Omitted material
Schedule 2: Approved Share Incentive Plans
Overview
2944.This Schedule, which is introduced in Chapter 6 of Part 7, deals with some of the topics involved in rewriting the legislation relating to share incentive plans (or “SIPs” for short). SIPs were earlier known as employee share ownership plans (or “ESOPs” for short).
2945.Nearly all the source legislation relating to SIPs is contained in Schedule 8 to FA 2000 (referred to in the notes on this Schedule as “Schedule 8”). Schedule 8 was introduced by section 47 of FA 2000; and amended, to a certain extent, by Schedule 13 to FA 2001 (introduced by section 61 of that Act). Further amendments to Schedule 8 have been made by section 39 of FA 2002 and by the Employee Share Schemes Act 2002.
2946.The new legislation relating to SIPs, the majority of which is contained in Chapter 6 of Part 7 and in this Schedule, is called “the SIP code” - a term introduced in section 488. Chapter 6 of Part 7 deals with the tax advantages that an approved SIP provides, and with the tax charges that may arise in certain circumstances.
2947.This Schedule contains further provisions relating to SIPs. After the Introductory Part (Part 1) it deals with the following matters:
it specifies the requirements that a SIP must meet before it may be “approved” for the purposes of the SIP code (in Parts 2 to 9);
it deals with the procedural aspects of the approval of plans and with the withdrawal of approval (in Part 10); and
it deals with supplementary matters (in Part 11).
2948.The majority of the provisions in this Schedule are concerned with the various requirements that a SIP must meet before it may be “approved”. The general policy adopted has been (first) to place the various Parts in an order consistent with that to be found in the rewritten legislation relating to other share schemes; but also (secondly) to deal with those requirements that all SIPs must meet before dealing with the requirements that are not essential. The various requirements have accordingly been placed in a different order from that found in Schedule 8. Part 2 of this Schedule accordingly deals with the general requirements that apply in all cases; Part 3 with the requirements relating to the eligibility of individual employees; and Part 4 with the types of shares that may be awarded. The following Parts then deal with free shares (Part 5), partnership shares (Part 6), matching shares (Part 7) and cash dividends and dividend shares (Part 8). Part 9 is the final Part of this Schedule concerned with the requirements for approval, and deals with the trustees.
2949.Each of Parts 2 to 9 lists, at an early point, the requirements relevant for that Part. Users may find it helpful to be able to refer to these lists. In some cases (for example, in paragraph 6) these lists simply reproduce the source legislation; but in other cases (for example, in paragraph 70) it has been necessary to devise new material.
Part 1: Introduction
2950.This Part, which consists of paragraphs 1 to 5, is introductory. It indicates the contents of this Schedule (in paragraph 1) and introduces various terms of general application (in paragraphs 2 to 5).
Paragraph 1: Approval of share incentive plans (SIPs)
2951.This paragraph indicates the contents of this Schedule (in sub-paragraph (1)), and the Parts into which it is divided (in sub-paragraphs (2) to (4)). The opening paragraphs of Schedules 3, 4 and 5 have been organised in the same manner.
2952.This paragraph is new. It aims to help users to understand the subject matter of the Schedule and to locate relevant material.
Paragraph 2: SIPs: free shares and partnership shares
2953.In this paragraph, sub-paragraph (1) sets out the central definition of “share incentive plan” (or “SIP” for short), a definition derived from that of “employee share ownership plan” in paragraph 1(1) of Schedule 8. In the source legislation, that sub-paragraph was followed by a provision relating to matching shares; but in this Act the proposition set out here appears on its own, and the provision relating to matching shares has been postponed until the following paragraph.
2954.Sub-paragraph (2) contains three definitions:
the definition of “the company” derives from paragraph 1(4) of Schedule 8;
the definition of “plan requirements” is new; and
the definition of “the trustees” is a new feature of these introductory provisions, introducing a term that will be used before the requirements relating to the trustees are dealt with in Part 9 of this Schedule.
Paragraph 3: Matching shares
2955.This paragraph introduces the concept of “matching shares”. It derives from paragraph 1(2) and (3) of Schedule 8.
2956.Sub-paragraph (2) now refers to “free shares, partnership shares, and matching shares”, as opposed to “the kinds of shares mentioned in sub-paragraphs (1) and (2)”; and states that “the plan may provide for the company to decide” as opposed to “it may leave it for the company to decide”.
Paragraph 4: Group plans
2957.This paragraph is concerned with group plans. It derives from paragraph 2 of Schedule 8.
2958.In sub-paragraph (3) the term “constituent company” replaces the term “participating company”. This change, which is in alignment with corresponding changes made in Schedules 3, 4 and 5, has been made on the basis that these Schedules necessarily make numerous references to “participants” and to people who “participate” - so that the use of another term is advantageous.
Paragraph 5: Meaning of “award of shares”, “participant” etc.
2959.This paragraph defines various expressions to be found in the SIP code. It derives from paragraph 3 of Schedule 8.
2960.These definitions are set out in an order that differs somewhat from that found in the source legislation, because sub-paragraph (2) derives from the full-out words at the end of paragraph 3(2) of Schedule 8.
2961.In paragraph 3(2) of Schedule 8, the source legislation provides for the definition of “the individual award”. This term is not used in this Act, as it appears in one place only: in paragraph 53(5) of this Schedule (derived from paragraph 43(4) of Schedule 8). The wording of paragraph 53(5) has been amended accordingly.
Part 2: General requirements
2962.It was mentioned, in the overview to the explanatory notes for this Schedule, that the contents of this Schedule could be divided into three categories. This Part is the first of eight that deal with the first category: the requirements that a SIP must meet before it may be approved. This Part, which consists of paragraphs 6 to 12, deals with general requirements that all SIPs must meet.
Paragraph 6: General requirements for approval: introduction
2963.This paragraph lists the general requirements that must be met before a SIP may be approved. It derives from paragraph 6 of Schedule 8.
Paragraph 7: The purpose of the plan
2964.This paragraph deals with the purpose of a SIP. It derives from paragraph 7 of Schedule 8.
Paragraph 8: All-employee nature of plan
2965.This paragraph contains provisions designed to ensure as many employees as possible are eligible to benefit in an award of shares under a SIP. It derives from paragraph 8 of Schedule 8.
2966.Sub-paragraph (1), in its final full-out words, adds a second “is” to the material that deriving from the final full-out words of paragraph 8(1) of Schedule 8, so that the sub-paragraph now ends “is invited to do so”. This addition brings this sub-paragraph into better alignment with sub-paragraph (5).
2967.Sub-paragraph (2) introduces a definition of a “UK resident taxpayer”, drawing on material in paragraph 8(1)(b) of Schedule 8. This definition is then used again in sub-paragraph (5)(b).
2968.Sub-paragraphs (3) and (4) deal with the material in paragraph 8(2) of Schedule 8, which has two sentences.
2969.Sub-paragraph (6) substantially recasts and shortens paragraph 8(4) of Schedule 8.
Paragraph 9: Participation on same terms
2970.This paragraph states that a SIP must provide that all employees who participate in it must do so on the same terms. It derives from paragraph 9 of Schedule 8.
2971.Sub-paragraph (3) recasts paragraph 9(3) of Schedule 8, replacing two sentences with a single sentence.
2972.In sub-paragraph (5), the cross-references to the provisions dealing with performance allowances have been placed in paragraphs of their own.
2973.Sub-paragraph (7) is new. This provision makes explicit that, in the case of partnership shares, the requirements of this paragraph are not infringed because a deduction of the same percentage of salary will result in employees with larger salaries having larger amounts deducted and receiving awards of more shares. This provision accords with Inland Revenue practice on this point.
Paragraph 10: No preferential treatment for directors and senior employees
2974.This paragraph provides that the SIP must not have the effect of conferring benefits mainly on directors or more highly paid employees. It derives from paragraph 10 of Schedule 8.
2975.Sub-paragraphs (2) and (3) contain the material that is presently in paragraph 10(2) of Schedule 8. The material has been divided in order to make it easier to follow and to understand.
