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Income Tax (Earnings and Pensions) Act 2003

Status:

This is the original version (as it was originally enacted).

SCHEDULES

Section 2

SCHEDULE 1Abbreviations and defined expressions

Part 1Abbreviations of Acts and instruments

TMA 1970The Taxes Management Act 1970 (c. 9)
ICTA 1970The Income and Corporation Taxes Act 1970 (c. 10)
FA 1970The Finance Act 1970 (c. 24)
FA 1971The Finance Act 1971 (c. 68)
OPA 1973The Overseas Pensions Act 1973 (c. 21)
FA 1973The Finance Act 1973 (c. 51)
FA 1974The Finance Act 1974 (c. 30)
FA 1976The Finance Act 1976 (c. 40)
FA 1977The Finance Act 1977 (c. 36)
ICTAThe Income and Corporation Taxes Act 1988 (c. 1)
FA 1988The Finance Act 1988 (c. 39)
FA 1989The Finance Act 1989 (c. 26)
SSCBA 1992The Social Security Contributions and Benefits Act 1992 (c. 4)
SSCB(NI)A 1992The Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7)
TCGA 1992The Taxation of Chargeable Gains Act 1992 (c. 12)
VERA 1994The Vehicle Excise and Registration Act 1994 (c. 22)
FA 1995The Finance Act 1995 (c. 4)
JSA 1995The Jobseekers Act 1995 (c. 18)
CSA 1995The Child Support Act 1995 (c. 34)
CS(NI)O 1995The Child Support (Northern Ireland) Order 1995 (S.I. 1995/2702 (N.I. 13))
JS(NI)O 1995The Jobseekers (Northern Ireland) Order 1995 (S.I. 1995/2705 (N.I. 15))
FA 1996The Finance Act 1996 (c. 8)
ERA 1996The Employment Rights Act 1996 (c. 18)
ER(NI)O 1996The Employment Rights (Northern Ireland) Order 1996 (S.I. 1996/1919 (N.I. 16))
FA 1999The Finance Act 1999 (c. 16)
WRPA 1999The Welfare Reform and Pensions Act 1999 (c. 30)
WRP(NI)O 1999The Welfare Reform and Pensions (Northern Ireland) Order 1999 (S.I. 1999/3147 (N.I. 11))
FA 2000The Finance Act 2000 (c. 17)
CAA 2001The Capital Allowances Act 2001 (c. 2)
FA 2001The Finance Act 2001 (c. 9)
SPCA 2002The State Pension Credit Act 2002 (c. 16)
TCA 2002The Tax Credits Act 2002 (c. 21)
SPCA(NI) 2002The State Pension Credit Act (Northern Ireland) 2002 (c. 14 (N.I.))

Part 2Index of expressions defined in this Act or ICTA

Note: this index does not apply to expressions used in any of Chapters 6 to 9 of Part 7 (share incentive plans and other arrangements for acquiring shares): separate indexes appear at the end of Schedules 2 to 5.

accessory (in Chapter 6 of Part 3)section 125(2)
acquisition (in Chapter 8 of Part 3)section 197(2)
the acquisition (in Chapter 8 of Part 3)section 192(4)
acquisition (in Chapter 9 of Part 3)section 200(2)
the acquisition (in Chapter 4 of Part 7)section 447(2)
administrator (in Chapter 2 of Part 6)section 400(1)
age of a car or van (in Chapter 6 of Part 3)section 171(3)
agency contract (in Chapter 7 of Part 2)section 47(1)
annual rental value (in Chapter 10 of Part 3)section 207
annual value (in Chapter 5 of Part 3)section 110
approved (in Chapter 8 of Part 9)section 604
approved (in relation to retirement benefits scheme) (in Chapter 6 of Part 9)section 586(1)
approved retirement benefits scheme (in Chapter 6 of Part 9)section 587(1)
as a director or employee, in relation to the acquisition of an interest in shares (in Chapter 2 of Part 7)section 423
as a director or employee, in relation to the acquisition of shares or an interest in shares (in Chapter 3 of Part 7)section 436
as a director or employee, in relation to the acquisition of shares or an interest in shares (in Chapter 4 of Part 7)section 447(4), (5)
asset (in Chapter 4 of Part 11)section 701
assign, in relation to a share option (in Chapter 5 of Part 7)section 483(1)
assignment (in the application of the Act to Scotland)section 721(2)
associate (in Chapter 8 of Part 2)section 60
associate (in Chapter 11 of Part 7)section 549(4)
associated company (in Chapter 8 of Part 2)section 61(1)
associated company (in Chapter 4 of Part 7)section 470(1)
available for private use (in Chapter 6 of Part 3)section 118(1)
basic ratesection 832(1) of ICTA
benefit (in Chapter 10 of Part 3)section 201(2)
benefit (in Chapter 3 of Part 6)section 402
the benefits code (in the employment income Parts)section 63(1)
the Board of Inland Revenuesection 720(2)
body of personssection 832(1) of ICTA
business (in Chapter 8 of Part 2)section 61(1)
business travel (in Chapter 6 of Part 3)section 171(1)
business travel (in Chapter 2 of Part 4)section 236(1)
capital allowancesection 832(1) of ICTA
car (in Chapter 6 of Part 3)section 115(1)
car (in Chapter 2 of Part 4)section 235(2)
car (in Chapter 3 of Part 4)section 249
car is available to an employee (in Chapter 6 of Part 3)section 116(1)
car first made available to an employee (in Chapter 6 of Part 3)section 116(2)(a)
car made available by reason of employment (in Chapter 6 of Part 3)section 117
car with a CO2 emissions figure (in Chapter 6 of Part 3)section 134(1)
car without a CO2 emissions figure (in Chapter 6 of Part 3)section 134(2)
cash vouchersection 721(1)
charging provisions of Chapter 4 of Part 2 (in the employment income Parts)section 14(3)
charging provisions of Chapter 5 of Part 2 (in the employment income Parts)section 20(3)
cheque voucher (in Chapter 4 of Part 3)section 84(4)
child, childrensection 832(5) of ICTA, and see section 721(6)
close companysection 832(1) of ICTA
companysection 832(1) of ICTA
company (in Chapter 8 of Part 2)section 61(1)
company (in Chapter 5 of Part 7)section 487(1)
company vehicle (in Chapter 2 of Part 4)section 236(2)
connected (in the context of “connected person” or one person being “connected” with another)section 839 of ICTA (see section 718)
the Contributions and Benefits Act (in Chapter 5 of Part 7)section 487(1)
controlsection 840 of ICTA (see section 719)
control (in the benefits code)section 69
convertible, in relation to shares (in Chapter 3 of Part 7)section 435(2)
cost of provision in relation to non-cash voucher (in Chapter 4 of Part 3)section 87(3)
credit-tokensection 721(1)
cycle (in Chapter 2 of Part 4)section 235(5)
date of first registration (in relation to a car or van) (in Chapter 6 of Part 3)section 171(2)
deductible payment (in Part 8)section 558
the deductibility provisions (in Part 5)section 332
dependent subsidiary (in Chapter 4 of Part 7)section 467
diesel (in Chapter 6 of Part 3)section 171(1)
director (in the benefits code)section 67(1)
director (in Chapter 1 of Part 6)section 386(5)
director (in Chapter 2 of Part 7)section 434(1)
director (in Chapter 3 of Part 7)section 446(1)
director (in Chapter 4 of Part 7)section 470(1)
director (in Chapter 5 of Part 7)section 487(1)
director (in Chapter 10 of Part 7)section 548(1)
director, full-time working (in the benefits code)section 67(3)
disabled person’s badge (in Chapter 6 of Part 3)section 171(4)
distributionsection 832(1) of ICTA
domiciled in the United Kingdomsection 721(3)
donations (in Part 12)section 714(1)
earnings (in the employment income Parts)section 62 and see section 721(7)
earnings (from which deductions are allowed) (in Part 5)section 327(2)(a)
earnings charged on receipt (in Part 5)section 335(4)
earnings charged on remittance (in Part 5)section 335(4)
earnings “for” a tax year (in Chapter 4 of Part 2)section 16
earnings “for” a tax year (in Chapter 5 of Part 2)section 29
earnings-only exemptionsection 227(2)
EC certificate of conformity (in Chapter 6 of Part 3)section 171(1)
EC type-approval certificate (in Chapter 6 of Part 3)section 171(1)
eligible period (in Chapter 6 of Part 5)section 378(2)
employed (in the employment income Parts)sections 4 and 5(2)(a)
employed (in the benefits code)section 66(1)(b)
employee (in the employment income Parts)sections 4 and 5(2)(b)
employee (in the benefits code)section 66(1)(b) (see also section 216(5))
employee (in Chapter 3 of Part 3)section 70(4)
employee (in Chapter 8 of Part 3)section 197(1)
employee (in Chapter 9 of Part 3)section 200(1)
employee (in Chapter 10 of Part 3)section 201(5)
employee (in Chapter 1 of Part 6)section 386(5)
employee (in Chapter 2 of Part 6)section 400(1)
employee (in Chapter 2 of Part 7)section 434(1)
the employee (in Chapter 2 of Part 7)section 422(1)
employee (in Chapter 3 of Part 7)section 446(1)
the employee (in Chapter 3 of Part 7)section 435(1)
employee (in Chapter 4 of Part 7)section 470(1)
the employee (in Chapter 4 of Part 7)section 447(1)
employee (in Chapter 5 of Part 7)section 487(1)
the employee (in Chapter 5 of Part 7)section 471(4)
employee (in Chapter 10 of Part 7)section 548(1)
employee (in Chapter 11 of Part 7)section 549(5)
employee (in Part 8)section 562(2)
employee (in Chapter 6 of Part 9)section 588(1)
employee (in Chapter 13 of Part 9)section 628(1)
employee (in Part 11)section 712(1)
employee benefit trust (in Chapter 11 of Part 7)section 550
employee-controlled (in relation to a company) (in Chapter 4 of Part 7)section 468
the employee’s interest (in Chapter 2 of Part 7)section 422(2)
the employee offer (in Chapter 10 of Part 7)section 544(1)
employer (in the employment income Parts)sections 4 and 5(2)(c)
employer (in the benefits code)section 66(1)(b)
the employer (in the benefits code)section 66(2)(b)
employer (in Chapter 1 of Part 6)section 386(5)
employer (in Part 8)section 562(2)
employer (in Part 11)section 712(1)
the employer company (in Chapter 2 of Part 7)section 422(2)
the employer company (in Chapter 3 of Part 7)section 435(4)
the employer company (in Chapter 4 of Part 7)section 447(3)
employer’s national insurance contributions (in Chapter 8 of Part 2)section 61(1)
employment (in the employment income Parts)sections 4 and 5(1)
employment (in the benefits code)section 66(1)(a)
the employment (in the benefits code)section 66(2)(a)
employment (in Chapter 1 of Part 6)section 386(5)
employment (in Part 8)section 562(2)
employment (in Chapter 5 of Part 11)section 707
employment as a seafarer (in Chapter 6 of Part 5)section 384(1)
the employment change (in Chapter 7 of Part 4)section 275
employment incomesection 7(2)
the employment income Partssection 3(2)
employment income exemptionsection 227(3)
employment-related benefit (in Chapter 10 of Part 3)section 201(2)
employment-related loan (in Chapter 7 of Part 3)section 174
employment-related shares (in Chapter 9 of Part 3)section 198(2)
the employment-related shares (in Chapter 8 of Part 3)section 192(4)
engagement to which Chapter 8 of Part 2 applies (in Chapter 8 of Part 2)section 49(5)
excluded benefits (in Chapter 10 of Part 3)section 202
excluded employment (in the benefits code)section 63(4)
excluded employment (in Part 4)section 239(9)
excluded services (in Chapter 7 of Part 2)section 47(2)
exempt approved scheme (in Chapter 13 of Part 9)section 628(1)
exempt income (for the purposes of the employment income Parts)section 8
exempt income (for the purposes of Part 9)section 566(3)
exempt income (for the purposes of Part 10)section 656(2)
ex-spouse (in Chapter 2 of Part 6)section 400(1)
ex-spouse (in Chapter 6 of Part 9)section 588(1)
foreign employersection 721(1)
former approved superannuation fund (in Chapter 7 of Part 9)section 594(1)
former employee (in Part 8)section 562(1)
former employer (in relation to former employee) (in Part 8)section 563
former employment (in relation to former employee) (in Part 8)section 563
General Commissionerssection 2 of TMA 1970
general earningssection 7(3)
held by outside shareholders (in Chapter 4 of Part 7)section 469
House of Commons Members' Fund (in Chapter 12 of Part 9)section 620
the included amount (in Chapter 5 of Part 5)section 369(2)
income withdrawal (in Chapter 8 of Part 9)section 604
individual learning account training (in Chapter 4 of Part 4)section 256
initial extra accessory (in Chapter 6 of Part 3)section 126(2)
the Inland Revenuesection 720(1)
interestsection 832(1) of ICTA
interest in residence (in Chapter 7 of Part 4)section 276(3)
interest in shares (in Chapter 8 of Part 3)section 197(1)
interest in shares (in Chapter 9 of Part 3)section 200(1)
interest in shares (in Chapter 4 of Part 7)section 470(1)
last day on which car available (in Chapter 6 of Part 3)section 116(2)(b)
later accessory (in Chapter 6 of Part 3)section 126(3)
the limitation day (in Chapter 7 of Part 4)section 274
list price (of a car) (in Chapter 6 of Part 3)section 123(1)
list price (of accessories) (in Chapter 6 of Part 3)section 127
listed provision (in Chapter 11 of Part 7)section 549(2)
loan (in Chapter 7 of Part 3)section 173(2)(a)
local authoritysection 842A of ICTA
lower-paid employment (in Chapter 11 of Part 3)section 217
making a loan (in Chapter 7 of Part 3)section 173(2)(b)
market value (in Chapter 8 of Part 3)section 197(1)
market value (in Chapter 9 of Part 3)section 200(1)
market value (in Chapter 2 of Part 7)section 434(1)
market value (of asset) (in Chapter 10 of Part 3)section 208
material interest (in company) (in the benefits code)section 68
members of a person’s familysection 721(4)
member of a person’s family or householdsection 721(5)
mileage allowance payments (in Chapter 2 of Part 4)section 229(2)
motor cycle (in Chapter 2 of Part 4)section 235(4)
national insurance contributions (in Chapter 8 of Part 2)section 61(1)
net taxable earnings (for the purposes of Part 2)section 11
net taxable specific income (for the purposes of Part 2)section 12
non-approved retirement benefits scheme (in Chapter 1 of Part 6)section 387(2)
non-approved retirement benefits scheme (in Chapter 2 of Part 6)section 400(1)
non-cash vouchersection 721(1)
non-standard accessory (in Chapter 6 of Part 3)section 125(4)
the normal self-assessment filing datesection 721(1)
noticesection 832(1) of ICTA
notional price (of a car) (in Chapter 6 of Part 3)section 124(1)
notional price (of accessories) (in Chapter 6 of Part 3)section 130(1)
office (in the employment income Parts)section 5(3)
office (in Part 8)section 564(3)
official rate of interest (in Chapter 7 of Part 3)section 181
only conditional (interest in shares) (in Chapter 2 of Part 7)section 424
ordinary commuting (in Chapter 3 of Part 4)section 249
ordinary share capitalsection 832(1) of ICTA
original pensioner (in Chapter 14 of Part 9)section 630(1)
passenger payments (in Chapter 2 of Part 4)section 233(3)
PAYE incomesection 683
PAYE provisions (in Chapter 8 of Part 2)section 61(1)
PAYE regulationssection 684(8)
payment for the employment-related shares (in Chapter 8 of Part 3)section 197(3)
pension (in Chapter 3 of Part 9)section 570
pension (in Chapter 4 of Part 9)section 574
pension (in Chapter 11 of Part 9)section 615(7)
pension (in Chapter 18 of Part 9)section 647(4)
pension incomesection 566(2)
permanent workplace (in Chapter 3 of Part 4)section 249
permanent workplace (in Part 5)section 339(2)
person involved in providing the accommodation (in Chapter 5 of Part 3)section 112
person paying an amount (in Chapter 2 of Part 5)section 333(2)
personal pension arrangements (in Chapter 8 of Part 9)section 604
personal pension scheme (in Chapter 8 of Part 9)section 604
personal representativessection 721(1)
persons providing a benefit (in Chapter 10 of Part 3)section 209
post-employment earnings (in relation to former employee) (in Part 8)section 563
premium (in relation to qualifying insurance contract) (in Chapter 2 of Part 5)section 346(3)(a)
premium (in relation to qualifying insurance contract) (in Part 8)section 558(3)(a)
pre-1973 pension (in Chapter 14 of Part 9)section 630(2)
prescribed (in Chapter 5 of Part 11)section 707
price of a car (in Chapter 6 of Part 3)section 122
private use (in Chapter 6 of Part 3)section 118(2)
the property, in relation to living accommodation (in Chapter 5 of Part 3)section 113
provision of benefits in respect of an employee (in Chapter 1 of Part 6)section 386(6)
provision of cash voucher for employee (in Chapter 4 of Part 3)section 74
provision of credit-token for employee (in Chapter 4 of Part 3)section 91(a)
provision of non-cash voucher for employee (in Chapter 4 of Part 3)section 83
provision of relevant benefits (in Chapter 2 of Part 6)section 400(2)
the public offer (in Chapter 10 of Part 7)section 544(1)
published price of the manufacturer, importer or distributor of the accessory (in Chapter 6 of Part 3)section 129(1)
published price of the manufacturer, importer or distributor of the car (in relation to accessory) (in Chapter 6 of Part 3)section 128(1)
qualifying accessory (in Chapter 6 of Part 3)section 125(1)
qualifying journey (in Chapter 3 of Part 4)section 249
readily convertible asset (in Chapter 4 of Part 11)section 702
receipt of cash voucher by employee (in Chapter 4 of Part 3)section 74
receipt of money earnings (in Chapter 4 of Part 2)section 18
receipt of money earnings (in Chapter 5 of Part 2)section 31
receipt of non-cash voucher by employee (in Chapter 4 of Part 3)section 83
receipt of non-money earnings (in Chapter 4 of Part 2)section 19
receipt of non-money earnings (in Chapter 5 of Part 2)section 32
registrant discount (in Chapter 10 of Part 7)section 547
relative (in Chapter 2 of Part 6)section 400(1)
release, in relation to a share option (in Chapter 5 of Part 7)section 483
relevant benefits (in Chapter 1 of Part 6)section 386(5)
relevant benefits (in Chapter 2 of Part 6)section 400(1)
relevant engagements (in Chapter 8 of Part 2)section 50(4)
relevant retirement benefit (in relation to former employee) (in Part 8)section 563
relevant statutory scheme (in Chapter 13 of Part 9)section 628(1)
relevant taxes (in Chapter 6 of Part 3)section 171(1)
remittance of earnings (in Chapter 5 of Part 2)section 33
remuneration (in Chapter 7 of Part 2)section 47(3)
residence, former residence and new residence (in Chapter 7 of Part 4)section 276(1), (2)
retirement annuity contract (in Chapter 9 of Part 9)section 606
retirement benefits scheme (in Chapter 1 of Part 6)section 387(1)
retirement benefits scheme (in Chapter 6 of Part 9)section 586(1)
road fuel gas (in Chapter 6 of Part 3)section 171(1)
Schedule A businesssection 832(1) of ICTA
secondary Class 1 contributions (in Chapter 5 of Part 7)section 487(1)
share option (in Chapter 5 of Part 7)section 471(4)
the share option (in Chapter 5 of Part 7)section 471(4)
shares (in Chapter 8 of Part 3)section 197(1)
shares (in Chapter 9 of Part 3)section 200(1)
shares (in Chapter 2 of Part 7)section 434(1)
the shares (in Chapter 2 of Part 7)section 422(2)
shares (in Chapter 3 of Part 7)section 446(1)
the shares (in Chapter 3 of Part 7)section 435(4)
shares (in Chapter 4 of Part 7)section 470(1)
the shares (in Chapter 4 of Part 7)section 447(2)
shares (in Chapter 5 of Part 7)section 487(1)
shares (in Chapter 10 of Part 7)section 548(1)
ship (in Chapter 6 of Part 5)section 385
social security incomesection 657(2)
Special Commissionerssection 4 of TMA 1970
specific employment incomesection 7(4)
standard accessory (in Chapter 6 of Part 3)section 125(4)
51% subsidiarysection 838(1) of ICTA
Table A (in Part 10)section 657(5)
Table B (in Part 10)section 657(6)
taxsection 832(3) of ICTA
tax creditsection 832(1) of ICTA
taxable benefit (in Chapter 5 of Part 11)section 707
taxable benefits (in Part 10)section 657(3)
taxable cheap loan (in Chapter 7 of Part 3)section 175(2)
taxable earnings (in the employment income Parts)section 10(2)
taxable employment under Part 2 (in the benefits code)section 66(3)
taxable pension income (in Part 9)section 567(3), (4)
the taxable period (in Chapter 5 of Part 3)section 102(2)
taxable person (in Chapter 3 of Part 6)section 403(6)
taxable social security income (in Part 10)section 658(4)-(7)
taxable specific income (in the employment income Parts)section 10(3)
tax yearsection 721(1)
the tax year (in Part 5)section 327(2)(b)
the tax year 2003-04 etc.section 721(1)
terms (in Chapter 2 of Part 7)section 434(1)
terms (in Chapter 3 of Part 7)section 446(1)
total incomesection 835 of ICTA
tradesection 832(1) of ICTA
transport voucher (in Chapter 4 of Part 3)section 84(3)
United Kingdomsection 830 of ICTA
UK approval certificate (in Chapter 6 of Part 3)section 171(1)
use of credit-token by employee (in Chapter 4 of Part 3)section 91(b)
value (in relation to shares) (in Chapter 4 of Part 7)section 470(1)
van (in Chapter 6 of Part 3)section 115(1)
van (in Chapter 2 of Part 4)section 235(3)
van is available to an employee (in Chapter 6 of Part 3)section 116(1)
van made available by reason of employment (in Chapter 6 of Part 3)section 117
workplace (in Chapter 3 of Part 4)section 249
workplace (in Part 5)section 339(1)
work-related training (in Chapter 4 of Part 4)section 251(1)

