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Income Tax (Earnings and Pensions) Act 2003

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.

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