2976.In sub-paragraph (1) the words “no feature of the plan must have or be likely to have the effect” in paragraph 10(1) of Schedule 8 have been replaced by the words “no feature of the plan has or is likely to have the effect”.
2977.Sub-paragraph (4) sets out, in full, the proposition that is contained in paragraph 10(3) of Schedule 8, instead of providing a reference to paragraph 9(3) of that Schedule.
2978.Sub-paragraphs (1)(b) and (3)(a) now refer to “the higher or highest levels of remuneration”. These changes have been made to achieve greater alignment in the legislation: in this case an alignment with paragraph 8(1)(b) of Schedule 3.
Paragraph 11: No further conditions
2979.This paragraph provides that a SIP must not impose additional conditions on an employee’s participation in an award of shares under the plan. It derives from paragraph 11 of Schedule 8.
2980.A reference to conditions “required or authorised by this Schedule” replaces a reference to conditions “required or permitted by this Schedule”. This change brings the wording used into alignment with that used elsewhere (for example, in paragraph 8(4) of this Schedule).
Paragraph 12: No loan arrangements
2981.This paragraph provides that the arrangements for the plan must not be associated in any way with any provision made for loans to employees. It derives from paragraph 12 of Schedule 8.
2982.Sub-paragraphs (1) and (2) both derive from paragraph 12(1) of Schedule 8. The material has been divided to make it easier to follow and to understand.
2983.In sub-paragraph (3), the words “For the purposes of sub-paragraph (1)” have been replaced by the words “In sub-paragraph (1)”.
Part 3: Eligibility of individuals
2984.This Part is the second of eight that deal with the requirements that a SIP must meet before it may be approved. This Part, which consists of paragraphs 13 to 24, deals with requirements relating to the eligibility of individuals.
2985.Four such requirements are listed in paragraph 13; but those four differ widely in the amount of statutory material devoted to them. The requirements in paragraphs 14 and 18 need one paragraph each; but paragraph 15 is supplemented by paragraphs 16 and 17; and paragraph 19 is supplemented by paragraphs 20 to 24.
Paragraph 13: Eligibility of individuals: introduction
2986.This paragraph lists the plan requirements relating to the eligibility of individuals. The paragraph is the counterpart of paragraph 6, and is new.
Paragraph 14: Time of eligibility to participate
2987.This paragraph states (in sub-paragraph (1)) that the SIP must provide that an individual may only participate in an award of plan shares if the individual is eligible to participate in the award at the appropriate time. The expression “the appropriate time” is new, and has been devised to help to make the rest of this paragraph easier to understand.
2988.Sub-paragraphs (2) to (6) specify “the appropriate time” in the case of the various different classes of plan shares. Each class of plan shares has been made the subject of a separate sub-paragraph; and in cases involving matching shares (see sub-paragraphs (5) and (6)) the provisions in paragraph 13(1)(b) of Schedule 8 have been supplemented by those in paragraph 13(2).
2989.Sub-paragraphs (7) and (8) deal with the meaning of the expression “eligible to participate”.
2990.This paragraph derives from paragraph 13 of Schedule 8. The material in that paragraph has been substantially recast.
Paragraph 15: The employment requirement
2991.This is the first of three paragraphs setting out the employment requirement in paragraph 14 of Schedule 8. Following the amendments made by paragraph 2 of Schedule 13 to FA 2001, this paragraph is now long, and may usefully be subdivided. This paragraph derives from paragraph 14(1) of Schedule 8.
2992.After the introductory sub-paragraph (1), sub-paragraph (2) deals with the core of the employment requirement. The SIP must provide that an individual may not participate in an award of shares unless employed by the company (or, in the case of a group plan, by a constituent company) (sub-paragraph (2)(a)). And if the plan provides for a qualifying period, the individual must have been employed throughout that period (sub-paragraph (2)(b)) by a qualifying company.
2993.Sub-paragraph (3) then provides that, in the SIP code, “the employment requirement” means the requirement specified in sub-paragraph (2).
2994.Sub-paragraph (4) is a drafting addition, indicating that the terms “qualifying period” and “qualifying company” receive further attention in paragraphs 16 and 17 respectively. The wording of this sub-paragraph is in alignment with wording used elsewhere (for example in paragraph 19(3) of this Schedule).
Paragraph 16: Qualifying periods
2995.This paragraph supplements paragraph 15, and specifies various qualifying periods that may apply. The paragraph derives from paragraph 14(2) to (5) of Schedule 8.
2996.The material in sub-paragraphs (2) and (3) has been substantially recast to produce a result similar to that achieved in paragraph 14.
Paragraph 17: Meaning of “qualifying company”
2997.This paragraph also supplements paragraph 15, and deals with the meaning of the expression “qualifying company”. The paragraph derives from paragraph 14(1A) and (1B) of Schedule 8, inserted by paragraph 2 of Schedule 13 to FA 2001.
2998.It may not be obvious what is achieved by sub-paragraph (3)(c)(ii), but this provision has a role to play. A qualifying company may fall within paragraph (a) or paragraph (b); or within paragraph (c)(i) as an associated company of a company within paragraph (a) or (b); or within paragraph (c)(ii) as an associated company of an associated company within paragraph (c)(i) (and so on indefinitely).
Paragraph 18: Requirement not to participate in other SIPs
2999.This paragraph restricts the ability of an individual to participate in an award of shares under more than one SIP in a tax year.
3000.The paragraph derives from paragraph 16 of Schedule 8. In that Schedule, paragraphs 17 to 22 supplement paragraph 15; so, to improve the narrative “flow”, this paragraph now appears before the paragraphs rewriting paragraphs 15 and 17 to 22, which now constitute one single uninterrupted “block”.
3001.The title to this paragraph has been changed to make it simpler.
3002.In sub-paragraph (1) the word “eligible” has been added to bring this provision into alignment with paragraphs 15(1) and 19(1).
3003.Sub-paragraph (1) combines and abbreviates paragraph 16(1) and (2) of Schedule 8. References to approved profit sharing schemes in paragraph 16(1) of Schedule 8 have been removed. See Change 160 in Annex 1.
Paragraph 19: The “no material interest” requirement
3004.This paragraph states that the SIP must provide that an individual is not eligible to participate in an award of shares if the individual has (or has recently had) a “material interest” in a company with specified characteristics. In determining whether the individual has such a “material interest”, it is necessary to consider the interests of the individual’s “associates”. This paragraph is accordingly then supplemented by paragraphs 20 and 21 (which deal with the meaning of “material interest”) and by paragraphs 22 to 24 (which deal with the meaning of “associate”). This paragraph derives from paragraph 15 of Schedule 8.
3005.As the paragraphs in this Part of Schedule 8 have now been placed in a different order (see the explanatory notes relating to paragraph 18), this paragraph is now followed immediately by the paragraphs that supplement it.
3006.In sub-paragraph (3), the wording of the two paragraphs has been brought into alignment.
Paragraph 20: Meaning of “material interest”
3007.This paragraph supplements paragraph 19. It contains the definition of “material interest” and is in its turn supplemented by paragraph 21. This paragraph derives from paragraph 17 of Schedule 8.
3008.Sub-paragraphs (2) and (3) separate out the two alternatives which, at present, are combined in the lengthy paragraph 17(1) of Schedule 8. In this Act, the two alternatives are called a material interest in the share capital of the company, and a material interest in the assets of a close company.
Paragraph 21: Material interest: options and interests in SIPs
3009.This paragraph supplements paragraph 20, and contains further provisions dealing with the meaning of the expression “material interest”. The paragraph derives from paragraph 18 of Schedule 8 (in sub-paragraphs (1) to (5)) and from paragraph 19 of Schedule 8 (in sub-paragraph (6)).
3010.Sub-paragraphs (3) and (4) both derive from paragraph 18(2) of Schedule 8. This sub-paragraph has been divided to make the text easier to understand.
3011.In sub-paragraph (6), the reference to “any approved profit sharing scheme” (in paragraph 19 of Schedule 8) has been omitted. The legislation relating to approved profit sharing schemes has not been rewritten; but, in this Act, paragraph 87 of Schedule 7 (transitionals and savings) preserves the effect of this reference.