Section 488

SCHEDULE 2Approved share incentive plans

Part 1Introduction

Approval of share incentive plans (SIPs)

1(1)This Schedule makes provision for—

(a)the approval of share incentive plans (“SIPs”) by the Inland Revenue, and

(b)the administration and operation of such plans.

(2)Parts 2 to 9 of this Schedule contain requirements that have to be met in order for plans to be approved under this Schedule.

(3)The requirements consist of general requirements (see Part 2) and requirements as to—

  • the eligibility of individuals (see Part 3),

  • the types of shares that may be awarded (see Part 4),

  • free shares (see Part 5),

  • partnership shares (see Part 6),

  • matching shares (see Part 7),

  • cash dividends and dividend shares (see Part 8), and

  • the trustees (see Part 9).

(4)Part 10 of this Schedule deals with the approval of plans and the withdrawal of approval.

SIPs: free shares and partnership shares

2(1)In the SIP code a “share incentive plan” (or “SIP” for short) means (in accordance with section 488(4)) a plan established by a company providing—

(a)for shares to be appropriated to employees without payment (“free shares”), or

(b)for shares to be acquired on behalf of employees out of sums deducted from their salary (“partnership shares”).

(2)In the SIP code, in relation to a SIP—

  • “the company” means the company which established the plan;

  • “plan requirements” means requirements applying to the plan;

  • “the trustees” means the body of persons established under Part 9 to exercise functions in connection with the plan.

Matching shares

3(1)A SIP that provides for partnership shares may also provide for shares to be appropriated without payment to employees in proportion to the partnership shares acquired by them (“matching shares”).

(2)If a SIP contains provision for all, or more than one, of the following—

  • free shares,

  • partnership shares, and

  • matching shares,

the plan may provide for the company to decide when the provisions relating to each kind of share are to have effect.

Group plans

4(1)A SIP established by a company that controls other companies (a “parent company”) may extend to all or any of those other companies.

(2)In the SIP code a SIP established by a parent company which so extends is referred to as a “group plan”.

(3)In relation to a group plan a “constituent company” means—

(a)the parent company, or

(b)any other company to which for the time being the plan is expressed to extend.

(4)Paragraph 91 deals with jointly owned companies and companies controlled by them.

Meaning of “award of shares”, “participant” etc.

5(1)For the purposes of the SIP code an “award of shares” is made under a SIP on each occasion when in accordance with the plan—

(a)free or matching shares are appropriated to employees, or

(b)partnership shares are acquired on behalf of employees.

(2)Accordingly, references to shares awarded to an individual under a SIP are to—

(a)free or matching shares appropriated to the individual, or

(b)partnership shares acquired on the individual’s behalf,

under the plan.

(3)For the purposes of the SIP code an individual participates in an award of free, matching or partnership shares under a SIP if shares included in that award are—

(a)in the case of an award of free or matching shares, appropriated to the individual, or

(b)in the case of an award of partnership shares, acquired on the individual’s behalf.

(4)In the SIP code, in relation to a SIP, “participant” means an individual to whom shares have been awarded under the plan.

Part 2General requirements

General requirements for approval: introduction

6A 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

11No 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.

Part 3Eligibility of individuals

Eligibility of individuals: introduction

13A SIP must meet the plan requirements contained in—

  • paragraph 14 (time of eligibility to participate),

  • paragraph 15 (the employment requirement),

  • paragraph 18 (requirement not to participate in other SIPs), and

  • paragraph 19 (the “no material interest” requirement).

Time of eligibility to participate

14(1)The plan must provide that an individual may only participate in an award of shares if the individual is eligible to participate in the award at the appropriate time mentioned below.

(2)In the case of an award of free shares, the appropriate time is the time when the award is made.

(3)In the case of an award of partnership shares where the plan does not provide for an accumulation period, the appropriate time is the time of the deduction of the partnership share money relating to the award.

(4)In the case of an award of partnership shares where the plan does provide for an accumulation period, the appropriate time is the time of the first deduction of partnership share money relating to the award.

(5)In the case of an award of matching shares where the plan does not provide for an accumulation period, the appropriate time is the time of the deduction of the partnership share money relating to the award of partnership shares to which the matching shares relate.

(6)In the case of an award of matching shares where the plan does provide for an accumulation period, the appropriate time is the time of the first deduction of partnership share money relating to the award of partnership shares to which the matching shares relate.

(7)For the purposes of this paragraph an individual is eligible to participate in an award of shares under the plan if and only if the requirements of the plan are met as to—

(a)employment (see paragraph 15),

(b)not participating in other SIPs (see paragraph 18), and

(c)not having a material interest (see paragraph 19).

(8)In the case of an individual within paragraph 8(5) (all-employee nature of plan: non-UK resident taxpayer), the individual is not eligible to participate in an award of shares under the plan unless (in addition to the requirements mentioned in sub-paragraph (7)) any further eligibility requirements of the plan are met.

The employment requirement

15(1)The plan must provide that an individual is not eligible to participate in an award of shares unless the individual meets the requirement in sub-paragraph (2).

(2)The requirement is that the individual—

(a)is an employee of—

(i)the company, or

(ii)in the case of a group plan, a constituent company, and

(b)if the plan provides for a qualifying period, has at all times during that period been an employee of a qualifying company.

(3)In the SIP code “the employment requirement” means the requirement in sub-paragraph (2).

(4)This paragraph is supplemented—

(a)as regards qualifying periods, by paragraph 16, and

(b)as regards the meaning of “qualifying company”, by paragraph 17.

Qualifying periods

16(1)This paragraph applies if the plan provides for a qualifying period in relation to an award.

(2)In the case of an award of free shares, the qualifying period must be a period of not more than 18 months ending with the date on which the award is made.

(3)In the case of an award of partnership shares where the plan does not provide for an accumulation period, the qualifying period must be a period of not more than 18 months ending with the deduction of partnership share money relating to the award.

(4)In the case of an award of partnership shares where the plan does provide for an accumulation period, the qualifying period must be a period of not more than 6 months ending with the start of the accumulation period relating to the award.

(5)In the case of an award of matching shares where the plan does not provide for an accumulation period, the qualifying period must be a period of not more than 18 months ending with the deduction of partnership share money relating to the award of partnership shares to which the matching shares relate.

(6)In the case of an award of matching shares where the plan does provide for an accumulation period, the qualifying period must be a period of not more than 6 months ending with the start of the accumulation period relating to the award of partnership shares to which the matching shares relate.

(7)In relation to an award, the same qualifying period must apply in relation to all employees—

(a)of the company, or

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

(8)The plan may authorise the company to specify different qualifying periods in respect of different awards of shares, but the requirements in sub-paragraphs (2) to (7) apply to periods so specified.

Meaning of “qualifying company”

17(1)For the purposes of paragraph 15(2) “qualifying company” has the meaning given by this paragraph.

(2)Except in the case of a group plan, “qualifying company” means—

(a)the company, or

(b)a company that, when the individual was employed by it, was an associated company—

(i)of the company, or

(ii)of another company qualifying under this paragraph.

(3)In the case of a group plan, “qualifying company” means—

(a)a company that is a constituent company at the end of the qualifying period mentioned in paragraph 15(2),

(b)a company that, when the individual was employed by it, was a constituent company, or

(c)a company that, when the individual was employed by it, was an associated company of—

(i)a company qualifying under paragraph (a) or (b), or

(ii)another company qualifying under this paragraph.

Requirement not to participate in other SIPs

18(1)The plan must provide that an individual is not eligible to participate in an award of free, matching or partnership shares under the plan in a tax year if the individual—

(a)has in that year already participated, or

(b)is at the same time to participate,

in an award of shares under another approved SIP established by the company or a connected company.

(2)For the purposes of this paragraph an individual is to be treated as having participated in an award of free shares under a SIP if the individual would have participated in that award but for the individual’s failure to obtain a performance allowance (see paragraph 34).

(3)In this paragraph “connected company” means—

(a)a company which controls or is controlled by the company or which is controlled by a company which also controls the company, or

(b)a company which is a member of a consortium owning the company or which is owned in part by the company as a member of a consortium.

The “no material interest” requirement

19(1)The plan must provide that an individual is not eligible to participate in an award of shares on any date if the individual has on that date, or has had within the 12 months ending with that date, a material interest in—

(a)a close company whose shares may be awarded under the plan, or

(b)a company which has control of such a company or is a member of a consortium which owns such a company.

(2)For the purposes of this paragraph an individual is to be regarded as having a material interest in a company if—

(a)the individual,

(b)the individual together with one or more of the individual’s associates, or

(c)any such associate, with or without any other such associates,

has a material interest in the company.

(3)This paragraph is supplemented—

(a)as regards the meaning of “material interest”, by paragraphs 20 and 21, and

(b)as regards the meaning of “associate”, by paragraphs 22 to 24.

Meaning of “material interest”

20(1)In paragraph 19 (the “no material interest” requirement) references to a “material interest” in a company are to—

(a)a material interest in the share capital of the company, or

(b)where it is a close company, a material interest in its assets.

(2)A material interest in the share capital of a company means—

(a)beneficial ownership of, or

(b)the ability to control (directly or through the medium of other companies or by any other indirect means),

more than 25% of the ordinary share capital of the company.

(3)A material interest in the assets of a close company means—

(a)possession of, or

(b)an entitlement to acquire,

such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive more than 25% of the assets that would then be available for distribution among the participators.

(4)In this paragraph—

  • “close company” includes a company that would be a close company but for—

    (a)

    section 414(1)(a) of ICTA (exclusion of companies not resident in the United Kingdom), or

    (b)

    section 415 of ICTA (exclusion of certain quoted companies), and

  • “participator” has the meaning given by section 417(1) of ICTA.

(5)This paragraph is supplemented by paragraph 21 (material interest: options and interests in SIPs).

Material interest: options and interests in SIPs

21(1)This paragraph applies for the purposes of paragraph 20 (meaning of “material interest”).

(2)A right to acquire shares (however arising) is to be treated as a right to control them.

(3)Sub-paragraph (4) applies in a case where—

(a)the shares to be attributed to an individual consist of or include shares which the individual or another person has a right to acquire, and

(b)the circumstances are such that, if that right were to be exercised, the shares acquired would be shares which were previously unissued and which the company would be contractually bound to issue in the event of the exercise of the right.

(4)In determining at any time prior to the exercise of the right whether the number of shares to be attributed to the individual exceeds 25% of the ordinary share capital of the company, that ordinary share capital is to be treated as increased by the number of unissued shares referred to in sub-paragraph (3)(b).

(5)The references in sub-paragraphs (3) and (4) to the shares to be attributed to an individual are to the shares which—

(a)for the purposes of paragraph 20(2) (material interest in share capital), and

(b)in accordance with paragraph 19(2) (material interest can consist of or include that of the individual’s associates),

fall to be brought into account in the individual’s case so that it can be determined whether their number exceeds 25% of the company’s ordinary share capital.

(6)In applying paragraph 20 the following are to be disregarded—

(a)the interest of the trustees of any approved SIP in any shares which are held by them in accordance with the plan but which have not been appropriated to, or acquired on behalf of, an individual, and

(b)any rights exercisable by the trustees as a result of that interest.

Meaning of “associate”

22(1)In paragraph 19(2) (the “no material interest” requirement) “associate”, in relation to an individual, means—

(a)any relative or partner of the individual,

(b)the trustee or trustees of any settlement in relation to which the individual, or any of the individual’s relatives (living or dead), is or was a settlor, and

(c)where the individual is interested in any shares or obligations of the company mentioned in paragraph 19(2) which are subject to any trust, or are part of the estate of a deceased person—

(i)the trustee or trustees of the settlement concerned, or

(ii)the personal representatives of the deceased,

as the case may be.

(2)Sub-paragraph (1)(c) needs to be read with paragraphs 23 and 24 (which relate to employee benefit trusts and discretionary trusts).

(3)In this paragraph—

  • “relative” means—

    (a)

    spouse,

    (b)

    parent, child or remoter relation in the direct line, or

    (c)

    brother or sister;

  • “settlor” and “settlement” have the same meaning as in Chapter 1A of Part 15 of ICTA (see section 660G(1) and (2)).

Meaning of “associate”: trustees of employee benefit trust

23(1)This paragraph applies for the purposes of paragraph 22(1)(c) (meaning of “associate”: trustees of settlement) where an individual is interested as a beneficiary of an employee benefit trust in shares or obligations of the company mentioned in paragraph 19(2).

(2)The trustees of the employee benefit trust are not to be regarded as associates of the individual as a result only of the individual’s being so interested if neither—

(a)the individual, nor

(b)the individual together with one or more of the individual’s associates, nor

(c)any such associate, with or without any other such associates,

has at any time after 13th March 1989 been the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 25% of the ordinary share capital of the company.

(3)In sub-paragraph (2)(b) and (c) “associate” has the meaning given by paragraph 22(1), but does not include the trustees of an employee benefit trust as a result only of the individual’s having an interest in shares or obligations of the trust.

(4)Chapter 11 of Part 7 of this Act (which deals with the attribution of interests in companies to beneficiaries of employee benefit trusts) applies for the purposes of sub-paragraph (2).

(5)In this paragraph “employee benefit trust” has the same meaning as in that Chapter (see sections 550 and 551).

Meaning of “associate”: trustees of discretionary trust

24(1)This paragraph applies for the purposes of paragraph 22(1)(c) (meaning of “associate”: trustees of settlement) where—

(a)the individual (“the beneficiary”) is one of the objects of a discretionary trust,

(b)the property subject to the trust has at any time consisted of, or included, shares or obligations of the company mentioned in paragraph 19(2),

(c)the beneficiary has ceased to be eligible to benefit under the trust as a result of—

(i)an irrevocable disclaimer or release executed by the beneficiary, or

(ii)the irrevocable exercise by the trustees of a power to exclude the beneficiary from the objects of the trust,

(d)immediately after the beneficiary ceased to be so eligible, no associate of the beneficiary was interested in the shares or obligations of the company which were subject to the trust, and

(e)during the period of 12 months ending with the date on which the beneficiary ceased to be so eligible, neither the beneficiary nor any associate of the beneficiary received any benefit under the trust.

(2)The beneficiary is not, as a result only of the matters mentioned in sub-paragraph (1)(a) and (b), to be regarded as having been interested in the shares or obligations of the company at any time during that period of 12 months.

(3)In sub-paragraph (1) “associate” has the meaning given by paragraph 22(1), but with the omission of paragraph (c) (trusts and estates).

Part 4Types of shares that may be awarded

Types of share that may be awarded: introduction

25(1)The requirements of the following paragraphs must be met with respect to any shares that may be awarded under a SIP—

  • paragraph 26 (shares must be part of ordinary share capital of certain companies),

  • paragraph 27 (requirement as to listing etc.),

  • paragraph 28 (shares must be fully paid up and not redeemable),

  • paragraph 29 (prohibited shares), and

  • paragraph 30 (only certain kinds of restriction allowed).

(2)In this Part of this Schedule “eligible shares” means shares that may be awarded under the plan.

Shares must be part of ordinary share capital of certain companies

26Eligible shares must form part of the ordinary share capital of—

(a)the company,

(b)a company which has control of the company, or

(c)a company which either is, or has control of, a company which is a member of a consortium owning either the company or a company having control of the company.

Requirement as to listing etc.

27(1)Eligible shares must be—

(a)shares of a class listed on a recognised stock exchange,

(b)shares in a company which is not under the control of another company, or

(c)shares in a company which is under the control of a listed company.

(2)A “listed company” is a company whose shares are listed on a recognised stock exchange, other than—

(a)a close company, or

(b)a company that would be a close company if resident in the United Kingdom.

Shares must be fully paid up and not redeemable

28(1)Eligible shares must be—

(a)fully paid up, and

(b)not redeemable.

(2)For the purposes of sub-paragraph (1)(a) shares are not to be regarded as fully paid up if there is an undertaking to pay cash at a future date to the company whose shares they are.

(3)For the purposes of sub-paragraph (1)(b) “redeemable” shares include shares that may become redeemable at a future date.

(4)Sub-paragraph (1)(b) does not apply to shares in a registered industrial and provident society which is a co-operative society.

(5)In sub-paragraph (4)—

  • “registered industrial and provident society” means a society registered or deemed to be registered under the Industrial and Provident Societies Act 1965 (c. 12) or the Industrial and Provident Societies Act (Northern Ireland) 1969 (c. 24 (N.I.)), and

  • “co-operative society” has the same meaning as in section 1 of the 1965 Act or, as the case may be, the 1969 Act.

