participating company failing to furnish any information which they are or it is required to furnish under paragraph 117.
(3)
For the purposes of sub-paragraph (2)(b)—
(a)
an alteration is an alteration of a “key feature" of the plan if it relates to a provision that is necessary in order to meet the requirements of this Schedule; and
(b)
the Inland Revenue shall not withhold their approval unless it appears to them that the plan as proposed to be altered would not now be approved on an application under paragraph 4.
(4)
For the purposes of sub-paragraph (2)(c) performance targets are comparable if they are comparable in terms of the likelihood of their being met by the performance units to which they apply.
(5)
Sub-paragraph (2)(e) applies, in particular, to different treatment in respect of—
(a)
the dividend payable;
(b)
repayment;
(c)
the restrictions attaching to the shares; or
(d)
any offer of substituted or additional shares, securities or rights of any description in respect of the shares.
This is subject to sub-paragraph (6).
(6)
Sub-paragraph (2)(e) does not apply—
(a)
where the difference in treatment arises from—
(i)
a key feature of the plan, or
(ii)
any of the participants’ shares being subject to provision for forfeiture, or
(b)
on the ground only that shares which have been newly issued receive, in respect of dividends payable with respect to a period beginning before the date on which they were issued, treatment less favourable than that accorded to shares issued before that date.
(7)
The withdrawal of approval of an employee share ownership plan does not affect the operation of this Schedule in relation to shares awarded to participants in the plan before the time with effect from which approval was withdrawn.
References in this Schedule to an approved employee share ownership plan in relation to such shares are to a plan that was approved at the time the shares were awarded.
Appeal against withdrawal of approval
119
(1)
The company may appeal against a decision of the Inland Revenue—
(a)
to withdraw approval of an employee share ownership plan, or
(b)
to give a direction under paragraph 113 (withdrawal of corporation tax deductions on withdrawal of approval), or
(c)
to refuse approval under paragraph 118(2)(b) (approval of alteration of plan or plan trust).
(2)
The appeal lies to the Special Commissioners.
(3)
Notice of appeal must be given to the Inland Revenue within 30 days after notice of their decision is given to the company.
Termination of plan
120
(1)
The plan may provide for the company to issue a plan termination notice in respect of the plan in such circumstances as are specified in the plan.
(2)
The plan must provide that, where a plan termination notice is issued, a copy of the notice is to be given, without delay, to—
(a)
the Inland Revenue,
(b)
the trustees, and
(c)
each individual—
(i)
who has plan shares, or
(ii)
who has entered a partnership share agreement which was in force immediately before the notice was issued.
Effect of plan termination notice
121
(1)
This paragraph applies where the company has issued a plan termination notice under paragraph 120.
(2)
No further shares may be awarded to individuals under the plan.
(3)
The trustees must remove the plan shares from the plan as soon as practicable after—
(a)
the end of the notice period, or
(b)
if later, the first date on which the shares may be removed from the plan without giving rise to a charge to income tax under Part X of this Schedule on the participant on whose behalf they are held.
Paragraph 46 (repayment of partnership share money) and paragraph 58(2) (cash dividend paid over if not reinvested) provide for the payment to employees of money held on their behalf.
(4)
In sub-paragraph (3) “the notice period” means the period of three months beginning with the date on which the requirements imposed by the plan in accordance with paragraph 120(2) (copy of termination notice to Inland Revenue, participants etc.) are met in respect of the plan termination notice.
(5)
The trustees may remove the participant’s shares from the plan at an earlier date with the participant’s consent.
(6)
Any consent given by the participant before he receives a copy of the plan termination notice shall be disregarded for this purpose.
(7)
The trustees must as soon as practicable after the plan termination notice is issued pay to an individual any money held on his behalf.
(8)
In this paragraph references to the trustees removing the plan shares from the plan are to their—
(a)
transferring the shares to the participant on behalf of whom they are held, or to another person, at his direction, or
(b)
disposing of the shares and accounting (or holding themselves ready to account) for the proceeds to the participant or to another person at his direction.
(9)
Where the participant has died, the references in sub-paragraph (8) to the participant shall be read as references to his personal representatives.
Meaning of participant ceasing to be in relevant employment
123
(1)
This paragraph explains what is meant by a participant ceasing to be in relevant employment.
(2)
Relevant employment means employment by the company or any associated company.
(3)
A participant does not cease to be in relevant employment if he remains in the employment of the company or any associated company.
Exercise of functions conferred on “the Inland Revenue"
124
References in this Schedule to “the Inland Revenue" are to any officer of the Board.
Determination of market value
125
(1)
For the purposes of this Schedule the “market value” of shares has the same meaning as, for the purposes of the M12Taxation of Chargeable Gains Act 1992, it has by virtue of Part VIII of that Act.
This is subject to paragraph 24(3) (determination of value of shares subject to restriction or risk of forfeiture).
(2)
Where for the purposes of this Schedule the market value of shares on any date falls to be determined, the Inland Revenue and the trustees may agree that it shall be determined by reference to such date or dates, or to an average of the values on a number of dates, as may be provided in the agreement.
Meaning of “associated company"
126
(1)
For the purposes of this Schedule one company is an “associated company” of another company if—
(a)
one has control of the other, or
(b)
both are under the control of the same person or persons.
(2)
For the purposes of this paragraph the question of whether a person controls a company shall be determined in accordance with section 416(2) to (6) of the Taxes Act 1988.
(3)
This paragraph is subject to paragraph 67(3).
Jointly owned companies
127
(1)
For the purposes of the provisions of this Schedule relating to group plans, each joint owner of a jointly owned company is treated as controlling—
(a)
the jointly owned company, and
(b)
any company controlled by that company.