Paragraph 22: Meaning of “associate”
3012.This paragraph also supplements paragraph 19. It contains the definition of “associate” and is in its turn supplemented by paragraphs 23 and 24. This paragraph derives from paragraph 20 of Schedule 8.
3013.In sub-paragraph (1) references to an “individual” replace references to a “person”; and in sub-paragraph (1)(c) different words are used to describe the relevant company.
3014.Sub-paragraph (2) is new. This provision links sub-paragraph (1)(c) with paragraphs 23 and 24 of this Schedule.
3015.In sub-paragraph (3) the definition of “relative” has been slightly amended.
Paragraph 23: Meaning of “associate”: trustees of employee benefit trust
3016.This paragraph supplements paragraph 22 and contains provisions that apply where an individual is interested as a beneficiary of an employee benefit trust. The paragraph derives from paragraph 21 of Schedule 8.
3017.This paragraph has counterparts in Schedules 3, 4 and 5. Chapter 11 of Part 7 (supplementary provisions) defines the expression “employee benefit trust”, and deals with further matters arising when payments from employee benefit trusts are made. In the later sub-paragraphs of this paragraph there are references to provisions in Chapter 11 of Part 7 and to the contents of that Chapter.
3018.The defined term “relevant company” in paragraph 21 of Schedule 8 has been omitted. This definition is not in fact used.
Paragraph 24: Meaning of “associate”: trustees of discretionary trust
3019.This paragraph also supplements paragraph 22 and contains provisions that apply where an individual is interested as an object of a discretionary trust. The paragraph derives from paragraph 22 of Schedule 8.
3020.The defined term “relevant company” in paragraph 22 of Schedule 8 has been omitted. It is possible to rewrite this paragraph without making use of this definition.
3021.Sub-paragraphs (1) and (2) recast the material in paragraph 22(1) and (2). Sub-paragraph (1) deals with all the conditions (which, at present, are distributed between sub-paragraphs (1) and (2)); and sub-paragraph (2) states the main rule (which, at present, is contained in the full-out words at the end of sub-paragraph (2)).
Part 4: Types of shares that may be awarded
3022.This Part is the third of eight that deal with the requirements that a SIP must meet before it may be approved. This Part, which consists of paragraphs 25 to 33, deals with requirements relating to the types of shares that may be awarded.
3023.This Part of the Schedule imposes requirements that all SIPs must meet. It has therefore been placed at an earlier point in this Schedule than in Schedule 8 (where it is Part 8 of that Schedule). This change has the consequence that the order of Parts in Schedules 2 to 5 is in closer alignment.
3024.Within this Part, five requirements are listed in paragraph 25(1). Of these, the requirement imposed by paragraph 29 (prohibited shares) is now dealt with at an earlier point, thus enabling the requirement in paragraph 30 (only certain kinds of restriction allowed), which has further supplementary paragraphs, to be dealt with last.
3025.This Part is now entitled “Types of shares that may be awarded” as opposed to “Types of shares that may be used” (the title to Part 8 of Schedule 8).
Paragraph 25: Types of shares that may be awarded: introduction
3026.This paragraph is introductory, and derives from paragraph 59 of Schedule 8.
3027.Sub-paragraph (1) lists the requirements relating to types of shares that must be met before a SIP may be approved. The paragraph follows the source legislation and, unlike paragraphs 6 and 13 (for example), contains no reference to “plan requirements”. This divergence may be explained by the fact that the requirements imposed in this Part of this Schedule are not matters that must be dealt with in the plan documentation.
3028.Sub-paragraph (2) then defines shares that may be awarded under the plan as “eligible shares”. This definition is in a new sub-paragraph.
Paragraph 26: Shares must be part of ordinary share capital of certain companies
3029.This paragraph provides that the shares that may be awarded must be part of the ordinary share capital of a company with characteristics specified in this paragraph. The paragraph derives from paragraph 60 of Schedule 8.
Paragraph 27: Requirement as to listing etc.
3030.This paragraph provides that the shares that may be awarded must fall within one of the three categories specified in sub-paragraph (1).
3031.The paragraph derives from paragraph 61 of Schedule 8, dividing that paragraph into two sub-paragraphs with the object of making its contents easier to follow. The definition of “listed company” in sub-paragraph (2) is new, and this sub-paragraph contains most of the material from paragraph 61(c).
Paragraph 28: Shares must be fully paid up and not redeemable
3032.This paragraph provides that eligible shares must be fully paid up and not redeemable. It derives from paragraph 62 of Schedule 8.
3033.In sub-paragraph (2), the words “for the purposes of sub-paragraph (1)(a)” have been moved to the beginning of the sentence. This change brings this sub-paragraph into better alignment with sub-paragraph (3), and makes it easier to grasp the relationship with sub-paragraph (1). Sub-paragraph (2) also contains new additional wording to make it clear that the payment of cash is to be made to the company whose shares are being issued.
3034.Sub-paragraphs (4) and (5) abbreviate the material in paragraph 62(4) and (5) of Schedule 8. In that Schedule, it is provided that sub-paragraph (1)(b) does not apply in relation to shares in a co-operative. The term “co-operative” is then defined as “a registered industrial and provident society which is a co-operative society”; and the terms “registered industrial and provident society” and “co-operative society” then receive definitions of their own. (This legislation was amended while the Finance Act 2000 was before Parliament.).
3035.In this Act the term “co-operative” has been omitted. It is provided instead (in sub-paragraph (4)) that sub-paragraph (1)(b) does not apply to shares in a registered industrial and provident society which is a co-operative society; and then, as before, the terms “registered industrial and provident society” and “co-operative society” are defined. This procedure enables the term “co-operative” to be omitted.
Paragraph 29: Prohibited shares
3036.This paragraph specifies types of shares that may not be awarded under a SIP. The paragraph derives from paragraph 67 of Schedule 8.
3037.The title of this paragraph is now “prohibited shares” as opposed to “prohibited companies”. The new wording should provide a better indication of what is being prohibited.
3038.This paragraph now refers to a “service company” as opposed to an “employer company”. The new term is more descriptive and accords better with actual commercial usage. The expression “the employer company” is used elsewhere in this Act to mean the employee’s employer.
3039.Amendments have been made to sub-paragraphs (1)(b) and (4)(b) with a view to making those provisions easier to understand.
3040.Sub-paragraph (4) has wording differing from that in the source legislation. Schedule 1 to the Interpretation Act 1978 provides that “‘person’ includes a body of persons corporate or unincorporate”; and the view is taken that there can be no doubt that the word “person” includes a partnership.
Paragraph 30: Only certain kinds of restriction allowed
3041.This paragraph limits the restrictions to which eligible shares may be subject. Certain restrictions, however, are permitted, and these are specified in paragraphs 31 to 33, which supplement this paragraph. This paragraph derives from paragraph 63 of Schedule 8.
3042.In sub-paragraph (1) the order in which the three paragraphs appear has been changed to make the references to paragraphs 31 to 33 (which supplement this paragraph) more prominent, and to make the references to the paragraphs dealing with holding periods (which only appear later in this Schedule) less prominent.
3043.Sub-paragraph (2), which rewrites paragraph 63(2) of Schedule 8, now divides that material into two sentences.
3044.The opening words of sub-paragraph (3) differ from those of the corresponding provision in the source legislation, and now include a reference back to sub-paragraph (2). This has led to a further variation in the order of the sub-paragraphs in this paragraph; in paragraph 63 of Schedule 8, what is now sub-paragraph (4) preceded what is now sub-paragraph (3).
Paragraph 31: Permitted restrictions: voting rights
3045.This paragraph supplements paragraph 30. It derives from paragraph 64 of Schedule 8.
Paragraph 32: Permitted restrictions: provision for forfeiture
3046.This paragraph also supplements paragraph 30 and deals with the circumstances in which free or matching shares may be subject to provision for forfeiture.
3047.This paragraph derives from sub-paragraphs (1) to (5) of paragraph 65 of Schedule 8. (Paragraph 65(6) of Schedule 8 is a definition of “provision for forfeiture” applying for the purposes of the SIP code generally. This definition has now been moved to paragraph 99(1) of this present Schedule.)