Prohibited shares

29(1)Eligible shares must not be shares in—

(a)a service company, or

(b)a company that—

(i)has control of a service company, and

(ii)is under the control of a person or persons who fall within sub-paragraph (2)(b)(i) or (ii) as it applies to a service company.

(2)For the purposes of this paragraph a company is a “service company” if—

(a)the business carried on by it consists substantially in the provision of the services of persons employed by it, and

(b)the majority of those services are provided to—

(i)a person who has control of the company,

(ii)two or more persons who together have control of the company, or

(iii)a company associated with the company.

(3)For the purposes of sub-paragraph (2)(b)(iii) a company is associated with another company if both companies are under the control of the same person or persons.

(4)For the purposes of sub-paragraphs (1) to (3)—

(a)a partnership is to be treated as a single person; and

(b)where a partner (alone or together with others) has control of a company, the partnership is to be treated as having (in the same way) control of that company.

(5)For the purposes of this paragraph the question whether a person controls a company is to be determined in accordance with section 416(2) to (6) of ICTA.

Only certain kinds of restriction allowed

30(1)Eligible shares must not be subject to any restrictions other than—

(a)those affecting all ordinary shares in the company,

(b)those permitted by—

(i)paragraph 31 (voting rights),

(ii)paragraph 32 (provision for forfeiture), or

(iii)paragraph 33 (pre-emption conditions), or

(c)those involved in there being a holding period (see paragraphs 36, 61 and 67).

(2)For the purposes of this paragraph shares are subject to a restriction if there is any contract, agreement, arrangement or condition—

(a)by which a person’s freedom to dispose of the shares or of any interest in them or of the proceeds of their sale or to exercise any right conferred by them is restricted, or

(b)by which such a disposal or exercise may result in any disadvantage to the person or to a person connected with the person.

This is subject to sub-paragraphs (3) and (4).

(3)Sub-paragraph (2) does not extend to so much of any contract, agreement, arrangement or condition as contains provisions similar in purpose and effect to any of the provisions of the Model Code as (for the time being) set out in the listing rules issued by the competent authority for listing in the United Kingdom under section 74(4) of the Financial Services and Markets Act 2000 (c. 8).

(4)Any discretion of the directors under the articles of association of the company to refuse to accept the transfer of shares is to be disregarded for the purposes of this paragraph if the directors—

(a)have undertaken to the Inland Revenue not to exercise it in such a way as to discriminate against participants, and

(b)have notified all qualifying employees of the existence of the undertaking.

Permitted restrictions: voting rights

31Eligible shares may be shares carrying no voting rights or limited voting rights.

Permitted restrictions: provision for forfeiture

32(1)Free or matching shares may be subject to provision for forfeiture—

(a)on the participant ceasing to be in relevant employment at any time in the forfeiture period,

(b)on the participant withdrawing the shares from the plan at any such time, or

(c)in the case of matching shares, on the participant withdrawing from the plan at any such time the partnership shares in respect of which those shares were awarded.

(2)Sub-paragraph (1)(a) does not, however, authorise the making of provision for forfeiture on the participant ceasing to be in relevant employment—

(a)because of injury or disability,

(b)on being dismissed by reason of redundancy,

(c)by reason of a transfer to which the Transfer of Undertakings (Protection of Employment) Regulations 1981 (S.I. 1981/1794) apply,

(d)if the relevant employment is employment by an associated company (see paragraph 95(2)), by reason of a change of control or other circumstances ending that company’s status as an associated company,

(e)by reason of the participant’s retirement on or after reaching the specified retirement age (see paragraph 98), or

(f)on the participant’s death.

(3)Forfeiture may not be linked to the performance of any person or persons.

(4)The same provision for forfeiture must apply in relation to all free or matching shares included in the same award under the plan.

(5)In this paragraph “the forfeiture period” means the forfeiture period specified in the plan, which must be a period of not more than 3 years beginning with the date on which the shares were awarded to the participant.

Permitted restrictions: pre-emption conditions

33(1)If the requirements of this paragraph are met, eligible shares may be subject to provision requiring shares—

(a)that were awarded to an employee under the plan, and

(b)that are held by an employee or a permitted transferee,

to be offered for sale on the employee ceasing to be in relevant employment.

(2)For the purposes of sub-paragraph (1)(b) a “permitted transferee” means a person to whom, under the articles of association of the company, the employee is permitted to transfer the shares.

(3)The requirements of this paragraph are that under the articles of association of the company—

(a)the same provision applies to all employees of the company or, in the case of a parent company, to all employees of that company or any company of which that company has control,

(b)the shares are required to be offered for sale at a specified consideration, and

(c)anyone disposing of shares of the same class (whether or not as an employee) is required to offer the shares for sale on no better terms.

Part 5Free shares

Free shares: introduction

34(1)If a SIP provides for free shares, it must meet the plan requirements contained in—

  • paragraph 35 (maximum annual award), and

  • paragraph 36 (the holding period).

(2)If a SIP provides for free shares and for performance allowances, the requirements of the following paragraphs also apply—

  • paragraph 38 (performance allowances: general application),

  • paragraph 39 (performance allowances: targets and measures),

  • paragraph 40 (performance allowances: information to be given to employees), and

  • either paragraph 41 or 42 (performance allowances: methods of awarding shares).

(3)The plan must meet any plan requirements contained in those paragraphs.

(4)For the purpose of the SIP code a plan provides for performance allowances if it provides for—

(a)whether or not free shares will be awarded to an individual, or

(b)the number or value of free shares awarded,

to be conditional on performance targets being met.

Maximum annual award

35(1)The plan must provide that the initial market value of the free shares awarded to a participant in a tax year is not to exceed £3,000.

(2)The “initial market value” of shares means their market value on the date on which they are awarded.

(3)For the purposes of this paragraph the market value of shares subject to restrictions or risk of forfeiture is to be determined as if there were no such restrictions or risk.

(4)Shares are “subject to risk of forfeiture” if the interest that may be acquired is only conditional within the meaning of section 424 (conditional interests in shares).

The holding period

36(1)The plan must require the company in respect of each award of free shares to specify a period (“the holding period”) during which a participant is bound by contract with the company—

(a)to permit the free shares awarded to the participant to remain in the hands of the trustees, and

(b)not to assign, charge or otherwise dispose of the beneficial interest in the shares.

(2)The holding period—

(a)must be a period of at least 3 years but not more than 5 years, beginning with the date on which the shares in question are awarded to the participant, and

(b)must be the same for all shares in the same award.

(3)The plan—

(a)may authorise the company to specify different holding periods from time to time, but

(b)must prevent the company from increasing the holding period specified in respect of free shares that have been awarded under the plan.

(4)The participant’s obligations with respect to the holding period are subject to—

(a)paragraph 37 (power to authorise trustees to accept general offers etc.),

(b)paragraph 79 (meeting by trustees of PAYE obligations), and

(c)paragraph 90(5) (termination of plan: early removal of shares with participant’s consent).

(5)If at any time in the holding period the participant ceases to be in relevant employment, the participant’s obligations with respect to that period come to an end.

Holding period: power of participant to direct trustees to accept general offers etc.

37(1)A participant may direct the trustees to do any of the following during the holding period.

(2)The participant may direct the trustees to accept an offer for any of the participant’s free shares (“the original shares”) if the acceptance or agreement will result in a new holding being equated with the original shares for the purposes of capital gains tax.

(3)The participant may direct the trustees to agree to a transaction affecting the participant’s free shares, or such of them as are of a particular class, if the transaction would be entered into as a result of a compromise, arrangement or scheme applicable to or affecting—

(a)all the ordinary share capital of the company or, as the case may be, all the shares of the class in question, or

(b)all the shares, or all the shares of the class in question, which are held by a class of shareholders identified otherwise than by reference to their employment or their participation in an approved SIP.

(4)The participant may direct the trustees to accept an offer for the participant’s free shares of—

(a)cash, with or without other assets, or

(b)a qualifying corporate bond (whether alone or with other assets or cash or both),

if the offer forms part of a general offer falling within sub-paragraph (5).

(5)A general offer falls within this sub-paragraph if—

(a)it is made to holders of shares of the same class as the participant’s or to holders of shares in the same company, and

(b)it is made in the first instance on a condition such that if it is satisfied the person making the offer will have control of that company.

(6)In sub-paragraph (5) “control” has the meaning given by section 416 of ICTA.

Performance allowances: general application

38A plan that provides for performance allowances in relation to an award must make provision for such allowances for all qualifying employees in relation to that award.

Performance allowances: targets and measures

39(1)A plan that provides for performance allowances must comply with the following requirements with respect to performance targets and performance measures.

(2)The performance targets must be set for performance units comprising one or more employees.

(3)The performance measures used must—

(a)be based on business results or other objective criteria, and

(b)be fair and objective measures of the performance of the units to which they are or may be applied.

(4)For the purposes of an award of free shares under the plan an employee must not be a member of more than one performance unit.

Performance allowances: information to be given to employees

40(1)A plan that provides for performance allowances in relation to an award of shares must require the company—

(a)to notify each qualifying employee who has accepted an invitation to participate in the award of the performance targets and measures which, under the plan, will be used to determine the number or value of free shares awarded to the employee, and

(b)to notify all qualifying employees—

(i)of the company, or

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

in general terms, of the performance measures to be used to determine the number or value of free shares to be awarded to each employee participating in the award.

(2)The notices must be given as soon as reasonably practicable.

(3)The company may exclude from the notice mentioned in sub-paragraph (1)(b) any information whose disclosure the company reasonably considers would prejudice commercial confidentiality.

Performance allowances: method one

41(1)The requirements of this paragraph are those contained in sub-paragraph (2).

(2)In the case of an award in relation to which the plan provides for performance allowances—

(a)at least 20% of the shares in the award must be awarded without reference to performance in accordance with the requirement of paragraph 9 (participation on same terms),

(b)the remaining shares must be awarded by reference to performance, and

(c)the highest number of shares within paragraph (b) awarded to an individual must not be more than four times the highest number of shares within paragraph (a) awarded to an individual.

(3)In determining for the purposes of sub-paragraph (2)(a) whether the requirement of paragraph 9 is met, the shares to which sub-paragraph (2)(a) applies are to be treated as a separate award of free shares.

(4)If the plan meets the requirements of this paragraph, the requirement of paragraph 9 does not apply to any provision of the plan relating to the awarding of shares within sub-paragraph (2)(b).

(5)If free shares of different classes are awarded, the requirements of this paragraph apply separately in relation to each class.

Performance allowances: method two

42(1)The requirements of this paragraph are those contained in sub-paragraphs (2) and (3).

(2)In the case of an award in relation to which the plan provides for performance allowances—

(a)some or all of the shares in the award must be awarded by reference to performance, and

(b)the awarding of the shares to qualifying employees who are members of the same performance unit must meet the requirement of paragraph 9 (participation on same terms).

(3)The performance targets set in connection with such an award must be consistent targets (see sub-paragraph (6)).

(4)In determining for the purposes of sub-paragraph (2)(b) whether the requirement of paragraph 9 is met, the free shares awarded in respect of each performance unit are to be treated as a separate award of free shares.

(5)If this method is used, nothing in paragraph 9 requires the awarding of shares to members of different performance units to be on the same terms.

(6)In sub-paragraph (3) “consistent targets” means targets which, at the time when they are set in accordance with the plan, can reasonably be viewed as being comparable in terms of the likelihood of their being met by the performance units to which they apply.

Part 6Partnership shares

Partnership shares: introduction

43(1)If a SIP provides for partnership shares, the following paragraphs apply—

  • paragraph 44 (partnership share agreements),

  • paragraph 45 (deductions from salary),

  • paragraph 46 (maximum amount of deductions),

  • paragraph 47 (minimum amount of deductions),

  • paragraph 48 (notice of possible effect of deductions on benefit entitlement),

  • paragraph 49 (partnership share money held for employee),

  • paragraph 50 (application of money deducted where no accumulation periods),

  • paragraph 51 (accumulation periods),

  • paragraph 52 (application of money deducted in accumulation period),

  • paragraph 53 (restriction on number of shares awarded),

  • paragraph 54 (stopping and re-starting deductions),

  • paragraph 55 (withdrawal from partnership share agreement),

  • paragraph 56 (repayment of partnership share money on withdrawal of approval or termination), and

  • paragraph 57 (access to partnership shares).

(2)The plan must meet any plan requirements contained in those paragraphs.

(3)References in the SIP code to the trustees acquiring partnership shares on behalf of an employee include their appropriating to an employee shares already held by them.

(4)In the SIP code references to an employee’s “salary” are to be read as follows—

(a)in the case of an individual within the scope of the charge to tax under Part 2 of this Act, they are to be read as references to such of the earnings of the eligible employment—

(i)as are liable to be paid under deduction of tax under PAYE regulations, after deducting any amounts included by virtue of the benefits code, or

(ii)as would be liable to be so paid apart from the SIP code;

(b)in the case of an individual not within the scope of the charge to tax under Part 2 of this Act, they are to be read as references to such of the earnings of the eligible employment as would have fallen within sub-paragraph (i) or (ii) of paragraph (a) if the individual had been within the scope of that charge to tax.

(5)In sub-paragraph (4) “the eligible employment” means the employment by reference to which the employee is eligible to participate in the plan.

Partnership share agreements

44(1)The plan must provide for qualifying employees to enter into agreements with the company (“company A”) under which—

(a)the employee authorises the employer company to deduct part of the employee’s salary for the purchase of partnership shares, and

(b)company A undertakes to arrange for partnership shares to be awarded to the employee in accordance with the plan.

(2)Such agreements are referred to in the SIP code as “partnership share agreements”.

(3)In sub-paragraph (1) “the employer company” means the company by reference to which the employee meets the employment requirement in relation to the plan.

Deductions from salary

45(1)The plan must provide for a partnership share agreement to be given effect by deductions from the employee’s salary.

(2)Amounts so deducted are referred to in the SIP code as “partnership share money”.

(3)The partnership share agreement must specify—

(a)what amounts are to be deducted, and

(b)at what intervals;

but this does not prevent the employee and the company agreeing to vary those amounts or intervals.

(4)For the purposes of sub-paragraph (3)(a) the agreement may specify a percentage of the employee’s salary.

(5)The plan must require the employer company to calculate the amounts and intervals having regard to paragraph 46 (maximum amount of deductions from salary).

(6)In sub-paragraph (5) “the employer company” means the company by reference to which the employee meets the employment requirement in relation to the plan.

Maximum amount of deductions

46(1)The amount of partnership share money deducted from an employee’s salary must not exceed—

(a)£125 in any month, or

(b)where the salary is not paid at monthly intervals, such amount as bears to £125 the same proportion as the pay interval in question bears to one month.

(2)The amount of partnership share money deducted from an employee’s salary must not exceed 10% of the employee’s salary.

  • “10% of the employee’s salary” means—

    (a)

    if the plan does not provide for an accumulation period, 10% of the salary payment from which the deduction is made;

    (b)

    if the plan provides for an accumulation period, 10% of the total of the employee’s salary payments over that period.

(3)The plan may authorise the company to specify lower limits than those specified in sub-paragraphs (1) and (2).

(4)If it does so, different limits may be specified in relation to different awards of shares.

(5)Any amount deducted in excess of that allowed by sub-paragraph (1) or (2), or any lower limit in the plan, must be paid over to the employee as soon as practicable.

Minimum amount of deductions

47(1)The plan may provide that the amount to be deducted under a partnership share agreement in any month must not be less than a minimum amount specified in the plan.

(2)The specified minimum amount must not be greater than £10.

(3)Sub-paragraphs (1) and (2) apply whatever the intervals at which the employee is paid may be.

Notice of possible effect of deductions on benefit entitlement

48(1)The plan must provide that the company may not enter into a partnership share agreement with an employee unless the agreement contains a notice under this paragraph.

(2)A notice under this paragraph is a notice in a prescribed form containing prescribed information as to the possible effect of deductions on an employee’s entitlement to social security benefits, statutory sick pay and statutory maternity pay.

(3)In this paragraph “prescribed” means prescribed by regulations made by the Board of Inland Revenue.

Partnership share money held for employee

49(1)The plan must provide that partnership share money deducted under a partnership share agreement is—

(a)paid to the trustees as soon as practicable, and

(b)held by them on behalf of the employee until such time as it is applied by them in acquiring partnership shares on the employee’s behalf.

(2)Sub-paragraph (1) is subject to paragraphs 50(5)(b) and 52(6)(b) and (7) (obligations to pay money to the employee).

(3)The plan must provide for the trustees to keep any money required to be held by them under this paragraph in an account (interest bearing or otherwise) with—

(a)a person falling within section 840A(1)(b) of ICTA (certain institutions permitted to accept deposits),

(b)a building society, or

(c)a firm falling within section 840A(1)(c) of ICTA (EEA firms permitted to accept deposits).

(4)The plan must provide for the trustees to account to an employee for the interest if the partnership share money held on behalf of the employee is held in an interest bearing account.

Application of money deducted where no accumulation periods

50(1)If the plan does not provide for an accumulation period, it must provide for partnership share money to be applied by the trustees in acquiring partnership shares on behalf of the employee on the acquisition date.

(2)The number of shares awarded to each employee must be determined in accordance with the market value of the shares on the acquisition date.

(3)Sub-paragraphs (1) and (2) are subject to paragraph 53 (restriction on number of shares awarded).

(4)In those sub-paragraphs “the acquisition date” means the date set by the trustees in relation to the award of partnership shares, which must be not later than 30 days after the last date on which the partnership share money to be applied in acquiring the shares was deducted.

(5)Any surplus partnership share money remaining after the acquisition of shares by the trustees—

(a)may with the agreement of the employee be carried forward and added to the amount of the next deduction, and

(b)in any other case must be paid over to the employee as soon as practicable.

Accumulation periods

51(1)The plan may provide for accumulation periods not exceeding 12 months.

(2)If the plan does so, the following provisions apply.

(3)The partnership share agreements—

(a)must specify when each accumulation period begins and ends;

(b)may specify that an accumulation period comes to an end on the occurrence of a specified event.

(4)However—

(a)the beginning of the first accumulation period must not be later than the date on which the first deduction of partnership share money is made; and

(b)the accumulation period which applies in relation to each award of partnership shares must be the same for all individuals entering into the partnership share agreements.

(5)The plan may also provide that if—

(a)during an accumulation period, a transaction occurs in relation to any of the shares (“the original holding”) to be acquired under a partnership share agreement which results in a new holding of shares being equated with the original holding for the purposes of capital gains tax, and

(b)the employee consents,

the partnership share agreement is to have effect after the time of the transaction as if it were an agreement for the purchase of the shares comprised in the new holding.

Application of money deducted in accumulation period

52(1)This paragraph applies if the plan provides for one or more accumulation periods.

(2)The plan must provide for the partnership share money deducted in each accumulation period under a partnership share agreement to be applied by the trustees in acquiring partnership shares on behalf of the employee on the acquisition date.

(3)The number of shares awarded to each employee must be determined in accordance with the lower of—

(a)the market value of the shares at the beginning of the accumulation period, and

(b)the market value of the shares on the acquisition date.

