Finance Act 1978

Section 53.

SCHEDULE 9 Profit Sharing Schemes

PART I Approval of Schemes

1 (1) On the application of a body corporate (in this Schedule referred to as " the company concerned ") which has established a profit sharing scheme which complies with sub-paragraphs (3) and (4) below, the Board, subject to section 54 of this Act, shall approve the scheme—

(a) if they are satisfied as mentioned in paragraph 2 below; and

(b) unless it appears to them that there are features of the scheme which are neither essential nor reasonably incidental to the purpose of providing for employees and directors benefits in the nature of interests in snares.

(2) Where the company concerned has control of another company or companies, the scheme may be expressed to extend to all or any of the companies of which it has control; and in this Schedule a scheme which is expressed so to extend is referred to as a " group scheme " and, in relation to a group scheme, the expression " participating company" means the company concerned or a company of which for the time being the company concerned has control and to which for the time being the scheme is expressed to extend.

(3) The scheme must provide for the establishment of a body of persons resident in the United Kingdom (in this Schedule referred to as " the trustees ")—

(a) who, out of moneys paid to them by the company concerned or, in the case of a group scheme, a participating company, are required by the scheme to acquire shares in respect of which the conditions in Part II of this Schedule are fulfilled; and

(b) who are under a duty to appropriate shares acquired by them to individuals who participate in the scheme, not being individuals who are ineligible by virtue of Part III of this Schedule; and

(c) whose functions with respect to shares held by them are regulated by a trust which is constituted under the law of a part of the United Kingdom and the terms of which are embodied in an instrument which complies with the provisions of Part IV of this Schedule.

(4) The scheme must provide that the total of the initial market values of the shares appropriated to any one participant in a year of assessment will not exceed £500.

(5) An application under sub-paragraph (1) above shall be made in writing and contain such particulars and be supported by such evidence as the Board may require.

2 (1) The Board must be satisfied that at any time every person who—

(a) is then a full-time employee or director of the company concerned or, in the case of a group scheme, a participating company, and

(b) has been such an employee or director at all times during a qualifying period, not exceeding five years, ending at that time, and

(c) is chargeable to tax in respect of his office or employment under Case I of Schedule E,

will then be eligible, subject to Part III below, to participate in the scheme on similar terms.

(2) For the purposes of sub-paragraph (1) above, the fact that the number of shares to be appropriated to the participants in a scheme varies by reference to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that the participants are not eligible to participate in the scheme on similar terms.

3 (1) If, at any time after the Board have approved a scheme,—

(a) a participant is in breach of any of his obligations under paragraphs (a), (c) and (d) of subsection (1) of section 54 of this Act, or

(b) there is, with respect to the operation of the scheme, any contravention of any provision of Chapter III of Part III of this Act, the scheme itself or the terms of the trust referred to in paragraph 1(3)(c) above, or

(c) any shares of a class of which shares have been appropriated to participants receive different treatment in any respect from the other shares of that class, in particular, different treatment in respect of—

(i) the dividend payable,

(ii) repayment,

(iii) the restrictions attaching to the shares, or

(iv) any offer of substituted or additional shares, securities or rights of any description in respect of the shares, or

(d) the Board cease to be satisfied as mentioned in paragraph 2 above,

the Board may, subject to sub-paragraph (3) below, withdraw the approval with effect from that time or from such later time as the Board may specify.

(2) If, at any time after the Board have approved a scheme, an alteration is made in the scheme or the terms of the trust referred to in paragraph 1(3)(c) above, the approval shall not have effect after the date of the alteration unless the Board have approved the alteration.

(3) It shall not be a ground for withdrawal of approval of a scheme that shares which have been newly issued receive, in respect of dividends payable with respect to a period beginning before the date on which the shares were issued, treatment which is less favourable than that accorded to shares issued before that date.

4 If the company concerned is aggrieved by—

(a) the failure of the Board to approve a scheme,

(b) the failure of the Board to approve an alteration as mentioned in paragraph 3(2) above, or

(c) the withdrawal of approval,

the company may, by notice in writing given to the Board within thirty days from the date on which it is notified of the Board's decision, require the matter to be determined by the Special Commissioners who shall hear and determine the matter in like manner as an appeal.

PART II Conditions as to the Shares

5 The shares must form part of the ordinary share capital of—

(a) the company concerned; or

(b) a company which has control of the company concerned ; or

(c) a company which either is or has control of a company which—

(i) is a member of a consortium owning either the company concerned or a company having control of that company; and

(ii) beneficially owns not less than three-twentieths of the ordinary share capital of the company so owned.