3048.Sub-paragraph (1) combines sub-paragraph (1) and the first part of sub-paragraph (2) of paragraph 65 in Schedule 8. The words “in the following circumstances” have been removed.
3049.Sub-paragraph (2) gives a complete list of the events within paragraph 87(2) of Schedule 8. Although the amount of text is increased and there is duplication, the view has been taken that it is more helpful to set the relevant material out again than to refer users to section 498(2).
3050.In sub-paragraph (2), the reference at the beginning of this provision has been confined to sub-paragraph (1)(a). The reference can only be to paragraph (a) of sub-paragraph (1); and in the interests of clarity this cross-reference is more precise. Sub-paragraph (2)(d) reorganises the material in paragraph 87(3)(d) of Schedule 8.
Paragraph 33: Permitted restrictions: pre-emption conditions
3051.This paragraph also supplements paragraph 30 and deals with the circumstances in which pre-emption conditions may be permitted. The paragraph derives from paragraph 66 of Schedule 8.
Part 5: Free shares
3052.This Part is the fifth of eight that deal with the requirements that a SIP must meet before it may be approved. This Part, which consists of paragraphs 34 to 42, deals with requirements relating to free shares. A SIP does not have to provide for free shares to be appropriated to employees (it may provide for partnership shares to be acquired for employees - see paragraph 2(1)), so it may be expected that there will be SIPs to which the provisions of this Schedule do not apply.
Paragraph 34: Free shares: introduction
3053.This paragraph is introductory. It derives from paragraphs 23 and 25 of Schedule 8.
3054.Sub-paragraph (1) sets out the requirements that must be met by all SIPs that provide for free shares. This sub-paragraph expands paragraph 23 of Schedule 8 by specifying the relevant requirements, a procedure now adopted throughout this Schedule.
3055.Sub-paragraph (2) sets out the additional requirements that must be met by SIPs that provide both for free shares and for performance allowances (a term defined in paragraph 34(4)).
3056.Sub-paragraph (4) recasts the definition of “performance allowances” in paragraph 25(1) of Schedule 8.
3057.This paragraph follows the other introductory paragraphs in the various Parts of this Schedule by providing that a SIP must “meet” plan requirements, as opposed to “complying” with them.
Paragraph 35: Maximum annual award
3058.This paragraph specifies the maximum annual award for which the plan must provide. It derives from paragraph 24 of Schedule 8.
3059.There is a sub-paragraph for each individual proposition; and in sub-paragraphs (2) and (4), the opening words “For this purpose”, which occurred in the corresponding places in the earlier legislation, have been omitted.
Paragraph 36: The holding period
3060.This paragraph states that the plan must require the company to specify a period (“the holding period”) during which a participant is bound to permit the free shares to remain in the hands of the trustees, and is bound not to dispose of the beneficial interest in those shares.
3061.This paragraph derives from paragraph 31 of Schedule 8. This paragraph has been placed somewhat earlier in this part of this Schedule, as the requirement set out in this paragraph applies whether or not the SIP makes provision for performance allowances (see paragraph 34(2)).
3062.Sub-paragraph (3) joins the two separate sentences in paragraph 31(3) of Schedule 8.
3063.Sub-paragraphs (4) and (5) divide the material presently contained in paragraph 31(4) of Schedule 8.
Paragraph 37: Holding period: power of participant to direct trustees to accept general offers etc.
3064.This paragraph provides that a participant may give directions of various types to the trustees during the holding period.
3065.This paragraph derives from paragraph 32 of Schedule 8. There has been a significant amount of reorganisation; and this paragraph is now divided into sub-paragraphs.
3066.Sub-paragraph (1) derives from the opening words of paragraph 32.
3067.Sub-paragraphs (2) and (3) derive from paragraphs (a) and (d) of paragraph 32 respectively. In sub-paragraph (3), the words “as a result of” replace the words “pursuant to”.
3068.Sub-paragraphs (4) to (6) rewrite paragraphs (b) and (c) of paragraph 32; but that material is now organised differently, with sub-paragraph (5) containing a definition of a “general offer”.
Paragraph 38: Performance allowances: general application
3069.This paragraph states that a SIP that provides for performance allowances must provide for such allowances for all qualifying employees. The paragraph derives from paragraph 26 of Schedule 8.
3070.The expression “qualifying employee” is defined in paragraph 8(6) of this Schedule.
Paragraph 39: Performance allowances: targets and measures
3071.This paragraph specifies the performance targets and performance measurements that must be set where the SIP provides for performance allowances. The paragraph derives from paragraph 27 of Schedule 8.
3072.The material dealing with performance targets has now been placed before the material dealing with performance measures. This has resulted in some reorganisation of the contents of this paragraph, and an amendment to its title.
Paragraph 40: Performance allowances: information to be given to employees
3073.This paragraph specifies the information that must be given to employees if the SIP provides for performance allowances. The paragraph derives from paragraph 28 of Schedule 8.
3074.In sub-paragraph (1)(a) the words “each qualifying employee who has accepted an invitation to participate in the award” replace the words “each employee participating in the award”. See Change 161 in Annex 1.
Paragraph 41: Performance allowances: method one
3075.This paragraph deals with the first method of calculating performance allowances. It derives from paragraph 29 of Schedule 8.
3076.Sub-paragraphs (1) and (2) derive from paragraph 29(1) of Schedule 8. Sub-paragraph (1) is designed to correspond to sub-paragraph (1) in paragraph 42.
Paragraph 42: Performance allowances: method two
3077.This paragraph deals with the second method of calculating performance allowances.
3078.Sub-paragraphs (1), (2), (4) and (5) derive from paragraph 30 of Schedule 8; and sub-paragraphs (3) and (6) derive from paragraph 118(2)(c) and (4) of that Schedule.
3079.The material in sub-paragraphs (3) and (6) seems better placed here than in a paragraph dealing with disqualifying events, which has itself now been placed in Part 10 of this Schedule (Approval of plans). See Note 64 in Annex 2.
Part 6: Partnership shares
3080.This Part is the fifth of eight that deal with the requirements that a SIP must meet before it may be approved. This Part, which consists of paragraphs 43 to 57, deals with requirements relating to partnership shares. A SIP does not have to provide for partnership shares to be acquired for employees (it may provide for free shares to be appropriated to employees - see paragraph 2(1)), so there may well be SIPs to which the provisions of this Part of this Schedule do not apply.
Paragraph 43: Partnership shares: introduction
3081.This paragraph is introductory.
3082.In Schedule 8, the requirements relating to partnership shares are introduced in paragraph 33. But that paragraph merely states that if a plan provides for partnership shares, it must comply with the requirements of that Part of Schedule 8. Sub-paragraph (1) follows an alternative, more helpful, procedure and (adopting the procedure used elsewhere in this Schedule) indicates the provisions that apply.
3083.Sub-paragraph (1) nevertheless departs from the introductory wording used at the beginning of the majority of the other Parts of this Schedule. This is because a number of the paragraphs in this Part of the Schedule are permissive as opposed to mandatory - that is, they deal with provisions which the plan may contain, as opposed to provisions that the plan must contain.
3084.Sub-paragraph (3) deals with a general point relating to the acquisition of partnership shares. This provision derives from paragraph 39(2) of Schedule 8; but it has now been moved so that this general point is dealt with early on.
3085.Sub-paragraph (4) contains the definition of the word “salary”. This definition is in paragraph 48 of Schedule 8; and it has been amended by paragraph 3 of Schedule 13 to FA 2001. The ambit of this definition has, however, been widened, so that this definition, instead of applying only for the purposes of the provisions relating to partnership shares, applies for the purposes of the SIP code generally. See Note 65(A) in Annex 2.
Paragraph 44: Partnership share agreements
3086.This paragraph states that the SIP must provide for qualifying employees to enter into partnership share agreements. (The definition of “qualifying employee” may be found in paragraph 8(6) of this Schedule.) This paragraph derives from paragraph 34 of Schedule 8.
3087.This paragraph now has three sub-paragraphs. Sub-paragraph (2) deals with the definition of the term “partnership share agreements” and the ambit of that definition.