(4)Sub-paragraphs (2) and (3) are subject to sub-paragraphs (7) and (8) and to paragraph 53 (restriction on number of shares awarded).

(5)In sub-paragraphs (2) and (3) “the acquisition date” means the date set by the trustees in relation to the award of partnership shares, which must be not later than 30 days after the end of the accumulation period which applies in relation to the award.

(6)Any surplus partnership share money remaining after the acquisition of shares by the trustees—

(a)may with the agreement of the employee be carried forward to the next accumulation period, and

(b)in any other case must be paid over to the employee as soon as practicable.

(7)The plan must provide that where the employee ceases to be in relevant employment during an accumulation period, any partnership share money deducted in the period is to be paid over to the individual as soon as practicable.

(8)The partnership share agreement may provide that, where an accumulation period comes to an end on the occurrence of a specified event, the partnership share money deducted in that period must be paid over to the individual as soon as practicable instead of being applied in acquiring shares.

Restriction on number of shares awarded

53(1)The plan may authorise the company to specify the maximum number of shares (“the award maximum”) to be included in an award of partnership shares.

(2)If the plan does so—

(a)a different number may be specified by the company in relation to different awards, and

(b)the following provisions apply to the plan.

(3)The plan must require partnership share agreements to contain an undertaking by the company to notify the employee of any restriction on the number of shares to be included in an award.

(4)The plan must require the notice to be given—

(a)if there is no accumulation period, before the deduction of the partnership share money relating to the award, and

(b)if there is an accumulation period, before the beginning of the accumulation period relating to the award.

(5)The plan must provide that, where the award maximum in respect of an award of partnership shares is smaller than the number of shares which would otherwise be included in the award, the number of partnership shares acquired on behalf of each employee under paragraph 50(1) or 52(2) must be reduced proportionately.

Stopping and re-starting deductions

54(1)The plan must provide that an employee may at any time give notice to the company to stop deductions under a partnership share agreement.

(2)The plan must provide that, unless a later date is specified in the notice, the company must, on receiving a notice within sub-paragraph (1), ensure within 30 days after receipt of the notice that no further deductions are made by it under the partnership share agreement.

(3)The plan must also provide that an employee who has stopped deductions—

(a)may subsequently give notice to the company to re-start deductions under the agreement, but

(b)may not make up deductions that have been missed.

(4)If the plan makes provision for one or more accumulation periods, it may prevent an employee re-starting deductions more than once in any accumulation period.

(5)The plan must provide that, unless a later date is specified in the notice, the company must, on receiving a notice within sub-paragraph (3), re-start deductions under the partnership share agreement not later than the re-start date.

(6)“The re-start date” means the date of the first deduction due under the partnership share agreement more than 30 days after receipt of the notice under sub-paragraph (3).

(7)In this paragraph “notice” means notice in writing.

Withdrawal from partnership share agreement

55(1)The plan must provide that an employee may at any time give notice to the company of the employee’s withdrawal from a partnership share agreement.

(2)The plan must provide that, unless a later date is specified in the notice, a notice of withdrawal takes effect 30 days after it is received by the company.

(3)The plan must provide that, where an employee withdraws from a partnership share agreement, any partnership share money held on behalf of the employee is to be paid over to the employee as soon as practicable.

(4)In this paragraph “notice” means notice in writing.

Repayment of partnership share money on withdrawal of approval or termination

56(1)The plan must provide that, where the approval of the plan is withdrawn (see paragraph 83), any partnership share money held on behalf of an employee is to be paid over to the employee.

(2)The plan must require the payment to be made as soon as practicable after notice of the withdrawal of approval is given to the company.

(3)The plan must provide that, where a plan termination notice is issued in respect of the plan (see paragraph 90), any partnership share money held on behalf of an employee is to be paid over to the employee.

(4)The plan must require the payment to be made as soon as practicable after the plan termination notice is notified to the trustees under paragraph 89(2).

Access to partnership shares

57(1)The plan must provide that when partnership shares have been awarded to an employee, the employee may at any time withdraw any or all of the partnership shares from the plan.

(2)If the employee does so, there may be a charge to tax by virtue of section 506 (charge on partnership shares ceasing to be subject to plan).

Part 7Matching shares

Matching shares: introduction

58If a SIP provides for matching shares it must meet the plan requirements contained in—

  • paragraph 59 (general requirements for matching shares),

  • paragraph 60 (ratio of matching shares to partnership shares), and

  • paragraph 61 (holding period for matching shares).

General requirements for matching shares

59(1)The plan must provide for the matching shares to be—

(a)shares of the same class and carrying the same rights as the partnership shares to which they relate;

(b)awarded on the same day as the partnership shares to which they relate are awarded; and

(c)awarded to all employees who participate in the award on exactly the same basis.

(2)Sub-paragraph (1) is subject to paragraph 32 (permitted restrictions: provision for forfeiture).

Ratio of matching shares to partnership shares

60(1)The partnership share agreement must specify—

(a)the ratio of matching shares to partnership shares for the time being offered by the company, and

(b)the circumstances and manner in which the ratio may be changed by the company.

(2)The ratio must not exceed 2:1 and must be applied by reference to the number of shares.

(3)A partnership share agreement must provide for the employee to be informed by the company if the ratio offered by the company changes before partnership shares are awarded to the employee under the agreement.

Holding period for matching shares

61Paragraphs 36 and 37 (the holding period and related matters) apply in relation to matching shares as they apply in relation to free shares.

Part 8Cash dividends and dividend shares

Reinvestment of cash dividends

62(1)A SIP may provide that, where the company so directs, the trustees must apply all cash dividends in respect of plan shares held on behalf of—

(a)all participants, or

(b)all participants who elect to reinvest their dividends,

in acquiring further shares on their behalf.

(2)Sub-paragraph (1) is subject to paragraph 63 (requirements to be met as regards cash dividends).

(3)In the SIP code—

(a)the application of cash dividends as mentioned in sub-paragraph (1) is referred to as “reinvestment”; and

(b)the further plan shares acquired are referred to as “dividend shares”.

(4)The company may revoke a direction requiring the reinvestment of cash dividends.

(5)References in the SIP code to the trustees acquiring dividend shares on behalf of a participant include their appropriating to a participant shares already held by them.

Requirements to be met as regards cash dividends

63(1)If a SIP makes the provision authorised by paragraph 62(1) (reinvestment of cash dividends), the following paragraphs apply—

  • paragraph 64 (limit on amount reinvested),

  • paragraph 65 (general requirements as to dividend shares),

  • paragraph 66 (acquisition of dividend shares),

  • paragraph 67 (holding period for dividend shares), and

  • paragraph 68 (reinvestment: amounts to be carried forward).

(2)The plan must meet any plan requirements contained in those paragraphs.

(3)A SIP must in any event meet the plan requirement contained in paragraph 69 (cash dividends not required to be reinvested).

Limit on amount reinvested

64(1)The plan must provide that the total dividend reinvestment in respect of a participant must not exceed £1,500 in a tax year.

(2)For this purpose “the total dividend reinvestment” in respect of a participant is the sum of—

(a)the amount applied by the trustees in acquiring dividend shares on behalf of the participant under the plan, and

(b)the amount applied in acquiring dividend shares on behalf of the participant by the trustees of other approved SIPs that are established by the company or an associated company.

(3)If the amounts received by the trustees exceed the limit in sub-paragraph (1), the plan must provide for the balance to be paid over to the participant as soon as practicable.

General requirements as to dividend shares

65The plan must provide that dividend shares are to be shares—

(a)which are in the same company and of the same class, and carry the same rights, as the shares in respect of which the dividend is paid, and

(b)which are not subject to any provision for forfeiture.

Acquisition of dividend shares

66(1)The plan must provide that the trustees must treat participants fairly and equally in exercising their powers in relation to the acquisition of dividend shares.

(2)The plan must provide for the trustees to acquire dividend shares on behalf of participants on the acquisition date.

(3)The number of dividend shares acquired on behalf of each participant must be determined in accordance with the market value of the shares on the acquisition date.

(4)In this paragraph “the acquisition date” means the date set by the trustees for the acquisition of dividend shares and falling not later than 30 days after the dividend is received by them.

Holding period for dividend shares

67Paragraphs 36 and 37 (the holding period and related matters) apply in relation to dividend shares as they apply in relation to free shares, except that the holding period must be 3 years.

Reinvestment: amounts to be carried forward

68(1)This paragraph applies where an amount is not reinvested—

(a)because the amount of the cash dividend to which the participant is entitled is not sufficient to acquire a share, or

(b)because there is an amount remaining after acquiring one or more dividend shares on the participant’s behalf.

(2)The amount may be retained by the trustees and carried forward to be added to the amount of the next cash dividend to be reinvested.

(3)If so retained, the trustees must hold the amount so as to be separately identifiable for the purposes of sub-paragraphs (4) and (5).

(4)An amount retained under this paragraph must be paid over to the participant—

(a)if or to the extent that it is not reinvested within the period of 3 years beginning with the date on which the dividend was paid, or

(b)if during that period the participant ceases to be in relevant employment (see paragraph 95), or

(c)if during that period a plan termination notice is issued in respect of the plan (see paragraph 90).

(5)An amount required to be paid over to the participant under sub-paragraph (4) must be paid over as soon as practicable.

(6)For the purposes of this paragraph an amount carried forward under this paragraph derived from an earlier cash dividend is to be treated as reinvested before an amount derived from a later cash dividend.

Cash dividends where no requirement to reinvest

69(1)The plan must require any distributable cash dividends in respect of plan shares held on behalf of a participant to be paid over to the participant as soon as practicable.

(2)“Distributable cash dividends” means cash dividends which are not required to be reinvested under the plan.

Part 9Trustees

Requirements etc. relating to trustees: introduction

70(1)A SIP must meet the plan requirements contained in—

  • paragraph 71(1) and (2) (establishment of trustees), and

  • paragraph 79 (meeting by trustees of PAYE obligations).

(2)The following provisions also relate to the trustees—

  • paragraph 71(3) to (6) (the trust instrument and classes of trustees)

  • paragraph 72 (duty to act in accordance with participant’s directions),

  • paragraph 73 (duty not to dispose of plan shares),

  • paragraph 74 (duty to make payments to participants),

  • paragraph 75 (duty to give notice of award of shares etc.),

  • paragraph 76 (power to borrow),

  • paragraph 77 (power to raise funds to subscribe for rights issue),

  • paragraph 78 (acquisition of shares from employee share ownership trust), and

  • paragraph 80 (other duties in relation to tax liabilities).

Establishment of trustees

71(1)The plan must provide for the establishment of a body of trustees consisting of persons resident in the United Kingdom (“the trustees”).

(2)The plan must provide that the trustees are required—

(a)in the case of free or matching shares, to acquire shares and appropriate them to employees in accordance with the plan,

(b)in the case of partnership shares, to apply partnership share money in acquiring shares on behalf of employees in accordance with the plan, and

(c)in the case of dividend shares, to apply cash dividends in acquiring shares on behalf of participants in accordance with the plan.

(3)The functions of the trustees with respect to shares held by them must be regulated by a trust (“the plan trust”)—

(a)which is constituted under the law of a part of the United Kingdom, and

(b)the terms of which are embodied in an instrument which complies with the requirements of this Part of this Schedule (“the trust instrument”).

(4)The trust instrument must not contain any terms which are neither essential nor reasonably incidental to complying with the requirements of this Part of this Schedule.

(5)The trust instrument may contain terms that—

(a)define who is a professional trustee and who is a non-professional trustee;

(b)require the trustees to include at least one person who is a professional trustee and at least two who are non-professional trustees;

(c)require at least half of the non-professional trustees to have been, before being appointed as trustees, selected in accordance with a specified process of selection;

(d)require the trustees so selected to be persons who are employees of the company or, in the case of a group plan, of a participating company.

(6)The terms mentioned in sub-paragraph (5) are to be regarded as reasonably incidental to complying with the requirements of this Part of this Schedule for the purposes of sub-paragraph (4).

Duty to act in accordance with participant’s directions

72(1)The trust instrument must require the trustees—

(a)to dispose of a participant’s plan shares, and

(b)to deal with any right conferred in respect of any of a participant’s plan shares to be allotted other shares, securities or rights of any description,

only in accordance with a direction given by or on behalf of the participant.

(2)Sub-paragraph (1) is subject to—

(a)paragraph 73 (duty not to dispose of plan shares), and

(b)any provision in the plan made in accordance with paragraph 79 (meeting by trustees of PAYE obligations).

(3)The plan may provide for participants to give such general directions, to such effect and in such terms, as are specified in the plan.

Duty not to dispose of plan shares

73(1)This paragraph applies to a participant’s plan shares that are free, matching or dividend shares.

(2)The trust instrument must prohibit the trustees from disposing of any of those shares (to the participant or otherwise) at any time during the holding period, unless the participant has at that time ceased to be in relevant employment.

(3)Sub-paragraph (2) is subject to—

(a)paragraph 37 (holding period: power to direct trustees to accept general offers etc.),

(b)paragraph 77 (power of trustees to raise funds to subscribe for rights issue),

(c)paragraph 79 (meeting by trustees of PAYE obligations), and

(d)paragraph 90(5) (termination of plan: early removal of shares with participant’s consent).

Duty to make payments to participants

74(1)The trust instrument must require the trustees to pay over to a participant as soon as practicable—

(a)any money received by them in respect of, or by reference to, any of the participant’s shares, or

(b)any money’s worth so received unless it consists of new shares within the meaning of paragraph 87 (company reconstructions).

(2)Sub-paragraph (1) is subject to—

(a)paragraphs 62 to 69 (cash dividends and dividend shares),

(b)the trustees' obligations under sections 510 to 514 (PAYE: shares ceasing to be subject to plan; capital receipts), and

(c)the trustees' PAYE obligations.

Duty to give notice of award of shares etc.

75(1)The trust instrument must make the following provision regarding notices.

(2)It must provide that, as soon as practicable after any free or matching shares have been awarded to an employee, the trustees must give the employee notice of the award—

(a)specifying the number and description of those shares,

(b)stating their market value on the date on which they were awarded to the employee, and

(c)stating the holding period applicable to them.

(3)It must provide that, as soon as practicable after any partnership shares have been awarded to an employee, the trustees must give the employee notice of the award—

(a)specifying the number and description of those shares,

(b)stating the amount of partnership share money applied by the trustees in acquiring the shares on behalf of the employee, and

(c)stating their market value on the acquisition date (as defined by paragraph 50(4) or, if there is an accumulation period, by paragraph 52(5)).

(4)It must provide that, as soon as practicable after any dividend shares have been acquired on behalf of a participant, the trustees must give the participant notice of the acquisition—

(a)specifying the number and description of those shares,

(b)stating their market value on the acquisition date (as defined by paragraph 66(4)),

(c)stating the holding period applicable to them, and

(d)informing the participant of any amount carried forward under paragraph 68 (reinvestment: amounts to be carried forward).

(5)It must provide that, where any foreign cash dividend is received in respect of plan shares held on behalf of a participant, the trustees must give the participant notice of the amount of any foreign tax deducted from the dividend before it was paid.

(6)In sub-paragraph (5) “foreign cash dividend” means a cash dividend paid in respect of plan shares in a company not resident in the United Kingdom.

Power of trustees to borrow

76The trust instrument may provide that the trustees have power to borrow—

(a)to acquire shares for the purposes of the plan, and

(b)for such other purposes as may be specified in the trust instrument.

Power of trustees to raise funds to subscribe for rights issue

77(1)The trustees may dispose of some of the rights arising under a rights issue in order to be able to obtain sufficient funds to exercise other such rights.

(2)The power conferred by sub-paragraph (1) is subject to paragraph 72 (duty to act in accordance with participant’s directions).

Acquisition by trustees of shares from employee share ownership trust

78(1)The trust instrument must provide that, where there is a qualifying transfer of shares to the trustees, the shares—

(a)must not be awarded to participants under the plan as partnership shares, and

(b)must be included in any award of free or matching shares made after the date of the transfer in priority to other shares available for inclusion in that award.

(2)For the purposes of this paragraph there is a qualifying transfer of shares to the trustees if—

(a)relevant shares (as defined by section 69(3AC) of FA 1989) are transferred to them by the trustees of an employee share ownership trust, and

(b)the transfer is a qualifying transfer within section 69(3AA) of that Act (transfer of shares in, or shares purchased from money in, an employee share ownership trust immediately before 21st March 2000).

Meeting by trustees of PAYE obligations

79(1)The plan must make provision to ensure that, where a PAYE obligation is imposed on the trustees as a result of any of a participant’s plan shares ceasing to be subject to the plan, the trustees are able to meet that obligation—

(a)by disposing of any of those shares, or

(b)if there are any remaining plan shares of the participant, by disposing of any of those shares, or

(c)by the participant paying to the trustees a sum equal to the amount required to discharge the obligation.

(2)A “PAYE obligation” includes an obligation under any of sections 510 to 512 (PAYE: shares ceasing to be subject to the plan).

(3)For the purposes of sub-paragraph (1) any reference to the trustees disposing of shares includes a reference to their acquiring the shares as trustees for the purposes of the trust.

(4)A disposal of any of the participant’s plan shares in accordance with provision made under sub-paragraph (1)(b) may give rise to a charge to tax under—

  • section 505 (charge on free or matching shares ceasing to be subject to plan),

  • section 506 (charge on partnership shares ceasing to be subject to plan), or

  • section 68B(2) or 251C(1) of ICTA (charge under Case V of Schedule D or Schedule F on dividend shares ceasing to be subject to plan).

Other duties of trustees in relation to tax liabilities

80(1)The trust instrument must require the trustees to maintain such records as may be necessary for the purposes of—

(a)their own PAYE obligations, or

(b)the PAYE obligations of the employer company so far as they relate to the plan.

(2)In sub-paragraph (1)—

  • “PAYE obligations”, in relation to the trustees, includes obligations under sections 510 to 514 (PAYE: shares ceasing to be subject to plan and capital receipts);

  • “the employer company” has the same meaning as in section 513.

(3)The trust instrument must require the trustees, where the participant becomes liable to income tax under—

(a)this Act, or

(b)Case V of Schedule D or Schedule F,

by reason of the occurrence of any event, to inform the participant of any facts relevant to determining that liability.

(4)Section 234A(4) to (11) of ICTA (information relating to distributions to be provided by nominee) applies in relation to—

(a)the balance of any cash dividend paid over to the participant under paragraph 64(3),

(b)any amount paid over to a participant under paragraph 68(4) (dividend retained for reinvestment and later paid out), or

(c)any relevant dividend (see sub-paragraph (5)),

as if it were a payment to which section 234A(4)(b) applied (and, in the case of an amount within paragraph (b) above, as if the cash dividend had been paid at the time of the payment to the participant under paragraph 68(4)).

(5)In a case where dividend shares cease to be subject to the plan before the end of the period of 3 years beginning with the date on which they were acquired on a participant’s behalf, the cash dividend applied to acquire dividend shares on the participant’s behalf is a “relevant dividend” for the purposes of sub-paragraph (4)(c).

Part 10Approval of plans

Application for approval

81(1)Where—

(a)a SIP has been established, and

(b)the company makes an application to the Inland Revenue for approval of the plan,

the Inland Revenue must approve the plan if they are satisfied that it meets the requirements of Parts 2 to 9 of this Schedule.

