Income Tax (Earnings and Pensions) Act 2003

Part 2 General requirements

General requirements for approval: introduction

6 A SIP must meet the plan requirements contained in—

• paragraph 7 (the purpose of the plan),

• paragraph 8 (all-employee nature of plan),

• paragraph 9 (participation on same terms),

• paragraph 10 (no preferential treatment for directors and senior employees),

• paragraph 11 (no further conditions), and

• paragraph 12 (no loan arrangements).

The purpose of the plan

7 (1) The purpose of the plan must be to provide benefits to employees in the nature of shares in a company which give them a continuing stake in that company.

(2) The plan must not contain, and the operation of the plan must not involve, features which are neither essential nor reasonably incidental to that purpose.

All-employee nature of plan

8 (1) The plan must provide that every employee who—

(a) meets the requirements of Part 3 of this Schedule (eligibility of individuals) in relation to an award of shares under the plan, and

(b) is a UK resident taxpayer,

is eligible to participate in the award, and is invited to do so.

(2) An employee is a UK resident taxpayer if the employee’s earnings from the employment by reference to which the employee meets the employment requirement are (or would be if there were any) general earnings to which section 15 or 21 applies (earnings for year when employee resident and ordinarily resident in the UK).

(3) The plan must not contain any feature which has or is likely to have the effect of discouraging any description of employees within sub-paragraph (1) from participating in an award of shares under the plan.

(4) Sub-paragraph (3) does not apply to any provision required or authorised by this Schedule.

(5) The plan may provide that an employee who—

(a) meets the requirements of Part 3 of this Schedule (eligibility of individuals) in relation to an award of shares under the plan, but

(b) is not a UK resident taxpayer (see sub-paragraph (2)),

is eligible to participate in the award, and may be invited to do so.

(6) For the purposes of the SIP code an individual is a “qualifying employee”, in relation to an award of shares, if the individual—

(a) is eligible to participate in it under sub-paragraph (1), or

(b) is eligible to participate in it under sub-paragraph (5) and has been invited to do so.

Participation on same terms

9 (1) The requirement of this paragraph is that—

(a) every employee who is invited to participate in an award must be invited to participate on the same terms, and

(b) those who do participate must actually do so on the same terms.

(2) The requirement of this paragraph is infringed by the awarding of free shares by reference to factors other than those mentioned in sub-paragraph (3).

(3) The requirement of this paragraph is not infringed by the awarding of free shares by reference to—

(a) an employee’s remuneration,

(b) an employee’s length of service, or

(c) hours worked by an employee;

but this is subject to sub-paragraph (4).

(4) If the awarding of free shares is by reference to more than one of the factors mentioned in sub-paragraph (3), the requirement of this paragraph is infringed unless—

(a) each factor gives rise to a separate entitlement related to the level of remuneration, length of service or (as the case may be) hours worked, and

(b) the total entitlement is the sum of those separate entitlements.

(5) In the case of an award of free shares which provides for performance allowances, this paragraph has effect as provided in—

(a) paragraph 41 (performance allowances: method one), or

(b) paragraph 42 (performance allowances: method two).

(6) In sub-paragraph (5) “performance allowances” has the meaning given in paragraph 34(4).

(7) In the case of an award of partnership shares, the requirement of this paragraph is not infringed by the operation of any percentage limit specified in or under paragraph 46(2) or (3) (maximum amount of deductions) so far as the application of that limit to employees with different levels of remuneration results in deductions of different amounts or in the award of different numbers of shares.

No preferential treatment for directors and senior employees

10 (1) The first requirement of this paragraph is that no feature of the plan has or is likely to have the effect of conferring benefits wholly or mainly—

(a) on directors, or

(b) on employees receiving the higher or highest levels of remuneration.

(2) The second requirement of this paragraph applies only if the plan is established by a company that is a member of a group.

(3) The requirement is that the identity of the company (or, if it is a group plan, the constituent companies) must not be such that the plan has or is likely to have the effect of conferring benefits wholly or mainly—

(a) on employees of companies that are members of the group who receive the higher or highest levels of remuneration, or

(b) on directors of such companies.

(4) The requirements of this paragraph are not infringed by the awarding of free shares in circumstances where (as a result of paragraph 9(3) and (4)) that would not constitute an infringement of the requirements of paragraph 9.

No further conditions

11 No conditions apart from those required or authorised by this Schedule may be imposed on an employee’s participation in an award of shares under the plan.

No loan arrangements

12 (1) The arrangements for the plan must not make any provision, or be associated in any way with any provision made, for loans to some or all of the employees of—

(a) the company, or

(b) in the case of a group plan, of any constituent company.

(2) The operation of the plan must not be associated in any way with such loans.

(3) In sub-paragraph (1) “arrangements” includes any scheme, agreement, undertaking or understanding, whether or not legally enforceable.