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Income Tax (Earnings and Pensions) Act 2003

Part 4: Shares to which schemes can apply
Paragraph 15: Requirements relating to shares that may be subject to share options: introduction

3409.This is the introductory paragraph to this Part derived from but also elaborating on paragraph 9 of Schedule 9 to ICTA. These requirements relate to the type of shares that can be subject to approved options within the scheme.

3410.In sub-paragraph (2), a new label is attached to these shares, “eligible” shares. The shares are those “which may be acquired by the exercise of” the options. This is in line with the reference to acquisition in paragraph (9)(1) of Schedule 9 to ICTA, (and the SIP definition of eligible shares).

Paragraph 16: Shares must be ordinary shares of certain companies

3411.This paragraph provides that eligible shares must form part of the ordinary share capital of a company with characteristics specified in this paragraph. The paragraph derives from paragraph 10 of Schedule 9 to ICTA.

Paragraph 17: Requirements as to listing

3412.This follows paragraph 11 of Schedule 9 to ICTA, but the interpretation of paragraph 11(c) is assisted by its division into sub-paragraph (1)(c) and (2) which introduces a new label, “a listed company”.

3413.Eligible shares have to be in a listed company, a company under the control of a listed company or in an independent company.

Paragraph 18: Shares must be fully paid up and not redeemable

3414.This paragraph provides that eligible shares must be fully paid up and not redeemable. It derives from part of paragraph 12(1) of Schedule 9 to ICTA.

Paragraph 19: Only certain kinds of restriction allowed

3415.This paragraph takes the material from the rest of paragraph 12 of Schedule 9 to ICTA and covers the rules about the kind of restrictions permitted for eligible shares.

3416.Broadly restrictions are not allowed unless they apply to all shares in the same class. There is an exception. This is contained in sub-paragraphs (2) and (3) and derives from sub-paragraphs (2) and (3) of paragraph 12 of Schedule 9 to ICTA. This allows companies to require ex-employees to dispose of their shares; this will usually be to the existing shareholders.

3417.In sub-paragraph (2)(a) and (b) “or offered for sale” covers the situation in which employees cannot actually secure the sale of their shares. See Change 168 in Annex 1.

3418.In sub-paragraph (5) a reference to section 74(4) of the Financial Services and Markets Act 2000 has been inserted to update the reference to the Model Code issued by the Stock Exchange, in paragraph 13(2) of Schedule 9 to ICTA. See also Change 168 in Annex 1.

3419.In CSOP there is a provision in sub-paragraph (6) dating from FA 1988 ensuring that certain terms of loans are not regarded as a restriction on shares. This provision was not applied to SAYE.

3420.Sub-paragraph (7) enacts the contents of a Revenue Press Release, concerning the “directors veto”, issued on 11 June 1985. See also Change 168 in Annex 1.

3421.There is a new sub-paragraph (8), which puts into the legislation the Inland Revenue’s interpretation of the reference in paragraph 12 of Schedule 9 to ICTA to “articles of association”. See also Change 168 in Annex 1, which refers to Note 44 in Annex 2.

Paragraph 20: Requirements as to other shareholdings

3422.This paragraph imposes a requirement relating to the majority of the issued share capital of the same class as the eligible shares. The paragraph derives from paragraph 14(1) and (3) of Schedule 9 to ICTA. Its purpose is to prevent the manipulation of a company’s share capital.

3423.This paragraph provides that the majority of the shares in the same class as the eligible shares must be either “employee-control shares” or “open market shares”. The label “open market shares” is new, and has been introduced to help understanding. Paragraph 14(2) has not been rewritten as it is concerned with APS.

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