(2)An application for approval must—

(a)be in writing, and

(b)contain such particulars, and be supported by such evidence, as the Inland Revenue may require.

(3)Once the Inland Revenue have decided whether or not to approve the plan, they must give notice of their decision to the company.

Appeal against refusal of approval

82(1)If the Inland Revenue refuse to approve the plan, the company may appeal to the Special Commissioners.

(2)The notice of appeal must be given to the Inland Revenue within 30 days after the date on which notice of their decision is given to the company.

(3)If the Special Commissioners allow the appeal, they may direct the Inland Revenue to approve the plan with effect from a date specified by the Commissioners.

(4)The date so specified must not be earlier than that of the application for approval.

Withdrawal of approval

83(1)This paragraph applies if a disqualifying event (see paragraph 84) occurs in relation to an approved SIP.

(2)The Inland Revenue may by a notice given to the company withdraw the approval with effect from—

(a)the time at which the disqualifying event occurred, or

(b)a later time specified by the Inland Revenue in the notice.

(3)The withdrawal of approval of a SIP does not affect the operation of the SIP code in relation to shares awarded to participants in the plan before the time with effect from which approval was withdrawn.

(4)References in the SIP code to an approved SIP in relation to such shares are to a plan that was approved at the time when the shares were awarded.

Disqualifying events for purposes of paragraph 83

84(1)The following are disqualifying events for the purposes of paragraph 83—

(a)a contravention in relation to the operation of the plan of any of the requirements of this Schedule, the plan itself or the plan trust;

(b)an alteration being made in a key feature of the plan, or in the terms of the plan trust, without the approval of the Inland Revenue;

(c)if the plan provides for performance allowances in accordance with paragraph 42 (method two), the setting of performance targets in respect of an award of shares which are not consistent targets (within the meaning given by paragraph 42(6));

(d)an alteration being made in the share capital of the company whose shares are the subject of the plan, or in the rights attaching to any shares of that company, that materially affects the value of participants' plan shares;

(e)shares of a class of which shares have been awarded to participants receiving different treatment in any respect from the other shares of that class;

(f)the trustees failing to furnish any information which they are required to furnish under paragraph 93 (power to require information);

(g)the company, or (in the case of a group plan) a company which is or has been a constituent company, failing to furnish any information which it is required to furnish under that paragraph.

(2)For the purposes of sub-paragraph (1)(b) the Inland Revenue may not withhold their approval unless it appears to them at the time in question that the plan as proposed to be altered would not then be approved on an application under paragraph 81.

(3)Sub-paragraph (1)(e) applies, in particular, to different treatment in respect of—

(a)the dividend payable,

(b)repayment,

(c)the restrictions attaching to the shares, or

(d)any offer of substituted or additional shares, securities or rights of any description in respect of the shares.

(4)Sub-paragraph (1)(e) does not, however, apply where the difference in treatment arises—

(a)from a key feature of the plan, or

(b)from any of the participants' shares being subject to any provision for forfeiture.

(5)Nor does it apply as a result only of the fact that shares which have been newly issued receive, in respect of dividends payable with respect to a period beginning before the date on which they were issued, treatment less favourable than that accorded to shares issued before that date.

(6)For the purposes of this paragraph a “key feature” of a plan is a provision of the plan that is necessary in order to meet the requirements of this Schedule.

Appeal against withdrawal of approval

85(1)This paragraph applies if a SIP has been approved by the Inland Revenue and they decide—

(a)to withdraw approval of the plan, or

(b)to refuse approval under paragraph 84(1)(b) (approval of alteration of plan or plan trust), or

(c)to give a direction under paragraph 11 of Schedule 4AA to ICTA (withdrawal of corporation tax deductions on withdrawal of approval).

(2)The company may appeal against the decision to the Special Commissioners.

(3)The notice of appeal must be given to the Inland Revenue within 30 days after the date on which notice of their decision is given to the company.

Part 11Supplementary provisions

Company reconstructions

86(1)In this Part of this Schedule a “company reconstruction” means a transaction to which this paragraph applies.

(2)This paragraph applies to a transaction which occurs in relation to any of a participant’s plan shares (“the original holding”) and—

(a)results in a new holding being equated with the original holding for the purposes of capital gains tax, or

(b)would have that result but for the fact that what would be the new holding consists of or includes a qualifying corporate bond.

(3)But where an excluded issue of shares is made—

(a)that issue of shares does not by itself count as a transaction within sub-paragraph (2); and

(b)if made as part of a transaction within that sub-paragraph (that is, as part of a company reconstruction), the shares issued are to be regarded as not forming part of the new holding.

(4)An “excluded issue of shares” means an issue of shares of any of the following descriptions (in respect of which a charge to income tax arises)—

(a)redeemable shares or securities issued as mentioned in section 209(2)(c) of ICTA (distributions);

(b)share capital issued in circumstances such that section 210(1) of ICTA (bonus issues) applies;

(c)share capital to which section 249 of ICTA (stock dividends) applies.

Consequences of company reconstructions

87(1)In the SIP code references to a participant’s plan shares in relation to a SIP are to be read, after the time of a company reconstruction—

(a)as referring to the new shares, or

(b)as including those shares,

as the case may be.

This is subject to the following provisions of this paragraph.

(2)For the purposes of the SIP code—

(a)a company reconstruction is to be treated as not involving a disposal of the shares comprised in the original holding;

(b)new shares are to be treated as having been awarded to the participant on the date on which the corresponding old shares were awarded;

(c)the conditions in Part 4 of this Schedule (types of share that may be awarded) are to be treated as fulfilled with respect to any new shares if they were (or were treated as) fulfilled with respect to the corresponding old shares; and

(d)the provisions of—

(i)sections 489 to 514 (SIPs: income tax advantages and charges under this Act),

(ii)sections 68A to 68C and 251A to 251D of ICTA (SIPs: charges to tax under Case V of Schedule D or Schedule F),

(iii)sections 686B and 686C of ICTA (SIPs: income tax advantages for trustees), and

(iv)Part 1 of Schedule 7D to TCGA 1992 (SIPs: capital gains tax),

apply in relation to the new shares as they would have applied in relation to the corresponding old shares.

(3)If the corresponding old shares were dividend shares, the reference in sub-paragraph (2)(b) to the corresponding old shares being awarded is a reference to those shares being acquired on behalf of the participant.

(4)Sub-paragraphs (1) to (3) are subject to paragraph 88 (treatment of shares acquired under rights issue).

(5)For the purposes of the SIP code if, as part of a company reconstruction, trustees become entitled to a capital receipt, their entitlement to the capital receipt is to be taken to arise before the new holding comes into being.

(6)In the SIP code, in the context of a new holding, “shares” includes securities and rights of any description which form part of the new holding for the purposes of Chapter 2 of Part 4 of TCGA 1992 (reorganisation of share capital etc.).

(7)In this paragraph—

(a)“new shares” means shares comprised in the new holding which were issued in respect of, or otherwise represent, shares comprised in the original holding;

(b)“the new holding” and “the original holding” mean respectively the new and original holdings mentioned in paragraph 86(2);

(c)“corresponding old shares”, in relation to any new shares, means the shares in respect of which the new shares are issued or which the new shares otherwise represent.

Treatment of shares acquired under rights issue

88(1)This paragraph applies for the purposes of the SIP code where the trustees exercise rights arising under a rights issue and conferred in respect of a participant’s plan shares.

(2)In such a case, any shares or securities or rights allotted are to be treated as if they were plan shares—

(a)identical to the shares in respect of which the rights were conferred, and

(b)appropriated to, or acquired on behalf of, the participant under the plan in the same way and at the same time as those shares.

(3)If, however, either of the conditions set out in sub-paragraph (4) is met, sub-paragraph (5) applies instead.

(4)The conditions are—

(a)that the funds used by the trustees to exercise the rights are not provided by the exercise of the trustees' powers under paragraph 77 (trustees' powers to raise funds to subscribe for rights issue);

(b)that similar rights are not conferred in respect of all ordinary shares in the company.

(5)If either of those conditions is met—

(a)any shares, securities or rights allotted are not plan shares, and

(b)sections 127 to 130 of TCGA 1992 (reorganisation of share capital etc.) do not apply in relation to them.

Termination of plan

89(1)The plan may provide for the company to issue a plan termination notice in respect of the plan in circumstances specified in the plan.

(2)The plan must provide that, where a plan termination notice is issued, a copy of the notice must be given, without delay, to—

(a)the Inland Revenue,

(b)the trustees,

(c)each individual who has plan shares, and

(d)each individual who has entered into a partnership share agreement which was in force immediately before the notice was issued.

Effect of plan termination notice

90(1)This paragraph applies if the company has issued a plan termination notice under paragraph 89.

(2)No further shares may be awarded to individuals under the plan.

(3)The trustees must remove the plan shares from the plan as soon as practicable after whichever is the later of—

(a)the end of the notice period, or

(b)the first date on which the shares may be removed from the plan without giving rise to a charge to income tax under sections 501 to 507 (SIPs: tax charges) on the participant on whose behalf they are held.

(4)In sub-paragraph (3) “the notice period” means the period of 3 months beginning with the date on which the requirements imposed by the plan in accordance with paragraph 89(2) are met in respect of the plan termination notice.

(5)The trustees may remove a participant’s shares from the plan at an earlier date with the participant’s consent.

(6)Any consent given by the participant before receiving a copy of the plan termination notice is to be disregarded for the purposes of sub-paragraph (5).

(7)As soon as practicable after the plan termination notice is issued, the trustees must pay any money held on an individual’s behalf to the individual.

(8)In this paragraph references to the trustees removing the plan shares from the plan are to their doing the following in the case of each participant—

(a)transferring the shares to the participant on behalf of whom they are held, or to another person, at the participant’s direction, or

(b)disposing of the shares and accounting (or holding themselves ready to account) for the proceeds to the participant or to another person at the participant’s direction.

(9)Where a participant has died, the references in this paragraph to a participant are to the participant’s personal representatives.

Jointly owned companies

91(1)This paragraph applies for the purposes of the provisions of the SIP code relating to group plans.

(2)Each joint owner of a jointly owned company is to be treated as controlling every company within sub-paragraph (3).

(3)The companies within this sub-paragraph are—

(a)the jointly owned company, and

(b)any company controlled by that company.

(4)However, no company within sub-paragraph (3) may be—

(a)a constituent company in more than one group plan, or

(b)a constituent company in a particular group plan if another company within that sub-paragraph is a constituent company in a different group plan.

(5)In this paragraph a “jointly owned company” means a company—

(a)of which 50% of the issued share capital is owned by one person and 50% by another, and

(b)which is not controlled by any one person.

(6)This paragraph does not apply for the purposes of paragraph 27(1)(b) (requirement that plan shares are in a company not under another company’s control).

Determination of market value

92(1)For the purposes of the SIP code the “market value” of shares has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act.

(2)Sub-paragraph (1) is subject to paragraph 35(3) (determination of value of shares subject to restrictions or risk of forfeiture).

(3)Where the market value of shares on any date has to be determined for the purposes of the SIP code, the Inland Revenue and the trustees may agree that it is to be determined by reference—

(a)to a date or dates, or

(b)to an average of the values on a number of dates,

stated in the agreement.

Power to require information

93(1)The Inland Revenue may by notice require a person to provide them with information—

(a)which they reasonably require for the performance of their functions under the SIP code, and

(b)which the person to whom the notice is addressed has or can reasonably obtain.

(2)The power conferred by this paragraph extends, in particular, to—

(a)information to enable the Inland Revenue—

(i)to decide whether to approve a SIP or to withdraw an approval already given, or

(ii)to determine the liability to tax, including capital gains tax, of any person who has participated in a plan, and

(b)information about the administration of a plan and any proposed alteration of the terms of a plan.

(3)The notice must require the information to be provided within a specified period, which must not end earlier than 3 months after the date when the notice is given.

Meaning of “associated company”

94(1)For the purposes of the SIP code one company is an “associated company” of another company at a given time if—

(a)one has control of the other, or

(b)both are under the control of the same person or persons.

(2)Sub-paragraph (1) does not, however, apply for the purposes of paragraph 29 (prohibited shares).

(3)For the purposes of sub-paragraph (1) the question whether a person controls a company is to be determined in accordance with section 416(2) to (6) of ICTA.

Meaning of participant ceasing to be in relevant employment

95(1)This paragraph explains what is meant, for the purposes of the SIP code, by a participant ceasing to be in relevant employment.

(2)For the purposes of the SIP code “relevant employment” means employment by the company or any associated company.

(3)A participant who remains in the employment of the company or any associated company does not cease to be in relevant employment.

Meaning of shares being withdrawn from plan

96(1)For the purposes of the SIP code plan shares are withdrawn from a SIP when—

(a)they are transferred by the trustees to the participant, or another person, on the direction of the participant,

(b)the participant assigns, charges or otherwise disposes of the beneficial interest in the shares, or

(c)they are disposed of by the trustees, on the direction of the participant, in circumstances where the trustees account (or hold themselves ready to account) for the proceeds to the participant or to another person.

(2)Where the participant has died, the references in sub-paragraph (1) to the participant are to the participant’s personal representatives.

Meaning of shares ceasing to be subject to plan

97(1)For the purposes of the SIP code plan shares cease to be subject to a SIP when—

(a)they are withdrawn from the plan,

(b)the participant to whom the shares were awarded ceases to be in relevant employment at a time when the shares are subject to the plan, or

(c)the trustees dispose of the shares under provision made in accordance with paragraph 79 (meeting by trustees of PAYE obligations).

(2)If an individual—

(a)participates in an award of partnership shares, and

(b)ceases to be in relevant employment at any time during the acquisition period relating to that award,

the individual is to be treated for the purposes of this paragraph as ceasing to be in relevant employment immediately after the shares are awarded.

(3)In sub-paragraph (2) “the acquisition period” in relation to an award means—

(a)where there was no accumulation period, the period beginning with the deduction of the partnership share money and ending with the acquisition date (as defined by paragraph 50(4)), and

(b)where there was an accumulation period, the period beginning with the end of that period and ending immediately before the acquisition date (as defined by paragraph 52(5)).

(4)If a participant ceases to be in relevant employment, the participant’s plan shares are to be treated as ceasing to be subject to the plan on the date of leaving.

Meaning of “the specified retirement age”

98(1)In the SIP code, in relation to a SIP, “the specified retirement age” means the retirement age specified in the plan.

(2)The age so specified—

(a)must be the same for men and women, and

(b)must not be less than 50.

Minor definitions

99(1)In the SIP code—

  • “articles of association”, in relation to a company, includes any other written agreement between the shareholders of the company;

  • “company” means a body corporate;

  • “group of companies” means a company and any other companies of which it has control, and “group company” has a corresponding meaning;

  • “participant’s plan shares”, in relation to a SIP, means plan shares that have been awarded to an individual participant;

  • “PAYE obligations” means (subject to paragraphs 79(2) and 80(2)) obligations of any person under—

    (a)

    Part 11 of this Act, or

    (b)

    PAYE regulations;

  • “plan shares”, in relation to a SIP, means—

    (a)

    free, partnership or matching shares which have been awarded to participants under the plan,

    (b)

    dividend shares which have been acquired on behalf of participants under the plan, and

    (c)

    shares in relation to which paragraph 87(1) applies (company reconstructions: new shares),

    and which (in each case) remain subject to the plan;

  • “provision for forfeiture” means a provision to the effect that a participant ceases to be beneficially entitled to shares on the occurrence of certain events, and “forfeiture” is to be read accordingly;

  • “qualifying corporate bond” has the meaning given by section 117 of TCGA 1992;

  • “redundancy” has the same meaning as in ERA 1996 or ER(NI)O 1996;

  • “rights arising under a rights issue” means rights conferred in respect of a participant’s plan shares to be allotted, on payment, other shares or securities or rights of any description in the same company.

(2)For the purposes of the SIP code references to “shares” include fractions of shares forming part of the share capital of a company registered in a foreign country the law of which recognises such fractions.

(3)For the purposes of the SIP code a company is a member of a consortium owning another company if it is one of a number of companies—

(a)which between them beneficially own not less than 75% of the other company’s ordinary share capital, and

(b)each of which beneficially owns not less than 5% of that capital.

Index of defined expressions

100In the SIP code the following expressions are defined or otherwise explained by the provisions indicated below:

accumulation periodparagraph 51
approval, approvedsection 488(4) (and see paragraph 83(4))
articles of associationparagraph 99(1)
associated companyparagraph 94 (and see paragraph 29(3))
award of sharesparagraph 5(1)
the Board of Inland Revenuesection 720(2)
building societysection 832(1) of ICTA
ceasing to be in relevant employment (in relation to a participant)paragraph 95
ceasing to be subject to plan (in relation to shares)paragraph 97
childsection 832(5) of ICTA (and see section 721(6))
close companysection 832(1) of ICTA (and see paragraph 20(4))
companyparagraph 99(1)
the company (in relation to a SIP)paragraph 2(2)
company reconstruction (in Part 11 of this Schedule)paragraph 86(1)
connected personsection 718
consortium (member of)paragraph 99(3)
constituent companyparagraph 4(3)
controlsection 719 (and see paragraphs 29(5), 37(6) and 94(3))
distributionsection 832(1) of ICTA
dividend sharesparagraph 62(3)(b)
earningssection 62 and see section 721(7)
eligible shares (in Part 4 of this Schedule)paragraph 25(2)
employee, employed, employer and employmentsection 4
the employment requirementparagraph 15(3)
forfeiture, provision forparagraph 99(1)
free sharesparagraph 2(1)(a)
group companyparagraph 99(1)
group of companiesparagraph 99(1)
group planparagraph 4(2)
holding periodparagraph 36 (and see paragraph 67)
the Inland Revenuesection 720(1)
market value (of shares)paragraph 92
matching sharesparagraph 3(1)
notice (except in paragraph 54 or 55)section 832(1) of ICTA
ordinary share capitalsection 832(1) of ICTA
parent companyparagraph 4(1)
participant (in relation to a SIP)paragraph 5(4)
participant’s plan sharesparagraph 99(1) (and see paragraph 87(1))
participation in an award of sharesparagraph 5(3)
partnership share agreementparagraph 44
partnership share moneyparagraph 45(2)
partnership sharesparagraph 2(1)(b)
PAYE deductionsection 488(4)
PAYE obligationsparagraph 99(1)
PAYE regulationssection 684(8)
performance allowancesparagraph 34(4)
personal representativessection 721(1)
plan requirements (in relation to a SIP)paragraph 2(2)
plan shares (in relation to a SIP)paragraph 99(1) (and see paragraphs 86 to 88)
the plan trustparagraph 71(3)
provision for forfeitureparagraph 99(1)
qualifying corporate bondparagraph 99(1)
qualifying employeeparagraph 8(6)
recognised stock exchangesection 841 of ICTA
redundancyparagraph 99(1)
reinvestmentparagraph 62(3)(a)
relevant employmentparagraph 95(2)
rights arising under a rights issueparagraph 99(1)
salaryparagraph 43(4)
share incentive plan (“SIP”)section 488(4)
sharesparagraph 99(2) (and in the context of a new holding, paragraph 87(6))
the SIP codesection 488(3)
Special Commissionerssection 4 of TMA 1970
the specified retirement ageparagraph 98(1)
taxsection 832(3) of ICTA
tax yearsection 721(1)
the trusteesparagraphs 2(2), 71(1)
the trust instrumentparagraph 71(3)
withdrawal of shares from planparagraph 96(1)

Section 516

SCHEDULE 3Approved SAYE option schemes

Part 1Introduction

Approval of SAYE option schemes

1(1)This Schedule makes provision for the approval of SAYE option schemes by the Inland Revenue.