3088.Paragraph 34 of Schedule 8 referred to “the company” on three different occasions, with the company being defined elsewhere in that Schedule, in relation to a SIP, as the company which established the plan (as it is in paragraph 2(2) of this Schedule). One of those three occasions referred to the employee authorising the company to deduct part of the employee’s salary. However, in the case of a group plan, an employee might be employed by a group company which had not established the SIP; and, in such a case, the reference to authorising “the company” to make deductions from salary would not work well.
3089.Sub-paragraph (1)(a), read with sub-paragraph (3), accordingly provides for the authorisation to make deductions from the employee’s salary to be given to the company by reference to which the employee meets the employment requirement in relation to the plan. See Change 162 in Annex 1.
Paragraph 45: Deductions from salary
3090.This paragraph states that the SIP 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 the SIP code as “partnership share money”. This paragraph derives from paragraph 35 of Schedule 8.
3091.The rewritten paragraph has six sub-paragraphs (as opposed to the four in paragraph 35 of Schedule 8); but in the rewritten legislation each sub-paragraph consists of a single sentence. (In the case of sub-paragraph (3), two separate sentences have been joined.)
3092.In sub-paragraph (2), the term “partnership share money” now applies to the entirety of the SIP code, instead of being confined to one part of Schedule 8, as was the case in FA 2000. In other contexts the expression was undefined; but it is considered that the definition provided here would have been held to apply in those other contexts also. See Note 65(B) in Annex 2.
Paragraph 46: Maximum amount of deductions
3093.This paragraph specifies the maximum amount of partnership share money that may be deducted. The paragraph derives from paragraph 36 of Schedule 8.
3094.In the second sentence of sub-paragraph (2), the word “This” has been replaced by the more specific “10% of the employee’s salary”.
3095.In sub-paragraphs (3) and (4), two sub-paragraphs, each one sentence long, now replace a single sub-paragraph with two sentences. In sub-paragraph (4) there have been changes in the detail of the wording.
Paragraph 47: Minimum amount of deductions
3096.This paragraph specifies the minimum amount of partnership share money that may be deducted. The paragraph derives from paragraph 37 of Schedule 8.
3097.In sub-paragraph (1), the words “under a partnership share agreement” replace the words “in pursuance of the partnership share agreement”; and in sub-paragraph (3), the words “may be” have been added at the end.
Paragraph 48: Notice of possible effect of deductions on benefit entitlement
3098.This paragraph states that the SIP must provide that the company may not enter into a partnership share agreement unless the employee is given a notice relating to the possible effect of deductions on social security benefits. The paragraph derives from paragraph 38 of Schedule 8.
3099.That paragraph provides authority to make regulations, and regulations have been made. They are the Employee Share Ownership Plans (Partnership Shares - Notice of Effects on Benefits, Statutory Sick Pay and Statutory Maternity Pay) Regulations 2000 (SI 2000 No 2090).
Paragraph 49: Partnership share money held for employee
3100.This paragraph states that the SIP must provide that partnership share money must be paid to the trustees and held by them on the employee’s behalf. The paragraph derives from paragraph 39(1), (3) and (4) of Schedule 8.
3101.In sub-paragraph (1) the words “in accordance with” have been replaced by the word “under”.
3102.Sub-paragraph (3) has been amended to take account of the amendments made by article 107 of the Financial Services and Markets Act 2000 (Consequential Amendments) (Taxes) Order 2001 (SI 2001 No 3629).
3103.In sub-paragraph (4), the word order has been changed. The subject of the sentence has been placed first, followed immediately by the main verb, and the condition has been moved to the end of the sentence.
Paragraph 50: Application of money deducted where no accumulation periods
3104.This paragraph specifies how partnership share money must be applied if the SIP does not provide for an accumulation period. The paragraph derives from paragraph 40 of Schedule 8.
3105.The five sub-paragraphs have, however, been placed in a different order. The major proposition has been placed first (sub-paragraph (1)); and this is followed by the proposition relating to the market value of the shares (sub-paragraph (2)). It is only these two sub-paragraphs that are affected by the operation of paragraph 53 (restrictions on number of shares awarded), so this limitation is dealt with next (sub-paragraph (3)). The definition of the expression “the acquisition date” is dealt with next (sub-paragraph (4)) in a location that follows the two sub-paragraphs in which the expression is used (as opposed to being placed between those two sub-paragraphs). The provision dealing with surplus partnership money is now placed at the end (sub-paragraph (5)).
Paragraph 51: Accumulation periods
3106.This paragraph contains provisions that apply if the SIP provides for an accumulation period. The paragraph derives from paragraph 41 of Schedule 8.
3107.The material in Schedule 8 has been rearranged, with a view to making the main propositions more prominent and easier to understand. Sub-paragraph (2) derives from the opening words of paragraph 41(2) of Schedule 8; and sub-paragraphs (3) and (4) reorganise all the other material in paragraph 41(2) and (3) of that Schedule.
3108.At the end of sub-paragraph (4)(b), the words “all individuals entering into partnership share agreements” have replaced the words “all individuals who are eligible to participate in the award”. The new wording is intended to be a more accurate statement of the legislative intention. See Change 163 in Annex 1.
3109.Sub-paragraph (5) is arranged somewhat differently from paragraph 41(4) of Schedule 8.
Paragraph 52: Application of money deducted in accumulation period
3110.This paragraph contains provisions that govern how partnership share money deducted may be applied during an accumulation period. The paragraph derives from paragraph 42 of Schedule 8.
3111.The material in this paragraph has been rearranged. After the introductory proposition (sub-paragraph (1)), the central propositions are now in sub-paragraphs (2) and (3); those propositions are followed by a limitation that applies to those two sub-paragraphs (sub-paragraph (4)), and then by a definition with the same ambit (sub-paragraph (5)).
3112.Sub-paragraph (4) provides for sub-paragraphs (2) and (3) (instead of the paragraph as a whole) to be subject to paragraph 53; and sub-paragraph (5) provides for the definition of “the acquisition date” to apply in both sub-paragraphs (2) and (3) (instead of in sub-paragraph (2) only as in paragraph 42 of Schedule 8).
3113.In sub-paragraph (2) the words “under a partnership share agreement” have been added; and in sub-paragraph (7) the constituent parts of this provision have been reorganised, and the words “to be” have been added in the expression “is to be paid”.
Paragraph 53: Restriction on number of shares awarded
3114.This paragraph provides that the SIP may authorise the company to specify the maximum number of shares to be included in an award of partnership shares.
3115.This paragraph derives from paragraph 43 of Schedule 8, presenting the material in a somewhat different order.
3116.The wording of sub-paragraph (5) has been modified to deal with the removal of the expression “the individual award” (an expression introduced in paragraph 3 of Schedule 8), which made its one and only appearance at this point. The new wording includes the expression “on behalf of each employee”.
Paragraph 54: Stopping and re-starting deductions
3117.An employee is entitled both to stop deductions under a partnership share agreement and to restart those deductions. This paragraph sets out the requirements that the SIP must contain to deal with these matters.
3118.This paragraph derives from paragraph 44 of Schedule 8. The material is presented in a somewhat different order, with the new order following the order in which events may be expected to occur.
3119.Sub-paragraphs (1) and (3) refer to deductions “under” a partnership share agreement and not to deductions “in pursuance of” a partnership share agreement.
3120.Sub-paragraph (7) retains the requirement that a notice under this paragraph should be a notice in writing, but moves that requirement to a sub-paragraph of its own.
Paragraph 55: Withdrawal from partnership share agreement
3121.This paragraph sets out the requirement that a SIP must provide that an employee may give notice to withdraw from a partnership share agreement. The paragraph derives from paragraph 45 of Schedule 8.
3122.Sub-paragraph (1) has been rewritten to emphasise that it is the notice that may be given at any time rather than the withdrawal from the plan that may be effected at any time.
3123.Sub-paragraph (4) retains the requirement that a notice under this paragraph should be a notice in writing, but moves that requirement to a sub-paragraph of its own.
Paragraph 56: Repayment of partnership share money on withdrawal of approval or termination
3124.This paragraph sets out the requirement that a SIP must provide that partnership share money held on behalf of an employee must be paid over to that employee in certain circumstances. The paragraph derives from paragraph 46 of Schedule 8.