6 The shares must be either—

(a) shares of a class quoted on a recognised stock exchange; or

(b) shares in a company which is not under the control of another company.

7 The shares must be—

(a) fully paid up; and

(b) not redeemable; and

(c) not subject to any restrictions other than restrictions which attach to all shares of the same class.

8 Except where the shares are in a company whose ordinary share capital, at the time of the acquisition of the shares by the trustees, consists of shares of one class only, the majority of the issued shares of the same class must be held by persons other than—

(a) persons who acquired their shares in pursuance of a right conferred on them or an opportunity afforded to them as a director or employee of the company concerned or any other company and not in pursuance of an offer to the public; and

(b) trustees holding shares on behalf of persons who acquired their beneficial interests in the shares in pursuance of such a right or opportunity as is mentioned in paragraph (a) above.

PART III Individuals Ineligible to Participate

9 An individual shall not be eligible to have shares appropriated to him under the scheme at any time unless he is at that time or was within the preceding eighteen months a director or employee of the company concerned or, if the scheme is a group scheme, a participating company.

10 An individual shall not be eligible to have shares appropriated to him under the scheme at any time if in that year of assessment shares have been appropriated to him under another approved scheme established by the company concerned or by—

(a) a company which controls or is controlled by that company or which is controlled by a company which also controls that company, or

(b) a company which is a member of a consortium owning that company or which is owned in part by that company as a member of a consortium.

11 (1) An individual shall not be eligible to have shares appropriated to him under the scheme at any time if at that time he has, or at any time within the preceding twelve months he had, a material interest in a close company which is—

(a) the company whose shares are to be appropriated; or

(b) a company which has control of that company or is a member of a consortium which owns that company.

(2) Sub-paragraph (1) above shall apply in relation to a company which would be a close company but for—

(a) paragraph (a) of subsection (1) of section 282 of the Taxes Act (exclusion of companies not resident in the United Kingdom); or

(b) section 283 of the Taxes Act (exclusion of certain companies with quoted shares).

(3) For the purpose of this paragraph—

(a) " close company " has the meaning assigned to it by section 282 of the Taxes Act; and

(b) subsection (6) of section 285 of the Taxes Act (interest paid to directors and directors' associates) shall have effect, with the substitution of a reference to 25 per cent for any reference therein to 5 per cent. for the purpose of determining whether a person has or had a material interest in a company.

PART IV Provisions as to the Trust Instrument

12 The trust instrument shall provide that, as soon as practicable after any shares have been appropriated to a participant, the trustees will give him notice in writing of the appropriation—

(a) specifying the number and description of those shares ; and

(b) stating their initial market value.

13 (1) The trust instrument must contain a provision prohibiting the trustees from disposing of any shares, except as mentioned in section 54(2)(a) of this Act, during the period of retention (whether by transfer to the participant or otherwise).

(2) The trust instrument must contain a provision prohibiting the trustees from disposing of any shares after the end of the period of retention except—

(a) pursuant to a direction given by or on behalf of the participant or any person in whom the beneficial interest in his shares is for the time being vested ; and

(b) by a transaction which would not involve a breach of the participant's obligation under paragraph (c) or paragraph (d) of subsection (1) of section 54 of this Act.

14 The trust instrument must contain a provision requiring the trustees—

(a) subject to their obligations under section 59 of this Act and to any such direction as is referred to in section 56(3) of this Act, to pay over to the participant 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 section 57 of this Act; and

(b) to deal only pursuant to a direction given by or on behalf of the participant (or any such person as is referred to in paragraph 13(2)(a) above) with any right conferred in respect of any of his shares to be allotted other shares, securities or rights of any description.

15 The trust instrument must impose an obligation on the trustees—

(a) to maintain such records as may be necessary to enable the trustees to carry out their obligations under section 59 of this Act; and

(b) where the participant becomes liable to income tax under Schedule E by reason of the occurrence of any event, to inform him of any facts relevant to determining that liability.

PART V Interpretation

16 In this Schedule " control" shall be construed in accordance with section 534 of the Taxes Act.

17 For the purposes of this Schedule a company is a member of a consortium owning another company if it is one of not more than five companies which between them beneficially own not less than three-quarters of the other company's ordinary share capital and each of which beneficially owns not less than one-twentieth of that capital.