(2)Parts 2 to 7 of this Schedule contain requirements that have to be met in order for schemes to be approved under this Schedule.

(3)The requirements consist of general requirements (see Part 2) and requirements as to—

  • the eligibility of individuals to participate in a scheme (see Part 3),

  • the shares to which schemes can apply (see Part 4),

  • the existence of a linked savings scheme (see Part 5),

  • the share options that may be granted under the scheme (see Part 6), and

  • the exchange of share options (see Part 7).

(4)Part 8 of this Schedule deals with the approval of schemes and the withdrawal of approval.

SAYE option schemes

2(1)In the SAYE code an “SAYE option scheme” means (in accordance with section 516(4)) a scheme established by a company which provides—

(a)for share options to be granted to employees and directors, and

(b)for the shares acquired by the exercise of the share options to be paid for in the way mentioned in paragraph 24 (payments for shares to be linked to approved savings schemes).

(2)In the SAYE code, in relation to an SAYE option scheme—

  • “participant” means an individual who has been granted (but has not yet exercised) share options under the scheme (“the options”);

  • “participate” means obtain and exercise share options under the scheme;

  • “the scheme organiser” means the company which has established the scheme.

Group schemes

3(1)An SAYE option scheme established by a company that controls one or more other companies (a “parent scheme company”) may extend to all or any of those other companies.

(2)In the SAYE code an SAYE option scheme established by a parent scheme company which so extends is called a “group scheme”.

(3)In relation to a group scheme a “constituent company” means—

(a)the parent scheme company, or

(b)any other company to which for the time being the scheme is expressed to extend.

(4)Paragraph 46 deals with jointly owned companies and companies controlled by them.

Part 2General requirements for approval

General requirements for approval: introduction

4An SAYE option scheme must meet the requirements of—

  • paragraph 5 (general restriction on contents of scheme),

  • paragraph 6 (all-employee nature of scheme),

  • paragraph 7 (participation on similar terms), and

  • paragraph 8 (no preferential treatment for directors and senior employees).

General restriction on contents of scheme

5The scheme must not contain features which are neither essential nor reasonably incidental to the purpose of providing benefits for employees and directors in the nature of share options.

All-employee nature of scheme

6(1)The scheme must provide that every person who meets the conditions in sub-paragraph (2) is eligible to participate in the scheme.

(2)A person (“E”) meets the conditions in this sub-paragraph if—

(a)E is an employee or a full-time director of the scheme organiser or (in the case of a group scheme) of a constituent company,

(b)E has been such an employee or director at all times during a qualifying period of not more than 5 years,

(c)E’s earnings from the office or employment within paragraph (a) 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), and

(d)E is not ineligible under paragraph 11 (the “no material interest” requirement).

(3)The scheme must not contain any feature which has or is likely to have the effect of discouraging any description of persons who—

(a)meet the conditions in sub-paragraph (2), or

(b)met those conditions before ceasing to be persons within sub-paragraph (2)(a),

from actually participating in the scheme.

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

Participation on similar terms

7(1)The requirements of this paragraph are—

(a)that every person who meets the conditions in paragraph 6(2) (all-employee nature of scheme) must be eligible to participate in the scheme on similar terms, and

(b)that every person who participates in the scheme must actually do so on similar terms.

(2)The requirements of this paragraph are not infringed by the fact that the rights of those participating in the scheme to obtain and exercise share options vary according to—

(a)the levels of their remuneration,

(b)the length of their service, or

(c)any similar factors.

No preferential treatment for directors and senior employees

8(1)The requirement of this paragraph is that, if the scheme organiser is a member of a group of companies, the scheme does not and is not likely to have the effect of conferring benefits wholly or mainly—

(a)on directors of companies in the group, or

(b)on employees of companies in the group who receive the higher or highest levels of remuneration.

(2)“A group of companies” means a company and any other companies of which it has control.

Part 3Eligibility of individuals to participate in scheme

Requirements relating to the eligibility of individuals: introduction

9An SAYE option scheme must meet the requirements of—

  • paragraph 10 (the employment requirement), and

  • paragraph 11 (the “no material interest” requirement).

The employment requirement

10(1)The scheme must ensure that an individual is not eligible to participate in the scheme at a particular time unless the individual is then a director or employee of—

(a)the scheme organiser, or

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

(2)The requirement of this paragraph is not infringed by a provision of the scheme required or authorised by a provision of this Schedule.

The “no material interest” requirement

11(1)The scheme must ensure that an individual is not eligible to participate in the scheme on any date if the individual has on that date, or has had within the 12 months ending with that date, a material interest in a close company—

(a)whose shares may be acquired as a result of exercising share options granted under the scheme, or

(b)which has control of a company whose shares may be acquired as a result of exercising share options granted under the scheme, or

(c)which is a member of a consortium which owns a company within paragraph (b).

(2)For the purposes of this paragraph an individual is to be regarded as having a material interest in a company if—

(a)the individual, or

(b)the individual together with one or more of the individual’s associates, or

(c)any such associate, with or without any other such associates,

has a material interest in the company.

(3)This paragraph is supplemented—

(a)as regards the meaning of “material interest”, by paragraphs 12 and 13, and

(b)as regards the meaning of “associate”, by paragraph 14 (read with paragraphs 15 and 16).

(4)In this paragraph and paragraph 12 “close company” includes a company that would be a close company but for—

(a)section 414(1)(a) of ICTA (exclusion of companies not resident in the United Kingdom), or

(b)section 415 of ICTA (exclusion of certain quoted companies).

Meaning of “material interest”

12(1)In paragraph 11 (the “no material interest” requirement) references to a “material interest” in a company are to—

(a)a material interest in the share capital of the company, or

(b)a material interest in its assets.

(2)A material interest in the share capital of a company means—

(a)beneficial ownership of, or

(b)the ability to control (directly or through the medium of other companies or by any other indirect means),

more than 25% of the ordinary share capital of the company.

(3)A material interest in the assets of a company means—

(a)possession of, or

(b)an entitlement to acquire,

such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive more than 25% of the assets that would then be available for distribution among the participators.

(4)In this paragraph “participator” has the meaning given by section 417(1) of ICTA.

(5)This paragraph is supplemented by paragraph 13 (material interest: options etc.).

Material interest: options and interests in SIPs

13(1)For the purposes of paragraph 12 (meaning of “material interest”) a right to acquire shares (however arising) is to be treated as a right to control them.

(2)Sub-paragraph (3) also applies for the purposes of paragraph 12 in a case where—

(a)the shares to be attributed to an individual consist of or include shares which the individual or another person has a right to acquire, and

(b)the circumstances are such that, if that right were to be exercised, the shares acquired would be shares which were previously unissued and which the company would be contractually bound to issue in the event of the exercise of the right.

(3)In determining at any time prior to the exercise of the right whether the number of shares to be attributed to the individual exceeds 25% of the ordinary share capital of the company, that ordinary share capital is to be treated as increased by the number of unissued shares referred to in sub-paragraph (2)(b).

(4)The references in sub-paragraphs (2) and (3) to the shares to be attributed to an individual are to the shares which—

(a)for the purposes of paragraph 12(2) (material interest in share capital), and

(b)in accordance with paragraph 11(2) (material interest can consist of or include that of individual’s associates),

fall to be brought into account in the individual’s case so that it can be determined whether their number exceeds 25% of the company’s ordinary share capital.

(5)In applying paragraph 12 the following are to be disregarded—

(a)the interest of the trustees of any approved SIP (within the meaning of the SIP code: see section 488(4)) in any shares which are held by them in accordance with the plan but which have not been appropriated to, or acquired on behalf of, an individual, and

(b)any rights exercisable by the trustees as a result of that interest.

Meaning of “associate”

14(1)In paragraph 11(2) (the “no material interest” requirement) “associate”, in relation to an individual, means—

(a)any relative or partner of that individual,

(b)the trustee or trustees of any settlement in relation to which that individual, or any of the individual’s relatives (living or dead), is or was a settlor, or

(c)where that individual is interested in any shares or obligations of the company mentioned in paragraph 11(2) which are subject to any trust or are part of the estate of a deceased person—

(i)the trustee or trustees of the settlement concerned, or

(ii)the personal representatives of the deceased,

as the case may be.

(2)Sub-paragraph (1)(c) needs to be read with paragraphs 15 and 16 (which relate to employee benefit trusts and discretionary trusts).

(3)In this paragraph—

  • “relative” means—

    (a)

    spouse,

    (b)

    parent, child or remoter relation in the direct line, or

    (c)

    brother or sister;

  • “settlor” and “settlement” have the same meaning as in Chapter 1A of Part 15 of ICTA (see section 660G(1) and (2)).

Meaning of “associate”: trustees of employee benefit trust

15(1)This paragraph applies for the purposes of paragraph 14(1)(c) (meaning of “associate”: trustees of settlement) where the individual is interested as a beneficiary of an employee benefit trust in shares or obligations of the company mentioned in paragraph 11(2).

(2)The trustees of the employee benefit trust are not to be regarded as associates of the individual as a result only of the individual’s being so interested if neither—

(a)the individual, nor

(b)the individual together with one or more of the individual’s associates, nor

(c)any such associate, with or without any other such associates,

has at any time after 13th March 1989 been the beneficial owner of, or been able (directly or through the medium of other companies or by any other indirect means) to control, more than 25% of the ordinary share capital of the company.

(3)In sub-paragraph (2)(b) and (c) “associate” has the meaning given by paragraph 14(1), but does not include the trustees of an employee benefit trust as a result only of the individual’s having an interest in shares or obligations of the trust.

(4)Chapter 11 of Part 7 of this Act (which deals with the attribution of interests in companies to beneficiaries of employee benefit trusts) applies for the purposes of sub-paragraph (2).

(5)In this paragraph “employee benefit trust” has the same meaning as in that Chapter (see sections 550 and 551).

Meaning of “associate”: trustees of discretionary trust

16(1)This paragraph applies for the purposes of paragraph 14(1)(c) (meaning of “associate”: trustees of settlement) where—

(a)the individual (“the beneficiary”) is one of the objects of a discretionary trust,

(b)the property subject to the trust has at any time consisted of, or included, shares or obligations of the company mentioned in paragraph 11(2),

(c)the beneficiary has ceased to be eligible to benefit under the trust as a result of—

(i)an irrevocable disclaimer or release executed by the beneficiary, or

(ii)the irrevocable exercise by the trustees of a power to exclude the beneficiary from the objects of the trust,

(d)immediately after the beneficiary ceased to be so eligible, no associate of the beneficiary was interested in the shares or obligations of the company that were subject to the trust, and

(e)during the period of 12 months ending with the date on which the beneficiary ceased to be so eligible, neither the beneficiary nor any associate of the beneficiary received any benefit under the trust.

(2)The beneficiary is not, as a result only of the matters referred to in sub-paragraph (1)(a) and (b), to be regarded as having been interested in the shares or obligations of the company at any time during that period of 12 months.

(3)In sub-paragraph (1) “associate” has the meaning given by paragraph 14(1) but with the omission of paragraph (c).

Part 4Shares to which schemes can apply

Requirements relating to shares that may be subject to share options: introduction

17(1)An SAYE option scheme must meet the requirements of—

  • paragraph 18 (shares must be ordinary shares of certain companies),

  • paragraph 19 (requirements as to listing),

  • paragraph 20 (shares must be fully paid up and not redeemable),

  • paragraph 21 (only certain kinds of restrictions allowed), and

  • paragraph 22 (requirements as to other shareholdings).

(2)In this Part “eligible shares” means shares which may be acquired by the exercise of share options under the scheme.

Shares must be ordinary shares of certain companies

18Eligible shares must form part of the ordinary share capital of—

(a)the scheme organiser,

(b)a company which has control of the scheme organiser, or

(c)a company which either is, or has control of, a company which is a member of a consortium owning either the scheme organiser or a company having control of the scheme organiser.

Requirements as to listing

19(1)Eligible shares must be—

(a)shares of a class listed on a recognised stock exchange,

(b)shares in a company which is not under the control of another company, or

(c)shares in a company which is under the control of a listed company.

(2)A “listed company” is a company whose shares are listed on a recognised stock exchange, other than—

(a)a close company, or

(b)a company that would be a close company if resident in the United Kingdom.

Shares must be fully paid up and not redeemable

20Eligible shares must be—

(a)fully paid up, and

(b)not redeemable.

Only certain kinds of restriction allowed

21(1)Eligible shares must not be subject to any restrictions (see sub-paragraph (4)) other than—

(a)those attaching to all shares of the same class, or

(b)those permitted by sub-paragraph (2).

(2)If the conditions of sub-paragraph (3) are met, eligible shares may be subject to a restriction imposed by the company’s articles of association—

(a)requiring all shares held by directors or employees—

(i)of the company, or

(ii)of any other company of which it has control,

to be disposed of, or offered for sale, on ceasing to be so held, and

(b)requiring all shares acquired, as a result of rights or interests obtained by such directors or employees, by persons who—

(i)are not such directors or employees, or

(ii)have ceased to be such directors or employees,

to be disposed of, or offered for sale, when they are acquired.

(3)The conditions of this sub-paragraph are—

(a)that a disposal required by the restriction will be by way of sale for a consideration in money on terms specified in the articles of association, and

(b)that under general conditions contained in the articles of association anyone disposing of shares of the same class (whether or not held or acquired as mentioned in sub-paragraph (2)) may be required to sell them on terms which are the same as those mentioned in paragraph (a).

(4)For the purposes of this paragraph shares are subject to a restriction if there is any contract, agreement, arrangement or condition—

(a)by which a person’s freedom to dispose of the shares or of any interest in them or of the proceeds of their sale, or to exercise any right conferred by them, is restricted, or

(b)by which such a disposal or exercise may result in any disadvantage to the person or to a person connected with the person.

This is subject to sub-paragraphs (5) and (6).

(5)Sub-paragraph (4) does not extend to so much of any contract, agreement, arrangement or condition as contains provisions similar in purpose and effect to any of the provisions of the Model Code as (for the time being) set out in the listing rules issued by the competent authority for listing in the United Kingdom under section 74(4) of the Financial Services and Markets Act 2000 (c. 8).

(6)Any discretion of the directors under the articles of association of the company to refuse to accept the transfer of shares is to be disregarded for the purposes of this paragraph if the directors—

(a)have undertaken to the Inland Revenue not to exercise it in such a way as to discriminate against persons participating in the scheme, and

(b)have notified all those who are eligible to do so of the existence of the undertaking.

(7)In this paragraph “articles of association” includes, in the case of a company incorporated under the law of a country outside the United Kingdom, any equivalent document relating to the company.

Requirements as to other shareholdings

22(1)The majority of the issued shares of the same class as the eligible shares must be—

(a)employee-control shares, or

(b)open market shares,

unless the eligible shares are shares in a company whose ordinary share capital consists of shares of one class only.

(2)Shares in a company are “employee-control shares” if—

(a)the persons holding the shares are, by virtue of their holding, together able to control the company, and

(b)those persons are or have been employees or directors of the company or of another company which is under the control of the company.

(3)Shares in a company are “open market shares” if the persons holding the shares are not—

(a)persons who acquired their shares as a result of a right conferred on them or an opportunity afforded to them as a director or employee of the scheme organiser or any other company, and not as a result of an offer to the public, or

(b)trustees holding shares on behalf of persons who acquired their beneficial interests in the shares as mentioned in paragraph (a), or

(c)in the case of shares which—

(i)are not of a class listed on a recognised stock exchange, and

(ii)are in a company which is under the control of a listed company (as defined by paragraph 19(2)),

companies which have control of the company whose shares are in question or of which that company is an associated company.

Part 5Requirement for linked savings scheme

Requirements as to linked savings scheme: introduction

23An SAYE option scheme must meet the requirements of—

  • paragraph 24 (payments for shares to be linked to approved savings schemes), and

  • paragraph 25 (requirements as to contributions to savings schemes).

Payments for shares to be linked to approved savings schemes

24(1)The scheme must provide for shares acquired by the exercise of share options granted under the scheme to be paid for with money not exceeding the amount of repayments made and any interest paid under a CCS scheme which has been approved by the Inland Revenue for the purposes of this Schedule (“the CCS scheme”).

(2)In the SAYE code “CCS scheme” means certified contractual savings scheme.

Requirements as to contributions to savings schemes

25(1)The scheme must provide for a person’s contributions under the CCS scheme to be of an amount that will secure, as nearly as possible, repayment of an amount equal to the option price.

(2)The “option price” means the amount payable, on exercising share options granted under the scheme, in order to acquire the maximum number of shares that may be acquired under them (see paragraph 28).

(3)The scheme must neither—

(a)permit the aggregate amount of a person’s contributions under CCS schemes linked to approved SAYE schemes to exceed £250 per month, nor

(b)impose a minimum on the amount of a person’s contributions which exceeds £10 per month.

(4)The Treasury may by order amend sub-paragraph (3) by substituting for any amount for the time being specified there an amount specified in the order.

Repayments under a savings scheme: whether bonuses included

26(1)For the purposes of this Schedule repayments under a CCS scheme may be taken as including, or as not including, a bonus.

(2)The bonus may either be the maximum bonus under that scheme or a lesser bonus.

(3)An SAYE option scheme must require the question whether repayments are to be taken as including bonuses to be determined at the time when share options are granted.

Part 6Requirements etc. relating to share options

Requirements etc. relating to share options: introduction

27(1)An SAYE option scheme must meet the requirements of—

  • paragraph 28 (requirements as to price for acquisition of shares),

  • paragraph 29 (share options must not be transferable),

  • paragraph 30 (time for exercising options: general),

  • paragraph 31 (requirement to have a “specified age”),

  • paragraph 32 (exercise of options: death),

  • paragraph 33 (exercise of options: reaching specified age without retiring), and

  • paragraph 34 (exercise of options: scheme-related employment ends).

(2)An SAYE option scheme may make any provision authorised by—

  • paragraph 36 (exercise of options: employment in associated company at bonus date), and

  • paragraph 37 (exercise of options: company events).

Requirements as to price for acquisition of shares

28(1)The price at which shares may be acquired by the exercise of a share option granted under the scheme—

(a)must be stated at the time when the option is granted, and

(b)must not be manifestly less than 80% of the market value of shares of the same class at that time.

This is subject to sub-paragraphs (2) and (3).

(2)The Inland Revenue and the scheme organiser may agree in writing that sub-paragraph (1)(b) is to apply as if the reference to the time when the option is granted were to an earlier time or times stated in the agreement.

(3)The scheme may provide for one or more of the following—

(a)the price at which shares may be acquired by the exercise of a share option granted under the scheme,

(b)the number of shares which may be so acquired, or

(c)the description of shares which may be so acquired,

to be varied so far as necessary to take account of a variation in the share capital of which the shares form part.

(4)But the scheme must provide that no such variation is to be made without the prior approval of the Inland Revenue.

Share options must not be transferable

29(1)The scheme must ensure that share options granted to a participant are not capable of being transferred by the participant.