3125.This material has been placed in a different order. Provisions relating to the withdrawal of approval are dealt with before the provisions relating to the issue of a plan termination notice.
Paragraph 57: Access to partnership shares
3126.This paragraph sets out the requirement that a SIP must provide that, when partnership shares have been awarded to an employee, the employee may withdraw any or all of those shares from the plan. The paragraph derives from paragraph 47 of Schedule 8.
3127.Sub-paragraph (2) has been expanded by the addition of the words “If the employee does so” at the beginning of this provision.
Part 7: Matching shares
3128.This Part is the sixth of eight that deal with the requirements that a SIP must meet before it may be approved. This Part, which consists of paragraphs 58 to 61, deals with requirements relating to matching shares. A SIP does not have to provide for matching shares - defined earlier in this Schedule as shares that may be appropriated without payment to employees in proportion to the partnership shares acquired by them (see paragraph 3(1)). There will therefore probably be SIPs to which the provisions of this Part of this Schedule do not apply.
Paragraph 58: Matching shares: introduction
3129.This paragraph is introductory, setting out the requirements that a SIP must meet if it provides for matching shares. It derives from paragraph 49 of Schedule 8..
3130.This paragraph lists the requirements contained in the following paragraphs of Part 7 of this Schedule, introducing the individual paragraphs that will follow (as in paragraph 6 of Schedule 8) as opposed to stating that the plan “must comply with the requirements of this Part of this Schedule” (as in paragraph 49 of Schedule 8).
Paragraph 59: General requirements for matching shares
3131.This paragraph sets out the general requirements relating to matching shares that must be contained in the SIP. The paragraph derives from paragraph 50 of Schedule 8.
Paragraph 60: Ratio of matching shares to partnership shares
3132.This paragraph sets out the ratio of matching shares to partnership shares that must be specified in the partnership share agreement. The paragraph derives from paragraph 51 of Schedule 8.
Paragraph 61: Holding period for matching shares
3133.This paragraph applies the provisions relating to the holding period for free shares to matching shares. The paragraph derives from paragraph 52 of Schedule 8.
3134.The rewritten paragraph is more closely aligned with paragraph 67 of this Schedule than is the case with the corresponding provisions in Schedule 8.
Part 8: Cash dividends and dividend shares
3135.This Part is the seventh of eight that deal with the requirements that a SIP must meet before it may be approved. This Part, which consists of paragraphs 62 to 69, deals with the treatment of cash dividends. The SIP may provide that, where the company so directs, the cash dividends must be applied in acquiring further plan shares, known as “dividend shares”. The application of cash dividends in this way is referred to as “reinvestment” in the SIP code.
3136.Although it would be more consistent to begin each Part of this Schedule by listing the plan requirements that must be met, there are difficulties in beginning this Part in this way. The plan may or may not contain a direction authorising reinvestment; and the company may or may not give a direction for reinvestment to take place. The list of provisions that apply if the trustees are authorised to carry out reinvestment is therefore postponed until paragraph 63.
Paragraph 62: Reinvestment of cash dividends
3137.This paragraph sets out propositions that are of central importance for this Part of this Schedule. A SIP may provide that, where the company so directs, the trustees must apply all cash dividends in respect of plan shares in acquiring further plan shares on behalf of participants. This application of cash dividends is referred to as “reinvestment” in the SIP code, and the further plan shares acquired are referred to as “dividend shares”.
3138.Sub-paragraphs (1) to (4) of this paragraph derive from sub-paragraphs (1), (2) and (4) of paragraph 53 of Schedule 8; and sub-paragraph (5) derives from paragraph 56(5) of that Schedule. (Paragraph 53(3) of Schedule 8 is the source for paragraph 69 in this Schedule.).
3139.Sub-paragraph (1) contains a reference to “the trustees”, so permitting the use of a verb in the active, and not the passive, voice; and sub-paragraph (4) contains additional concluding words to make its meaning easier to grasp.
3140.Sub-paragraph (5) consists of a proposition placed considerably earlier than in the corresponding Part of Schedule 8, in the interests of user-friendliness.
Paragraph 63: Requirements to be met as regards cash dividends
3141.This paragraph lists the paragraphs in this Part that apply if the trustees of the SIP are directed to apply cash dividends in acquiring further plan shares. It is new.
3142.Sub-paragraph (3) provides that the SIP must in any event meet the requirement contained in paragraph 69.
Paragraph 64: Limit on amount reinvested
3143.This paragraph specifies a limit for total dividend reinvestment that must be included in the plan. It derives from paragraph 54 of Schedule 8.
3144.Sub-paragraph (2)(b) has new wording, including a mention of “approved SIPs”, and this has permitted the removal of the two further sub-paragraphs from the source legislation.
Paragraph 65: General requirements as to dividend shares
3145.This paragraph sets out the general requirements relating to dividend shares that the plan must meet. It derives from paragraph 55 of Schedule 8.
3146.In paragraph (a), the words “in the same company” have been added at the beginning. It is likely that these words would be implied if the point ever arose; but the addition of these words put the point beyond any doubt. See Note 66 in Annex 2.
Paragraph 66: Acquisition of dividend shares
3147.This paragraph sets out the conditions relating to the acquisition of dividend shares that a SIP must meet. The acquisition must take place on “the acquisition date”. The paragraph derives from sub-paragraphs (1) to (4) of paragraph 56 of Schedule 8. (Paragraph 56(5) of Schedule 8 is the source of paragraph 62(5) of this Schedule.)
3148.The definition of “the acquisition date” has now been placed at the end of this paragraph (in sub-paragraph (4)); and there have been changes in the detail of the wording at various places in this paragraph.
3149.The second sentence of paragraph 56(2) of Schedule 8 has been omitted. This sentence merely stated a proposition that was true in any case, and has accordingly been removed on the basis that it is unnecessary.
Paragraph 67: Holding period for dividend shares
3150.This paragraph applies the provisions relating to the holding period for free shares to dividend shares. It derives from paragraph 57 of Schedule 8.
3151.The paragraph is more closely aligned with paragraph 61 of this Schedule than is the case with the corresponding provisions in Schedule 8.
Paragraph 68: Reinvestment: amounts to be carried forward
3152.This paragraph contains provisions that apply when an amount is not reinvested. The paragraph derives from paragraph 58 of Schedule 8.
3153.Sub-paragraphs (1) to (3) all derive from paragraph 58(1) of Schedule 8. In order to make the legislation easier to understand that provision is divided into a number of separate propositions; and, as a result, there have been changes in the detail of the wording. In sub-paragraphs (4)(b) and (c), cross-references have been added.
Paragraph 69: Cash dividends where no requirement to reinvest
3154.This paragraph sets out the provision that a SIP must make for cash dividends that are not required to be reinvested under the plan. The dividends must be paid over to participants as soon as practicable.
3155.This paragraph derives from paragraph 53(3) of Schedule 8; but that sub-paragraph is now dealt with separately to take account of the circumstances in which it applies (see paragraph 63(3) of this Schedule).
3156.The material in paragraph 53(3) of Schedule 8 has been reorganised and divided into two sub-paragraphs to make it easier to understand. The definition of “distributable cash dividends” is new.
Part 9: Trustees
3157.This Part is the last of eight that deal with the requirements that a SIP must meet before it is approved. This Part, which consists of paragraphs 70 to 80, deals with the requirements relating to the trustees. All SIPs must have trustees; but, in accordance with the general policy of placing the various Parts of Schedules 2 to 5 in an order displaying overall consistency, this Part is now the final Part that deals with the requirements to be met.
Paragraph 70: Requirements etc. relating to trustees: introduction
3158.This paragraph is introductory. It is new, being designed to fulfil the same purpose of introducing paragraphs in Part 9 of this Schedule as is played by other corresponding early paragraphs in each of Parts 2 to 8 of this Schedule.
3159.In Part 9 of this Schedule, there are two paragraphs that impose plan requirements that must be met, and these are listed in sub-paragraph (1). However, the majority of the paragraphs relate to the powers and duties of the trustees, and these are listed in sub-paragraph (2).
