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Income Tax (Earnings and Pensions) Act 2003

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.

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