(2)Paragraph 32 provides for the exercise of the options where the participant has died.

Time for exercising options: general

30(1)The scheme must ensure that share options granted under it must not be capable of being exercised—

(a)before the bonus date, or

(b)later than 6 months after that date.

(2)However, in sub-paragraph (1)—

(a)paragraph (a) is subject to paragraphs 32 to 34 and 37 (exercise of options in the event of death, reaching the specified age without retiring, scheme-related employment ending or certain events occurring in relation to the company), and

(b)paragraph (b) is subject to paragraph 32.

(3)In the SAYE code “the bonus date” means the date on which repayments under the CCS scheme are due.

(4)For this purpose repayments are to be regarded as due as follows—

(a)if the repayments are to be taken as including the maximum bonus (see paragraph 26(2)), on the earliest date on which that bonus is payable, and

(b)in any other case, on the earliest date on which a bonus is payable.

Requirement to have a “specified age”

31(1)The scheme must specify the age that is to be the specified age for the purposes of the scheme (see paragraphs 33(1) and 34(2)).

(2)The age specified must be—

(a)the same for men and women,

(b)not less than 60, and

(c)not more than 75.

Exercise of options: death

32The scheme must provide that, if a participant dies before exercising the options, they may be exercised on or after the date of death but not later than—

(a)12 months after the date of death, in a case where the participant dies before the bonus date, or

(b)12 months after the bonus date, in a case where the participant dies on or within 6 months after that date.

Exercise of options: reaching specified age without retiring

33(1)The scheme must provide that, if a participant (“P”) continues to hold the office or employment by reference to which P satisfies the condition in paragraph 10(1) (the employment requirement) after the date on which P reaches the specified age, P may exercise the options within 6 months of that date.

(2)This paragraph has effect subject to paragraph 30(1)(b) (options must not be capable of being exercised later than 6 months after bonus date).

Exercise of options: scheme-related employment ends

34(1)The scheme must provide that, if a participant (“P”) no longer holds scheme-related employment (see paragraph 35), the options are exercisable as set out in sub-paragraphs (2) to (4).

(2)In a case where P ceases to hold the scheme-related employment because of—

(a)injury or disability or redundancy within the meaning of ERA 1996, or

(b)retirement on reaching the specified age, or any other age at which P is bound to retire in accordance with the terms of P’s contract of employment,

the options may only be exercised within 6 months after the termination date.

(3)In a case where P ceases to hold the scheme-related employment for any other reason, share options granted more than 3 years before the termination date either—

(a)may not be exercised, or

(b)may only be exercised within 6 months after the termination date,

according to which of these alternatives is specified in the scheme.

(4)Subject to any provision made under sub-paragraph (5), in a case where P ceases to hold the scheme-related employment for any reason other than one within sub-paragraph (2)(a) or (b), share options granted 3 years or less before the termination date may not be exercised at all.

(5)The scheme may provide that, in a case where P ceases to hold the scheme-related employment only because—

(a)it is in a company of which the scheme organiser ceases to have control, or

(b)it relates to a business or part of a business which is transferred to a person who is not an associated company of the scheme organiser,

the options may be exercised within 6 months after the termination date.

(6)This paragraph has effect subject to paragraph 30(1)(b) (options must not be capable of being exercised later than 6 months after bonus date).

(7)In this paragraph—

  • “scheme-related employment” means the office or employment by reference to which the person satisfies the condition in paragraph 10(1) (“the employment requirement”);

  • “the termination date” means the date when P ceases to hold the scheme-related employment (see paragraph 35).

Time when scheme-related employment ends

35(1)This paragraph applies for the purposes of paragraph 34 (exercise of options: scheme-related employment ends).

(2)Unless sub-paragraph (3) applies, a participant (“P”) is to be regarded as ceasing to hold scheme-related employment on the date when the office or employment in question terminates.

(3)If—

(a)P’s scheme-related employment terminates, but

(b)P continues to hold an office or employment in the scheme organiser or any associated company,

P is to be regarded as ceasing to hold the scheme-related employment on the date when P no longer holds any office or employment within paragraph (b), and not at any earlier time.

(4)For the purposes of sub-paragraph (3) one company is an “associated company” of another company if—

(a)one has control of the other, or

(b)both are under the control of the same person or persons;

and for this purpose the question of whether a person controls a company is to be determined in accordance with section 416(2) to (6) of ICTA (“control” in the context of close companies).

(5)Nothing in paragraph 34 or this paragraph applies where a person’s scheme-related employment terminates on that person’s death (see instead paragraph 32).

(6)In this paragraph “scheme-related employment” has the same meaning as in paragraph 34.

Exercise of options: employment in associated company at bonus date

36The scheme may provide that if at the bonus date a participant holds an office or employment in a company which is—

(a)an associated company of the scheme organiser, but

(b)not a constituent company,

the options may be exercised within 6 months after that date.

Exercise of options: company events

37(1)The scheme may provide that share options relating to shares in a company may be exercised within 6 months after the relevant date for the purposes of sub-paragraph (2), (4) or (5).

(2)The relevant date for the purposes of this sub-paragraph is the date when—

(a)a person has obtained control of the company as a result of making an offer falling within sub-paragraph (3), and

(b)any condition subject to which the offer is made has been satisfied.

(3)An offer falls within this sub-paragraph if it is—

(a)a general offer to acquire the whole of the issued ordinary share capital of the company, which is made on a condition such that, if it is met, the person making the offer will have control of the company, or

(b)a general offer to acquire all the shares in the company which are of the same class as the shares in question obtained under the scheme.

(4)The relevant date for the purposes of this sub-paragraph is the date when the court sanctions under—

(a)section 425 of the Companies Act 1985 (c. 6) (power to compromise with creditors and members), or

(b)Article 418 of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)) (corresponding provision for Northern Ireland),

a compromise or arrangement proposed for the purposes of or in connection with a scheme for the reconstruction or amalgamation of the company.

(5)The relevant date for the purposes of this sub-paragraph is the date when the company passes a resolution for voluntary winding up.

(6)The scheme may provide that share options relating to shares in a company may be exercised at any time when any person is bound or entitled to acquire shares in the company under—

(a)sections 428 to 430 of the Companies Act 1985 (c. 6) (power to acquire shares of shareholders dissenting from schemes or contract approved by majority), or

(b)Articles 421 to 423 of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)) (corresponding provision for Northern Ireland).

(7)For the purposes of this paragraph—

(a)“share options” means share options granted under the scheme; and

(b)a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it.

(8)This paragraph has effect subject to paragraph 30(1)(b) (options must not be capable of being exercised later than 6 months after bonus date).

Part 7Exchange of share options

Exchange of options on company reorganisation

38(1)An SAYE option scheme may provide that if—

(a)there is a company reorganisation affecting a scheme company (that is, a company whose shares may be acquired by the exercise of share options obtained under the scheme: see paragraph 18), and

(b)a participant has obtained share options under the scheme which are to acquire shares of the scheme company (“the old options”),

the participant may agree with the acquiring company to release the old options in consideration of the participant being granted new share options.

(2)For the purposes of this paragraph there is a company reorganisation affecting a scheme company if another company (“the acquiring company”)—

(a)obtains control of the scheme company—

(i)as a result of making a general offer to acquire the whole of the issued ordinary share capital of the scheme company which is made on a condition such that, if it is met, the person making the offer will have control of that company, or

(ii)as a result of making a general offer to acquire all the shares in the scheme company which are of the same class as those subject to the old options;

(b)obtains control of the scheme company as a result of a compromise or arrangement sanctioned by the court under—

(i)section 425 of the Companies Act 1985 (power to compromise with creditors and members), or

(ii)Article 418 of the Companies (Northern Ireland) Order 1986) (corresponding provision for Northern Ireland); or

(c)becomes bound or entitled to acquire shares in the scheme company under—

(i)sections 428 to 430 of that Act (power to acquire shares of shareholders dissenting from schemes or contract approved by majority), or

(ii)Articles 421 to 423 of that Order (corresponding provision for Northern Ireland).

(3)A scheme that makes provision under sub-paragraph (1) must require the agreement referred to in that sub-paragraph to be made—

(a)where control is obtained in the way set out in sub-paragraph (2)(a)(i) or (ii), within the period of 6 months beginning with the time when the acquiring company obtains control and any condition subject to which the offer is made is met,

(b)where control is obtained in the way set out in sub-paragraph (2)(b), within the period of 6 months beginning with the time when the court sanctions the compromise or arrangement, and

(c)where sub-paragraph (2)(c) applies, within the period during which the acquiring company remains bound or entitled as mentioned in that provision.

Requirements about share options granted in exchange

39(1)This paragraph applies to a scheme that makes provision under paragraph 38 (exchange of options on company reorganisation).

(2)The scheme must require the new share options to relate to shares in a company which—

(a)is different from the company whose shares are subject to the old options, and

(b)is either the acquiring company itself or some other company within sub-paragraph (b) or (c) of paragraph 18 (shares must be ordinary shares of certain companies), namely—

(i)a company which has control of the scheme organiser, or

(ii)a company which is, or has control of a company which is, a member of a consortium owning either the scheme organiser or a company having control of the scheme organiser.

For this purpose the control in question may be through the medium of the acquiring company.

(3)The scheme must also require the new share options to be equivalent to the old options.

(4)For the new options to be regarded as equivalent to the old options—

(a)the shares to which they relate must meet the conditions in paragraphs 18 to 22 (types of share that may be used),

(b)they must be exercisable in the same manner as the old options and subject to the provisions of the scheme as it had effect immediately before the release of the old options,

(c)the total market value of the shares subject to the old options immediately before the release of those options by the participant must equal the total market value, immediately after the grant of the new options to the participant, of the shares subject to those options, and

(d)the total amount payable by the participant for the acquisition of shares under the new options must be equal to the total amount that would have been so payable under the old options.

(5)For the purposes of the SAYE code, new share options granted under the terms of a provision included in a scheme under paragraph 38 are to be treated as having been granted at the time when the corresponding old options were granted.

(6)This also applies for the purposes of the provisions of the scheme in their operation, after the grant of the new options, by virtue of a condition complying with sub-paragraph (4)(b).

Part 8Approval of schemes

Application for approval

40(1)Where—

(a)an SAYE option scheme has been established, and

(b)the scheme organiser makes an application to the Inland Revenue for approval of the scheme,

the Inland Revenue must approve the scheme if they are satisfied that it meets the requirements of Parts 2 to 7 of this Schedule.

(2)An application for approval—

(a)must be in writing, and

(b)must contain such particulars and be supported by such evidence as the Inland Revenue may require.

(3)Once the Inland Revenue have decided whether or not to approve the scheme, they must give notice of their decision to the scheme organiser.

Appeal against refusal of approval

41(1)If the Inland Revenue refuse to approve the scheme, the scheme organiser may appeal to the Special Commissioners.

(2)The notice of appeal must be given to the Inland Revenue within 30 days after the date on which notice of their decision was given to the scheme organiser.

(3)If the Special Commissioners allow the appeal, they may direct the Inland Revenue to approve the scheme with effect from a date specified by the Commissioners.

(4)The date so specified must not be earlier than that of the application for approval.

Withdrawal of approval

42(1)If any disqualifying event occurs in connection with an approved SAYE option scheme, the Inland Revenue may by a notice given to the scheme organiser withdraw the approval with effect from—

(a)the time at which the disqualifying event occurred, or

(b)a later time specified by the Inland Revenue in the notice.

(2)A “disqualifying event” occurs in connection with a scheme if—

(a)any of the requirements of Parts 2 to 7 of this Schedule ceases to be met; or

(b)the scheme organiser fails to provide information requested by the Inland Revenue under paragraph 45.

(3)If share options granted under an SAYE option scheme before the withdrawal of approval under this paragraph are exercised after the withdrawal, the scheme is to be treated for the purposes of—

(a)section 519 (exemption in respect of exercise of share option), and

(b)section 520 (exemption in respect of post-acquisition benefits),

in their application to such options, as if it were still approved at the time of the exercise.

Approval ineffective after unapproved alteration

43(1)If—

(a)an alteration is made in an SAYE option scheme that has been approved, and

(b)the alteration has not been approved by the Inland Revenue,

the approval of the scheme is ineffective after the date of the alteration.

(2)Where the Inland Revenue—

(a)have been requested to approve any alteration in such a scheme, and

(b)have decided whether or not to approve the alteration,

they must give notice of their decision to the scheme organiser.

Appeal against withdrawal of approval etc.

44(1)This paragraph applies if an SAYE option scheme has been approved by the Inland Revenue and they—

(a)decide to withdraw approval of the scheme under paragraph 42, or

(b)decide not to approve an alteration in the scheme under paragraph 43.

(2)The scheme organiser may appeal against the decision to the Special Commissioners.

(3)The notice of appeal must be given to the Inland Revenue within 30 days after the date on which notice of their decision was given to the scheme organiser.

Part 9Supplementary provisions

Power to require information

45(1)The Inland Revenue may by notice require any person to provide them with any information—

(a)which they reasonably require for the performance of their functions under the SAYE code, and

(b)which the person to whom the notice is addressed has or can reasonably obtain.

(2)The power conferred by this paragraph extends, in particular, to—

(a)information to enable the Inland Revenue—

(i)to decide whether to approve an SAYE option scheme or to withdraw an approval already given, or

(ii)to determine the liability to tax, including capital gains tax, of any person who has participated in a scheme, and

(b)information about the administration of a scheme and any alteration of the terms of a scheme.

(3)The notice must require the information to be provided within a specified time, which must not end earlier than 3 months after the date when the notice is given.

Jointly owned companies

46(1)This paragraph applies for the purposes of the provisions of the SAYE code relating to group schemes.

(2)Each joint owner of a jointly owned company is to be treated as controlling every company within sub-paragraph (3).

(3)The companies within this sub-paragraph are—

(a)the jointly owned company, and

(b)any company controlled by that company.

(4)However, no company within sub-paragraph (3) may be—

(a)a constituent company in more than one group scheme, or

(b)a constituent company in a particular group scheme if another company within that sub-paragraph is a constituent company in a different group scheme.

(5)In this paragraph a “jointly owned company” means a company which (apart from sub-paragraph (2)) is not controlled by any one person and—

(a)of which 50% of the issued share capital is owned by one person and 50% by another, or

(b)which is otherwise controlled by two persons taken together.

(6)In this paragraph “joint owner” means one of the persons mentioned in sub-paragraph (5)(a) or (b).

Meaning of “associated company”

47(1)For the purposes of the SAYE code, except in paragraph 35(3) (time when “scheme-related employment” ends), one company is an “associated company” of another company at a given time if, at that time or at any other time within one year previously—

(a)one has control of the other, or

(b)both are under the control of the same person or persons.

(2)For the purposes of sub-paragraph (1) the question whether a person controls a company is to be determined in accordance with section 416(2) to (6) of ICTA.

Minor definitions

48(1)In the SAYE code—

  • “certified contractual savings scheme” has the meaning given in section 326(2) to (6) of ICTA;

  • “company” means a body corporate;

  • “market value” has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act.

(2)For the purposes of the SAYE code a company is a member of a consortium owning another company if it is one of a number of companies—

(a)which between them beneficially own not less than 75% of the other company’s ordinary share capital, and

(b)each of which beneficially owns not less than 5% of that capital.

Index of defined expressions

49In the SAYE code the following expressions are defined or otherwise explained by the provisions indicated below:

approvedsection 516(4) (and see paragraph 42(3))
associated companyparagraph 47(1)
the bonus dateparagraph 30(3)
certified contractual savings scheme (CCS scheme)paragraph 48(1)
childsection 832(5) of ICTA, (and see section 721(6) of this Act)
close companysection 832(1) of ICTA, (and see paragraph 11(4))
companyparagraph 48(1)
connected personsection 718
constituent companyparagraph 3(3)
controlsection 719 (and see paragraphs 35(4) and 47(2))
distributionsection 832(1) of ICTA
earningssection 62 and see section 721(7)
eligible shares (in Part 4 of this Schedule)paragraph 17(2)
employee and employmentsection 4
group schemeparagraph 3(2) (and see paragraph 46)
the Inland Revenuesection 720(1)
interestsection 832(1) of ICTA
market valueparagraph 48(1)
member of a consortiumparagraph 48(2)
noticesection 832(1) of ICTA
the options (in relation to a participant)paragraph 2(2)
ordinary share capitalsection 832(1) of ICTA
participantparagraph 2(2)
participateparagraph 2(2)
personal representativessection 721(1)
recognised stock exchangesection 841 of ICTA
the SAYE codesection 516(3)
SAYE option schemesection 516(4)
the scheme organiserparagraph 2(2)
share optionsection 516(4)
sharessection 516(4)
Special Commissionerssection 4 of TMA 1970
specified ageparagraph 31
taxsection 832(3) of ICTA
United Kingdomsection 830 of ICTA

Section 521

SCHEDULE 4Approved CSOP schemes

Part 1Introduction

Approval of CSOP schemes

1(1)This Schedule makes provision for the approval of CSOP schemes by the Inland Revenue.

(2)Parts 2 to 6 of this Schedule contain requirements that have to be met in order for schemes to be approved under this Schedule.

(3)The requirements consist of general requirements (see Part 2) and requirements as to—

  • the eligibility of individuals to participate in a scheme (see Part 3),

  • the shares to which a scheme can apply (see Part 4),

  • the share options which may be granted under a scheme (see Part 5), and

  • the exchange of share options (see Part 6).

(4)Part 7 of this Schedule deals with the approval of schemes and the withdrawal of approval.

CSOP schemes

2(1)In the CSOP code a “CSOP scheme” means (in accordance with section 521(4)) a scheme which—

(a)is established by a company,

(b)provides for share options to be granted to employees and directors, and

(c)is not an SAYE option scheme (within the meaning of the SAYE code: see section 516(4)).

(2)In the CSOP code, in relation to a CSOP scheme—

  • “participant” means an individual who has been granted (but has not yet exercised) share options under the scheme (“the options”);

  • “participate” means obtain and exercise share options under the scheme;

  • “the scheme organiser” means the company which has established the scheme.

Group schemes

3(1)A CSOP scheme established by a company that controls one or more other companies (a “parent scheme company”) may extend to all or any of those other companies.

(2)In the CSOP code a CSOP scheme established by a parent scheme company which so extends is called a “group scheme”.

(3)In relation to a group scheme a “constituent company” means—

(a)the parent scheme company, or

(b)any other company to which for the time being the scheme is expressed to extend.

(4)Paragraph 34 deals with jointly owned companies and companies controlled by them.

Part 2General requirements for approval

General requirements for approval: introduction

4A CSOP scheme must meet the requirements of—

  • paragraph 5 (general restriction on contents of scheme), and

  • paragraph 6 (limit on value of shares subject to options).

General restriction on contents of scheme

5The scheme must not contain features which are neither essential nor reasonably incidental to the purpose of providing benefits for employees and directors in the nature of share options.

Limit on value of shares subject to options

6(1)The scheme must provide that an individual may not be granted share options under it which would at the time when they are granted cause the aggregate market value of the shares which the individual may acquire by exercising share options granted under—

(a)the scheme, or

(b)any other approved CSOP scheme established by the scheme organiser or an associated company of the scheme organiser,

to exceed or further exceed £30,000.