Paragraph 71: Establishment of trustees
3160.This paragraph sets out the requirements and duties that a SIP must contain regarding the establishment and duties of the trustees. The paragraph derives from paragraph 68 of Schedule 8.
3161.Sub-paragraph (1) has been reworded to make it clear that the body of trustees should consist of persons resident in the United Kingdom.
3162.Sub-paragraph (3) provides for the introduction of the term “the trust instrument”. Schedule 8 contains no formal introduction of this term, although the term is used extensively in the following paragraphs of this Part.
3163.Sub-paragraphs (5) and (6) incorporate provisions deriving from the Employee Share Schemes Act 2002.
Paragraph 72: Duty to act in accordance with participant’s directions
3164.This paragraph provides that the trust instrument must require the trustees to act in accordance with a participant’s directions.
3165.The paragraph is the first of three that derive from paragraph 71 of Schedule 8. That paragraph is lengthy; and its contents are divided up in the new legislation, to make its contents more accessible. This paragraph derives from sub-paragraphs (1) and (2) of paragraph 71.
Paragraph 73: Duty not to dispose of plan shares
3166.This paragraph provides that the trust instrument must require the trustees not to dispose of plan shares during the holding period (although this general rule is subject to certain exceptions). (The expression “the holding period” is defined in paragraph 36 of this Schedule.)
3167.The paragraph is the second of three that derive from paragraph 71 of Schedule 8. This paragraph derives from paragraph 71(3).
3168.In sub-paragraph (2), the reference to a participant ceasing to be in relevant employment is explained further in paragraph 95.
Paragraph 74: Duty to make payments to participants
3169.This paragraph provides that the trust instrument must require the trustees to make payments to participants in various specified circumstances.
3170.The paragraph is the third of three that derive from paragraph 71 of Schedule 8. This paragraph derives from paragraph 71(4).
3171.Sub-paragraph (1) reorganises the material in the first sentence of paragraph 71(4). In sub-paragraph (2)(c), the expression “PAYE obligations” is defined in paragraph 99(1) of this Schedule.
Paragraph 75: Duty to give notice of award of shares etc.
3172.This paragraph provides that the trust instrument must require the trustees to give various notices to employees. The paragraph derives from paragraph 70 of Schedule 8.
3173.Sub-paragraph (3) now has three paragraphs, as opposed to the corresponding provision in the source legislation, which had two paragraphs, one of which had two sub-paragraphs of its own. This enables sub-paragraphs (2), (3) and (4) to be brought into better alignment.
3174.Sub-paragraph (6) reproduces the definition of “foreign cash dividend” in paragraph 129(1) of Schedule 8. Although that definition is expressed to apply for the whole of Schedule 8, it is only needed for the purposes of this paragraph; and it has, accordingly, been moved.
Paragraph 76: Power of trustees to borrow
3175.This paragraph states that the trust instrument may provide the trustees with powers to borrow. The paragraph derives from paragraph 69 of Schedule 8.
Paragraph 77: Power of trustees to raise funds to subscribe for rights issue
3176.This paragraph gives the trustees powers to deal with rights arising under a rights issue. The paragraph derives from paragraph 72(1) of Schedule 8; and it gives a separate sub-paragraph to each sentence in that earlier provision.
3177.The expression “rights arising under a rights issue”, the subject of paragraph 72(2) of Schedule 8, occurs in more than one place; and, accordingly, has now been defined for the purposes of the SIP code generally (in paragraph 99(1) of this Schedule).
Paragraph 78: Acquisition by trustees of shares from employee share ownership trust
3178.This paragraph contains provisions that apply where the SIP acquires shares from an employee share ownership trust. The paragraph derives from paragraph 76 of Schedule 8.
3179.Sub-paragraph (2) is now organised slightly differently; and sub-paragraph (2)(a) contains additional words explaining the reference to “relevant shares”, a term left unexplained in the source legislation. See Note 65(C) in Annex 2.
Paragraph 79: Meeting by trustees of PAYE obligations
3180.This paragraph sets out the requirement that the SIP must make provision to ensure that trustees meet their PAYE obligations. The paragraph derives from paragraph 73 of Schedule 8.
3181.The title to this paragraph has been amended to include a reference to the trustees.
3182.Sub-paragraph (1) now has three paragraphs, as opposed to the corresponding provision in the source legislation, which had two paragraphs, one of which had two sub-paragraphs of its own.
3183.Sub-paragraph (4) is explanatory only; but is retained in order to assist the reader.
Paragraph 80: Other duties of trustees in relation to tax liabilities
3184.This paragraph provides that the trust instrument must set out other duties of trustees in relation to tax liabilities.
3185.The paragraph derives from paragraph 75 of Schedule 8 (in sub-paragraphs (1) to (3)) and paragraph 90 of Schedule 8 (in sub-paragraph (4)).
3186.The material in this paragraph has now been arranged rather differently and in particular the two duties placed on the trustees by the trust instrument have now been separated to become sub-paragraphs (1) and (3).
3187.Sub-paragraphs (4) and (5) deal with administrative matters and derive from provisions in paragraphs 90, 92 and 93 of Schedule 8.
Part 10: Approval of plans
3188.It was mentioned, in the overview to the explanatory notes for this Schedule, that the contents of this Schedule could be divided into three categories. Parts 2 to 9 of this Schedule deal with the first category: the requirements that must be met before a SIP may be “approved” for the purposes of the SIP code. This Part deals with the second category: procedural matters relating to the obtaining of approval and the withdrawal of approval. In doing so, this Part brings together material in Parts 1 and 13 of Schedule 8.
Paragraph 81: Application for approval
3189.This paragraph deals with the mechanics of the application for approval of a SIP. The paragraph derives from paragraph 4 of Schedule 8.
3190.This paragraph makes two changes to the law. The first change is in sub-paragraph (2), where it is provided that the application must be in writing. This requirement is not contained in Schedule 8, but there is such a requirement for the SAYE and CSOP schemes. The second change is in sub-paragraph (3), which is new. It provides that once the Inland Revenue have decided whether or not to approve the plan, they must give notice of their decision to the company. See Change 164 in Annex 1.
Paragraph 82: Appeal against refusal of approval
3191.This paragraph provides that a company may appeal to the Special Commissioners if the Inland Revenue refuse to approve the SIP. It derives from paragraph 5 of Schedule 8.
3192.Sub-paragraphs (3) and (4) divide the material in paragraph 5(3) of Schedule 8.
Paragraph 83: Withdrawal of approval
3193.This paragraph contains provisions relating to the withdrawal of approval of an approved SIP.
3194.The paragraph is the first of two rewriting paragraph 118 of Schedule 8. Paragraph 118 is lengthy, and has been divided for ease of comprehension. This paragraph derives from sub-paragraphs (1) and (7) of paragraph 118 and deals with the mechanics and implications of the withdrawal of approval. The withdrawal of approval depends on the occurrence of a “disqualifying event”; and paragraph 84 deals with the meaning of this expression.
3195.Sub-paragraph (2)(b) makes it clear that the “later time” must be a time specified in the notice. Sub-paragraphs (3) and (4) rewrite paragraph 118(7) of Schedule 8, providing a separate sub-paragraph for each proposition.
Paragraph 84: Disqualifying events for purposes of paragraph 83
3196.This paragraph specifies what is meant by a “disqualifying event”.
3197.The paragraph is the second of two rewriting paragraph 118 of Schedule 8. It derives from sub-paragraphs (2) to (6) of that paragraph.
3198.Sub-paragraph (1)(f) and (g) constitute a splitting of the material to be found in paragraph 118(2)(f) of Schedule 8.
3199.Sub-paragraph (6) extends the scope of the expression “key feature”. In paragraph 118 there is a definition of this expression (in sub-paragraph (3)(a)). This definition, however, applies only for the purposes of sub-paragraph (2)(b), but the expression is used again, without explanation, in sub-paragraph (6)(a)(i). The scope of this definition has been expanded so that it now applies to the whole of this paragraph. See Note 65(D) in Annex 2.
