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Income Tax (Earnings and Pensions) Act 2003

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)).

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