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Income Tax (Earnings and Pensions) Act 2003

Part 4: Eligible employees
Paragraph 24: Eligible employees: introduction

3507.This paragraph is introductory and derives from paragraph 27 of Schedule 14 to FA 2000.

Paragraph 25: The employment requirement

3508.This paragraph derives from paragraph 28 of Schedule 14 to FA 2000 and explains that eligible employees must be employees of the relevant company or of a qualifying subsidiary company (if the relevant company is a parent company).

Paragraph 26: The requirement as to commitment of working time

3509.This paragraph sets out that eligible employees must spend at least 25 hours a week (or at least 75% of their working time, if less) on the business of the relevant company (or of the group if the relevant company is a parent company). Time off for illness and other types of leave are disregarded for the purposes of this test. This paragraph derives from paragraph 29(1) to (4) of Schedule 14 to FA 2000.

3510.One change from the material in paragraph 29 of Schedule 14 to FA 2000 is the reference to the employee as an “individual”, in both this and paragraph 27 of this Schedule. It is not possible for anyone other than an individual to be a qualifying employee.

3511.There is also no mention in this paragraph of the closing words of paragraph 29(4) of Schedule 14 to FA 2000, about an employee ceasing to be in relevant employment. These words have been rewritten in section 535(1)(a), with a cross-reference to paragraph 25 of this Schedule.

3512.There is a change to the wording of the “statutory threshold” in sub-paragraph (1), in the reference to the average amount per week of the employee’s committed time. See Change 176 in Annex 1 and the parallel change to section 535, Change 130.

3513.Another minor change to the law concerns the 75% element of the “statutory threshold”. The wording of paragraph 29(1) of Schedule 14 to FA 2000 did not make it clear that the reference to 75% is a minimum. See Change 176 in Annex 1.

Paragraph 27: Meaning of “working time”

3514.This paragraph derives from paragraph 29(5) and (6) of Schedule 14 to FA 2000. It sets out what is meant by “working time” for the purposes of paragraph 26 of this Schedule.

Paragraph 28: The “no material interest” requirement

3515.This paragraph sets out that to be “eligible” under EMI, employees cannot have a material interest in the relevant company (or any group company if the relevant company is a parent company). Nor may any associate of the employee have such a material interest if the employee is to be an “eligible employee”. This paragraph derives from paragraph 30(1), (2) and (4) of Schedule 14 to FA 2000.

Paragraph 29: Meaning of “material interest”

3516.This paragraph derives from paragraph 31 of Schedule 14 to FA 2000. It sets out what is meant by “material interest” for the purposes of paragraph 28 of this Schedule.

Paragraph 30: Material interest: options and interests in SIPs

3517.This paragraph explains what rights to acquire shares should be taken into consideration in deciding whether an employee has a material interest, and how and when such rights should be counted. It derives from paragraphs 30(3), 32 and 33 of Schedule 14 to FA 2000.

3518.This paragraph includes the part of paragraph 33 of Schedule 14 to FA 2000, which relates to SIPs. The rest of that paragraph that refers to APS (the profit sharing schemes approved under Schedule 9 to ICTA) has not been reproduced in this Schedule. It is contained in Part 8 of Schedule 7 to this Act (Transitionals and savings).

Paragraph 31: Meaning of “associate”

3519.This paragraph derives from paragraph 34 of Schedule 14 to FA 2000. It sets out what is meant by “associate” for the purposes of paragraph 28. The same definition is used for the different share schemes, and has been rewritten in the same way in each of Schedules 2, 3, 4 and 5 to this Act.

3520.The company in sub-paragraph (1)(c) is identified as the company mentioned in paragraph 28(2) of this Schedule. This is also copied in later paragraphs to which it is relevant. This makes explicit both interpretation and practice, thereby limiting the scope of the definition of “associate” in the case of a trust or estate.

3521.Sub-paragraph (2) is new. It links this paragraph with the two that follow.

3522.The definition of “relative” in sub-paragraph (3) reflects the meaning given to this term in paragraph 26(7) of Schedule 14 to FA 2000.

Paragraph 32: Meaning of “associate”: trustees of employee benefit trust

3523.The material interest test in paragraph 28 of this Schedule applies to a wide range of associates. Where an employee has an interest in shares subject to a trust, this includes the trustees of that settlement. If that settlement is an employment benefit trust, paragraph 32 ensures the trustees of that employment benefit trust do not count as associates (unless they do so because of some other link). This paragraph derives from paragraph 35 of Schedule 14 to FA 2000.

3524.Chapter 11 of Part 7 defines the expression “employee benefit trust”, and deals with further matters arising when payments from employee benefit trusts are made.

Paragraph 33: Meaning of “associate”: trustees of discretionary trust

3525.The material interest test in paragraph 28 of this Schedule is applied to a wide range of associates including, potentially, the trustees of a settlement. This paragraph applies where the company shares are held in a discretionary trust (ordinary meaning) of which the employee is a beneficiary but with only a very remote expectation of receiving anything from the trust. In such a case the trustees of that discretionary trust do not count as associates (unless they do so because of some other link). This paragraph derives from paragraph 36 of Schedule 14 to FA 2000.

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