Paragraph 85: Appeal against withdrawal of approval
3200.This paragraph provides that a company may appeal to the Special Commissioners if the Inland Revenue withdraw approval of a SIP.
3201.The paragraph derives from paragraph 119 of Schedule 8. Sub-paragraphs (1) and (2) reorganise the material from that paragraph to a certain extent.
Part 11: Supplementary provisions
3202.It was mentioned, in the overview to the explanatory notes for this Schedule, that the contents of this Schedule could be divided into three categories. Parts 2 to 9 of this Schedule deal with the first category (the requirements that must be met before a SIP may be “approved” for the purposes of the SIP code) and Part 10 with the second category (procedural matters). This is the eleventh and final Part of this Schedule, and deals with the third category (supplementary provisions). This Part of this Schedule is derived from material in Part 13 of Schedule 8.
Paragraph 86: Company reconstructions
3203.This paragraph deals with company reconstructions, and is the first of two that derive from paragraph 115 of Schedule 8. This paragraph derives from sub-paragraphs (1) and (2) of paragraph 115, and deals with the meaning of the expression “company reconstruction”. The consequences of company reconstructions are dealt with in paragraph 87 of this Schedule.
3204.Sub-paragraph (3)(a) is new; and specifies the consequences of the making of what is now termed an “excluded issue of shares”. This material is not contained in the source legislation; but the new material is merely declaratory of the law in order to make those consequences explicit. See Note 67 in Annex 2.
3205.In sub-paragraph (4), the label “excluded issue of shares” is new.
Paragraph 87: Consequences of company reconstructions
3206.This paragraph deals with the consequences of company reconstructions, and is the second of two that derive from paragraph 115 of Schedule 8. This paragraph derives from sub-paragraphs (3) to (8) of paragraph 115.
3207.This paragraph presents the legislation in a somewhat different order; and, in particular, the sub-paragraph containing definitions (sub-paragraph (7)) has been placed at the end. As a result of the rewriting of the legislation contained in the SIP code, sub-paragraph (2)(d) has wording that differs from that to be found in the source legislation.
3208.In this paragraph, the label “corresponding shares” has been replaced by the label “corresponding old shares”.
Paragraph 88: Treatment of shares acquired under rights issue
3209.This paragraph contains provisions that apply where the trustees exercise rights arising under a rights issue. The paragraph derives from paragraph 116 of Schedule 8.
3210.The order in which the material is presented has been changed substantially. Sub-paragraph (1) now specifies the circumstances in which this paragraph applies; and sub-paragraph (2) now deals with the “basic” case (where the rights are exercised), leaving later sub-paragraphs to deal with other cases.
3211.In paragraph 116 of Schedule 8, paragraph 116(5) is concerned with the meaning of the expression “rights arising under a rights issue”, and provides a cross-reference to another provision in Schedule 8. This expression is now defined in paragraph 99(1) of this Schedule for the purposes of the SIP code generally.
Paragraph 89: Termination of plan
3212.This paragraph contains provisions relating to the termination of a plan; and this may be done if the company issues a plan termination notice. The paragraph derives from paragraph 120 of Schedule 8.
3213.Sub-paragraph (2) now has four paragraphs, as opposed to the corresponding provision in the source legislation which had three paragraphs, one of which had two sub-paragraphs of its own. In paragraph (d) the word “into” has been added after the word “entered”.
Paragraph 90: Effect of plan termination notice
3214.This paragraph deals with the effect of a plan termination notice. The paragraph derives from paragraph 121 of Schedule 8.
3215.The first sentence of paragraph 121(3) has been rewritten as sub-paragraph (3). The second sentence of paragraph 121(3) has, however, been omitted, on the basis that it is unnecessary.
3216.Sub-paragraph (7) has been rewritten, to bring the subject, verb and direct object of this sentence closer together.
3217.In sub-paragraph (8) the words “doing the following in the case of each participant” have been added.
3218.Sub-paragraph (9) has been amended to provide that where a participant has died, the references to a participant in the entirety of this paragraph (as opposed to sub-paragraph (8)) are to the participant’s personal representatives. See Change 165 in Annex 1.
Paragraph 91: Jointly owned companies
3219.This paragraph contains provisions that apply in the case of a jointly owned company, an expression defined in sub-paragraph (5). The paragraph derives from paragraph 127 of Schedule 8, a paragraph that has been amended by section 39(5) of FA 2002.
Paragraph 92: Determination of market value
3220.This paragraph explains how market value is determined for the purposes of the SIP code. The paragraph derives from paragraph 125 of Schedule 8.
3221.Each proposition in this paragraph now appears in its own sub-paragraph.
3222.In sub-paragraph (3), the constituent parts of the sentence have been rearranged; and this sub-paragraph concludes with a reference to agreed matters “stated” in the agreement.
Paragraph 93: Power to require information
3223.This paragraph is concerned with information powers. It derives from paragraph 117 of Schedule 8.
3224.Sub-paragraph (1) reorganises the material in paragraph 117(1). The reorganisation includes the addition of paragraphing.
3225.Sub-paragraph (3) has been redrafted, with a view to clarifying the period within which information must be provided.
3226.Paragraph 117(4) of Schedule 8 has not been rewritten in this Schedule. The matter dealt with in that sub-paragraph, the addition of an entry in the table in section 98 of TMA 1970, is dealt with by means of consequential amendment to that section in Schedule 6 to this Act.
Paragraph 94: Meaning of “associated company”
3227.This paragraph explains the meaning of the expression “associated company” for the purposes of the SIP code. The paragraph derives from paragraph 126 of Schedule 8. The words “at a given time” have been added in sub-paragraph (1).
Paragraph 95: Meaning of participant ceasing to be in relevant employment
3228.This paragraph explains the meaning of a participant ceasing to be in relevant employment for the purposes of the SIP code. The paragraph derives from paragraph 123 of Schedule 8.
3229.The words “for the purposes of the SIP code” have been added in sub-paragraphs (1) and (2); and the word order has been changed in sub-paragraph (3).
Paragraph 96: Meaning of shares being withdrawn from plan
3230.This paragraph explains when shares are withdrawn from a plan for the purposes of the SIP code.
3231.This paragraph is the first of two that derive from paragraph 122 of Schedule 8. That paragraph is lengthy, and with a view to making its provisions more accessible, it has been divided for the purposes of this Act. This paragraph derives from sub-paragraphs (1) and (2) of paragraph 122.
Paragraph 97: Meaning of shares ceasing to be subject to plan
3232.This paragraph explains when shares cease to be subject to a plan for the purposes of the SIP code.
3233.This paragraph is the second of two that derive from paragraph 122 of Schedule 8, deriving in this case from sub-paragraphs (3) to (5) and (7) of that paragraph. (Paragraph 122(6) of Schedule 8 has been rewritten as section 508.)
3234.Sub-paragraph (2) derives from paragraph 122(4) of Schedule 8. This material has been reorganised, and paragraphs have been added.
Paragraph 98: Meaning of "the specified retirement age"
3235.This paragraph provides for a new definition (that of “the specified retirement age”) to apply for the purposes of the SIP code. This new provision derives from paragraph 87(4) of Schedule 8.
Paragraph 99: Minor definitions
3236.This paragraph contains minor definitions. It derives from paragraph 129 of Schedule 8.
3237.In sub-paragraph (1), amendments have been made to the detail of the wording of the definition of “plan shares”.
3238.The definition of “provision for forfeiture” is now in sub-paragraph (1), having been moved from paragraph 65(6) of Schedule 8.
3239.The definition of “redundancy” is also now in sub-paragraph (1), having been moved from paragraph 87(3) of Schedule 8.
3240.There is also a new definition of “rights arising under a rights issue” in sub-paragraph (1). This definition brings together the partial definitions that may be found in different places in Schedule 8.
3241.The definition of “foreign cash dividend”, which may be found in paragraph 129(1) of Schedule 8, has been removed. That definition is used only once (see paragraph 75 of this Schedule), and is dealt with there.
Paragraph 100: Index of defined expressions
3242.This paragraph consists of an index of expressions defined or explained for the purposes of the SIP code. It is in the same form as the index in paragraph 130 of Schedule 8.