This paragraph does not apply for the purposes of paragraph 61(b) (requirement that plan shares are in a company not under another company’s control).
(2)
A “jointly owned company” means a company—
(a)
of which 50% of the issued share capital is owned by one person and 50% by another, and
(b)
which is not controlled by any one person.
(3)
A jointly owned company may not be a participating company in more than one group plan.
F16(4)
A company controlled by a jointly owned company may not—
(a)
be a participating company in more than one group plan, or
(b)
if the jointly owned company or any other company controlled by it is a participating company in a group plan, be a participating company in a different group plan.
Meaning of “readily convertible asset"
128
(1)
For the purposes of this Schedule “readily convertible asset” has the same meaning as in section 203F of the Taxes Act 1988 (PAYE: tradeable assets).
This is subject to sub-paragraph (2).
(2)
In determining for the purposes of this Schedule F17(and that section in its application in relation to shares which cease to be subject to a plan) whether shares are readily convertible assets any market for the shares that—
(a)
is created by virtue of the trustees acquiring shares for the purposes of the plan, and
(b)
exists solely for the purposes of the plan,
shall be disregarded.
Minor definitions
129
(1)
In this Schedule—
“” means an employee share ownership plan approved under this Schedule;
“approved profit sharing scheme” means a profit sharing scheme approved under Schedule 9 to the Taxes Act 1988;
“articles of association”, in relation to a company, includes any other written agreement between the shareholders of the company;
“company” means a body corporate;
“control”, unless otherwise indicated, has the same meaning as in section 840 of the Taxes Act 1988;
“foreign cash dividend” means a cash dividend paid in respect of plan shares in a company not resident in the United Kingdom;
“group of companies” means a company and any other companies of which it has control, and “group company” has a corresponding meaning;
“” has the meaning given in section 832(1) of the Taxes Act 1988;
“”, in relation to an employee share ownership plan, means plan shares that have been awarded to an individual participant;
“PAYE obligations” means obligations of any person under—
(a)
sections 203 to 203L of the Taxes Act 1988, or
(b)
regulations under section 203 of that Act;
“”, in relation to a plan, means—
(a)
free, partnership or matching shares that have been awarded to participants under the plan,
(b)
dividend shares that have been acquired on behalf of participants under the plan, and
(c)
shares in relation to which paragraph 115(5) applies (company reconstructions: new shares)),
that remain subject to the plan;
“qualifying corporate bond” has the meaning given by section 117 of the M13Taxation of Chargeable Gains Act 1992;
“tax year” means a year of assessment.
(2)
Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this Schedule.
(3)
For the purposes of this Schedule references to “” include fractions of shares forming part of the share capital of a company registered in a foreign country the law of which recognises such fractions.
(4)
For the purposes of this Schedule a company is a member of a consortium owning another company if it is one of a number of companies—
(a)
which between them beneficially own not less than three-quarters of the other company’s ordinary share capital, and
(b)
each of which beneficially owns not less than one-twentieth of that capital.
Index of defined expressions
130
In this Schedule the following expressions are defined or otherwise explained by the provisions indicated—
approved employee share ownership plan | paragraph 129(1) (and see paragraph 118(7)) |
approved profit sharing scheme | paragraph 129(1) |
articles of association | paragraph 129(1) |
associated company | paragraph 126 (and see paragraph 67(3)) |
award of shares | paragraph 3(1) |
ceasing to be in relevant employment (in relation to a participant) | paragraph 123 |
ceasing to be subject to plan (in relation to shares) | paragraph 122 |
company | paragraph 129(1) |
the company (in relation to an employee share ownership plan) | paragraph 1(4) |
connected person | paragraph 129(2) |
consortium (member of) | paragraph 129(4) |
control | paragraph 129(1) (and see paragraph 127) |
deduction (in Part XII) | paragraph 105 |
dividend shares | paragraph 53(1) |
eligible shares (in Part VIII) | paragraph 59 |
employee share ownership plan | paragraph 1(1) |
foreign cash dividend | paragraph 129(1) |
forfeiture (provision for) | paragraph 65(6) |
free shares | paragraph 1(1)(a) |
group of companies | paragraph 129(1) |
group plan | paragraph 2(1) |
holding period | paragraph 31 |
the Inland Revenue | paragraph 124 |
market value (of shares) | paragraph 125 |
matching shares | paragraph 1(2) |
ordinary share capital | paragraph 129(1) |
parent company | paragraph 2(1) |
participant (in relation to an employee share ownership plan) | paragraph 3(3) |
participant’s plan shares | paragraph 129(1) (and see paragraph 115(4)) |
participating company (in relation to a group plan) | paragraph 2(2) |
participation in an award of shares | paragraph 3(2) |
partnership share agreement | paragraph 34 |
partnership shares | paragraph 1(1)(b) |
PAYE obligations | paragraph 129(1) |
performance allowance | paragraph 25 |
plan shares | paragraph 129(1) (and see paragraphs 115 and 116) |
the plan trust | paragraph 68(2) |
qualifying corporate bond | paragraph 129(1) |
qualifying employee | paragraph 8(4) |
readily convertible asset | paragraph 128 |
reinvestment (in Part VII) | paragraph 53(1) |
relevant employment | paragraph 123(2) |
salary (in Part V) | paragraph 48 |
shares | paragraph 129(3) (and in the context of a new holding paragraph 115(8)) |
tax year | paragraph 129(1) |
the trustees | paragraph 68(1) |
withdrawal of shares from plan | paragraph 122(1) |