(2)For the purposes of sub-paragraph (1) share options that have already been exercised are to be left out of account.

(3)For the purposes of sub-paragraph (1) the market value of shares is to be calculated as at—

(a)the time when the options relating to them were granted, or

(b)if an agreement relating to them has been made under paragraph 22 (requirements as to price for acquisition of shares) the earlier time or times stated in the agreement.

Part 3Eligibility of individuals to participate in scheme

Requirements relating to the eligibility of individuals: introduction

7A CSOP scheme must meet the requirements of—

  • paragraph 8 (the employment requirement), and

  • paragraph 9 (the “no material interest” requirement).

The employment requirement

8(1)The scheme must ensure that an individual is not eligible to be granted share options under the scheme at a particular time unless the individual is then a full-time director or a qualifying employee of—

(a)the scheme organiser, or

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

(2)A “qualifying employee”, in relation to a company, means an employee of the company other than one who is a director of—

(a)the company, or

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

The “no material interest” requirement

9(1)The scheme must ensure that an individual is not eligible to participate in the scheme on any date if the individual has on that date, or has had within the 12 months preceding that date, a material interest in a close company—

(a)whose shares may be acquired as a result of exercising share options granted under the scheme, or

(b)which has control of a company whose shares may be acquired as a result of exercising share options granted under the scheme, or

(c)which is a member of a consortium which owns a company within paragraph (b).

(2)For the purposes of this paragraph an individual is to be regarded as having a material interest in a company if—

(a)the individual, or

(b)the individual together with one or more of the individual’s associates, or

(c)any such associate, with or without any other such associates,

has a material interest in the company.

(3)This paragraph is supplemented—

(a)as regards the meaning of “material interest”, by paragraphs 10 and 11, and

(b)as regards the meaning of “associate”, by paragraph 12 (read with paragraphs 13 and 14).

(4)In this paragraph and paragraph 10 “close company” includes a company that would be a close company but for—

(a)section 414(1)(a) of ICTA (exclusion of companies not resident in the United Kingdom), or

(b)section 415 of ICTA (exclusion of certain quoted companies).

Meaning of “material interest”

10(1)In paragraph 9 (the “no material interest” requirement) references to a “material interes” in a company are to—

(a)a material interest in the share capital of the company, or

(b)a material interest in its assets.

(2)A material interest in the share capital of a company means—

(a)beneficial ownership of, or

(b)the ability to control (directly or through the medium of other companies or by any other indirect means),

more than 10% of the ordinary share capital of the company.

(3)A material interest in the assets of a company means—

(a)possession of, or

(b)an entitlement to acquire,

such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive more than 10% of the assets that would then be available for distribution among the participators.

(4)In this paragraph “participator” has the meaning given by section 417(1) of ICTA.

(5)This paragraph is supplemented by paragraph 11 (material interest: options etc.).

Material interest: options and interests in SIPs

11(1)For the purposes of paragraph 10 (meaning of “material interest”) a right to acquire shares (however arising) is to be treated as a right to control them.

(2)Sub-paragraph (3) also applies for the purposes of paragraph 10 in a case where—

(a)the shares to be attributed to an individual consist of or include shares which the individual or another person has a right to acquire, and

(b)the circumstances are such that, if that right were to be exercised, the shares acquired would be shares which were previously unissued and which the company would be contractually bound to issue in the event of the exercise of the right.

(3)In determining at any time prior to the exercise of the right whether the number of shares to be attributed to the individual exceeds 10% of the ordinary share capital of the company, that ordinary share capital is to be treated as increased by the number of unissued shares referred to in sub-paragraph (2)(b).

(4)The references in sub-paragraphs (2) and (3) to the shares to be attributed to an individual are to the shares which—

(a)for the purposes of paragraph 10(2) (material interest in share capital), and

(b)in accordance with paragraph 9(2) (material interest can consist of or include that of individual’s associates),

fall to be brought into account in the individual’s case so that it can be determined whether their number exceeds 10% of the company’s ordinary share capital.

(5)In applying paragraph 10 the following are to be disregarded—

(a)the interest of the trustees of any approved SIP (within the meaning of the SIP code: see section 488(4)) in any shares which are held by them in accordance with the plan but which have not been appropriated to, or acquired on behalf of, an individual, and

(b)any rights exercisable by the trustees as a result of that interest.

Meaning of “associate”

12(1)In paragraph 9(2) (the “no material interest” requirement) “associate”, in relation to an individual, means—

(a)any relative or partner of that individual,

(b)the trustee or trustees of any settlement in relation to which that individual, or any of the individual’s relatives (living or dead), is or was a settlor, or

(c)where that individual is interested in any shares or obligations of the company mentioned in paragraph 9(2) which are subject to any trust or are part of the estate of a deceased person—

(i)the trustee or trustees of the settlement concerned, or

(ii)the personal representatives of the deceased,

as the case may be.

(2)Sub-paragraph (1)(c) needs to be read with paragraphs 13 and 14 (which relate to employee benefit trusts and discretionary trusts).

(3)In this paragraph—

  • “relative” means—

    (a)

    spouse,

    (b)

    parent, child or remoter relation in the direct line, or

    (c)

    brother or sister;

  • “settlor” and “settlement” have the same meaning as in Chapter 1A of Part 15 of ICTA (see section 660G(1) and (2)).

Meaning of “associate”: trustees of employee benefit trust

13(1)This paragraph applies for the purposes of paragraph 12(1)(c) (meaning of “associate”: trustees of settlement) where the individual is interested as a beneficiary of an employee benefit trust in shares or obligations of the company mentioned in paragraph 9(2).

(2)The trustees of the employee benefit trust are not to be regarded as associates of the individual as a result only of the individual’s being so interested if neither—

(a)the individual, nor

(b)the individual together with one or more of the individual’s associates, nor

(c)any such associate, with or without any other such associates,

has at any time after 13th March 1989 been the beneficial owner of, or been able (directly or through the medium of other companies or by any other indirect means) to control, more than 10% of the ordinary share capital of the company.

(3)In sub-paragraph (2)(b) and (c) “associate” has the meaning given by paragraph 12(1), but does not include the trustees of an employee benefit trust as a result only of the individual’s having an interest in shares or obligations of the trust.

(4)Chapter 11 of Part 7 of this Act (which deals with the attribution of interests in companies to beneficiaries of employee benefit trusts) applies for the purposes of sub-paragraph (2).

(5)In this paragraph “employee benefit trust” has the same meaning as in that Chapter (see sections 550 and 551).

Meaning of “associate”: trustees of discretionary trust

14(1)This paragraph applies for the purposes of paragraph 12(1)(c) (meaning of “associate”: trustees of settlement) where—

(a)the individual (“the beneficiary”) is one of the objects of a discretionary trust,

(b)the property subject to the trust has at any time consisted of, or included, shares or obligations of the company mentioned in paragraph 9(2),

(c)the beneficiary has ceased to be eligible to benefit under the trust as a result of—

(i)an irrevocable disclaimer or release executed by the beneficiary, or

(ii)the irrevocable exercise by the trustees of a power to exclude the beneficiary from the objects of the trust,

(d)immediately after the beneficiary ceased to be so eligible, no associate of the beneficiary was interested in the shares or obligations of the company that were subject to the trust, and

(e)during the period of 12 months ending with the date on which the beneficiary ceased to be so eligible, neither the beneficiary nor any associate of the beneficiary received any benefit under the trust.

(2)The beneficiary is not, as a result only of the matters referred to in sub-paragraph (1)(a) and (b), to be regarded as having been interested in the shares or obligations of the company at any time during that period of 12 months.

(3)In sub-paragraph (1) “associate” has the meaning given by paragraph 12(1) but with the omission of paragraph (c).

Part 4Shares to which schemes can apply

Requirements relating to shares that may be subject to share options: introduction

15(1)A CSOP scheme must meet the requirements of—

  • paragraph 16 (shares must be ordinary shares of certain companies),

  • paragraph 17 (requirements as to listing),

  • paragraph 18 (shares must be fully paid up and not redeemable),

  • paragraph 19 (only certain kinds of restrictions allowed), and

  • paragraph 20 (requirements as to other shareholdings).

(2)In this Part “eligible shares” means shares which may be acquired by the exercise of share options under the scheme.

Shares must be ordinary shares of certain companies

16Eligible shares must form part of the ordinary share capital of—

(a)the scheme organiser,

(b)a company which has control of the scheme organiser, or

(c)a company which either is, or has control of, a company which is a member of a consortium owning either the scheme organiser or a company having control of the scheme organiser.

Requirements as to listing

17(1)Eligible shares must be —

(a)shares of a class listed on a recognised stock exchange,

(b)shares in a company which is not under the control of another company, or

(c)shares in a company which is under the control of a listed company.

(2)A “listed company” is a company whose shares are listed on a recognised stock exchange, other than—

(a)a close company, or

(b)a company that would be a close company if resident in the United Kingdom.

Shares must be fully paid up and not redeemable

18Eligible shares must be—

(a)fully paid up, and

(b)not redeemable.

Only certain kinds of restriction allowed

19(1)Eligible shares must not be subject to any restrictions (see sub-paragraph (4)) other than—

(a)those attaching to all shares of the same class, or

(b)those permitted by sub-paragraph (2).

(2)If the conditions of sub-paragraph (3) are met, eligible shares may be subject to a restriction imposed by the company’s articles of association—

(a)requiring all shares held by directors or employees—

(i)of the company, or

(ii)of any other company of which it has control,

to be disposed of, or offered for sale, on ceasing to be so held, and

(b)requiring all shares acquired, as a result of rights or interests obtained by such directors or employees, by persons who—

(i)are not such directors or employees, or

(ii)have ceased to be such directors or employees,

to be disposed of, or offered for sale, when they are acquired.

(3)The conditions of this sub-paragraph are—

(a)that a disposal required by the restriction will be by way of sale for a consideration in money on terms specified in the articles of association, and

(b)that under general conditions contained in the articles of association anyone disposing of shares of the same class (whether or not held or acquired as mentioned in sub-paragraph (2)) may be required to sell them on terms which are the same as those mentioned in paragraph (a).

(4)For the purposes of this paragraph shares are subject to a restriction if there is any contract, agreement, arrangement or condition—

(a)by which a person’s freedom to dispose of the shares or of any interest in them or of the proceeds of their sale, or to exercise any right conferred by them, is restricted, or

(b)by which such a disposal or exercise may result in any disadvantage to the person or to a person connected with the person.

This is subject to sub-paragraphs (5) to (7).

(5)Sub-paragraph (4) does not extend to so much of any contract, agreement, arrangement or condition as contains provisions similar in purpose and effect to any of the provisions of the Model Code as (for the time being) set out in the listing rules issued by the competent authority for listing in the United Kingdom under section 74(4) of the Financial Services and Markets Act 2000 (c. 8).

(6)Sub-paragraph (4) also does not apply to any terms of a loan making provision about how it is to be repaid or the security to be given for it.

(7)Any discretion of the directors under the articles of association of the company to refuse to accept the transfer of shares is to be disregarded for the purposes of this paragraph if the directors—

(a)have undertaken to the Inland Revenue not to exercise it in such a way as to discriminate against persons participating in the scheme, and

(b)have notified all those who are eligible to do so of the existence of the undertaking.

(8)In this paragraph “articles of association” includes, in the case of a company incorporated under the law of a country outside the United Kingdom, any equivalent document relating to the company.

Requirements as to other shareholdings

20(1)The majority of the issued shares of the same class as the eligible shares must be—

(a)employee-control shares, or

(b)open market shares,

unless the eligible shares are shares in a company whose ordinary share capital consists of shares of one class only.

(2)Shares in a company are “employee-control shares” if—

(a)the persons holding the shares are, by virtue of their holding, together able to control the company, and

(b)those persons are or have been employees or directors of the company or of another company which is under the control of the company.

(3)Shares in a company are “open market shares” if the persons holding the shares are not—

(a)persons who acquired their shares as a result of a right conferred on them or an opportunity afforded to them as a director or employee of the scheme organiser or any other company, and not as a result of an offer to the public, or

(b)trustees holding shares on behalf of persons who acquired their beneficial interests in the shares as mentioned in paragraph (a), or

(c)in the case of shares which—

(i)are not of a class listed on a recognised stock exchange, and

(ii)are in a company which is under the control of a listed company (as defined by paragraph 17(2)),

companies which have control of the company whose shares are in question or of which that company is an associated company.

Part 5Requirements etc. relating to share options

Requirements etc. relating to share options: introduction

21(1)A CSOP scheme must meet the requirements of—

  • paragraph 22 (requirements as to price for acquisition of shares), and

  • paragraph 23 (share options may not be transferred).

(2)A CSOP scheme may make any provision authorised by—

  • paragraph 24 (exercise of options: ceasing to be director or employee), or

  • paragraph 25 (exercise of options: death).

Requirements as to price for acquisition of shares

22(1)The price at which shares may be acquired by the exercise of a share option granted under the scheme—

(a)must be stated at the time when the option is granted, and

(b)must not be manifestly less than the market value of shares of the same class at that time.

This is subject to sub-paragraphs (2) and (3).

(2)The Inland Revenue and the scheme organiser may agree in writing that sub-paragraph (1)(b) is to apply as if the reference to the time when the option is granted were to an earlier time or times stated in the agreement.

(3)The scheme may provide for one or more of the following—

(a)the price at which shares may be acquired by the exercise of a share option granted under the scheme,

(b)the number of shares which may be so acquired, or

(c)the description of shares which may be so acquired,

to be varied so far as necessary to take account of a variation in the share capital of which the shares form part.

(4)But the scheme must provide that no such variation is to be made without the prior approval of the Inland Revenue.

Share options must not be transferable

23(1)The scheme must ensure that share options granted to a participant are not capable of being transferred by the participant.

(2)Paragraph 25 provides for the exercise of the options where the participant has died.

Exercise of options: ceasing to be director or employee

24(1)The scheme may provide that an individual may exercise share options under it after ceasing to be a full-time director or qualifying employee.

(2)“Qualifying employee” has the same meaning as in paragraph 8 (the employment requirement).

Exercise of options: death

25The scheme may provide that, if a participant dies before exercising the options, they may be exercised on or after the date of death but not later than 12 months after that date.

Part 6Exchange of share options

Exchange of options on company reorganisation

26(1)A CSOP scheme may provide that if—

(a)there is a company reorganisation affecting a scheme company (that is, a company whose shares may be acquired by the exercise of share options obtained under the scheme: see paragraph 16), and

(b)a participant has obtained share options under the scheme which are to acquire shares of the scheme company (“the old options”),

the participant may agree with the acquiring company to release the old options in consideration of the participant being granted new share options.

(2)For the purposes of this paragraph there is a company reorganisation affecting a scheme company if another company (“the acquiring company”)—

(a)obtains control of the scheme company—

(i)as a result of making a general offer to acquire the whole of the issued ordinary share capital of the scheme company which is made on a condition such that, if it is met, the person making the offer will have control of that company, or

(ii)as a result of making a general offer to acquire all the shares in the scheme company which are of the same class as those subject to the old options;

(b)obtains control of the scheme company as a result of a compromise or arrangement sanctioned by the court under—

(i)section 425 of the Companies Act 1985 (c. 6) (power to compromise with creditors and members), or

(ii)Article 418 of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I.6)) (corresponding provision for Northern Ireland); or

(c)becomes bound or entitled to acquire shares in the scheme company under—

(i)sections 428 to 430 of that Act (power to acquire shares of shareholders dissenting from schemes or contract approved by majority), or

(ii)Articles 421 to 423 of that Order (corresponding provision for Northern Ireland).

(3)A scheme that makes provision under sub-paragraph (1) must require the agreement referred to in that sub-paragraph to be made—

(a)where control is obtained in the way set out in sub-paragraph (2)(a)(i) or (ii), within the period of 6 months beginning with the time when the acquiring company obtains control and any condition subject to which the offer is made is met,

(b)where control is obtained in the way set out in sub-paragraph (2)(b), within the period of 6 months beginning with the time when the court sanctions the compromise or arrangement, and

(c)where sub-paragraph (2)(c) applies, within the period during which the acquiring company remains bound or entitled as mentioned in that provision.

Requirements about share options granted in exchange

27(1)This paragraph applies to a scheme that makes provision under paragraph 26 (exchange of options on company reorganisation).

(2)The scheme must require the new share options to relate to shares in a company which—

(a)is different from the company whose shares are subject to the old options, and

(b)is either the acquiring company itself or some other company within sub-paragraph (b) or (c) of paragraph 16 (shares must be ordinary shares of certain companies), namely—

(i)a company which has control of the scheme organiser, or

(ii)a company which is, or has control of a company which is, a member of a consortium owning either the scheme organiser or a company having control of the scheme organiser.

For this purpose the control in question may be through the medium of the acquiring company.

(3)The scheme must also require the new share options to be equivalent to the old options.

(4)For the new options to be regarded as equivalent to the old options—

(a)the shares to which they relate must meet the conditions in paragraphs 16 to 20 (types of share that may be used),

(b)they must be exercisable in the same manner as the old options and subject to the provisions of the scheme as it had effect immediately before the release of the old options,

(c)the total market value of the shares subject to the old options immediately before the release of those options by the participant must equal the total market value, immediately after the grant of the new options to the participant, of the shares subject to those options, and

(d)the total amount payable by the participant for the acquisition of shares under the new options must be equal to the total amount that would have been so payable under the old options.

(5)For the purposes of the CSOP code, new share options granted under the terms of a provision included in a scheme under paragraph 26 are to be treated as having been granted at the time when the corresponding old options were granted.

(6)This also applies for the purposes of the provisions of the scheme in their operation, after the grant of the new options, by virtue of a condition complying with sub-paragraph (4)(b).

Part 7Approval of schemes

Application for approval

28(1)Where—

(a)a CSOP scheme has been established, and

(b)the scheme organiser makes an application to the Inland Revenue for approval of the scheme,

the Inland Revenue must approve the scheme if they are satisfied that it meets the requirements of Parts 2 to 6 of this Schedule.

(2)An application for approval—

(a)must be in writing, and

(b)must contain such particulars and be supported by such evidence as the Inland Revenue may require.

(3)Once the Inland Revenue have decided whether or not to approve the scheme, they must give notice of their decision to the scheme organiser.

Appeal against refusal of approval

29(1)If the Inland Revenue refuse to approve the scheme, the scheme organiser may appeal to the Special Commissioners.

(2)The notice of appeal must be given to the Inland Revenue within 30 days after the date on which notice of their decision was given to the scheme organiser.

(3)If the Special Commissioners allow the appeal, they may direct the Inland Revenue to approve the scheme with effect from a date specified by the Commissioners.

(4)The date so specified must not be earlier than that of the application for approval.

Withdrawal of approval

30(1)If any disqualifying event occurs in connection with an approved CSOP scheme, the Inland Revenue may by a notice given to the scheme organiser withdraw the approval with effect from—

(a)the time at which the disqualifying event occurred, or

(b)a later time specified by the Inland Revenue in the notice.

(2)A “disqualifying event” occurs in connection with a scheme if—

(a)any of the requirements of Parts 2 to 6 of this Schedule ceases to be met; or

(b)the scheme organiser fails to provide information requested by the Inland Revenue under paragraph 33.

Approval ineffective after unapproved alteration

31(1)If—

(a)an alteration is made in a CSOP scheme that has been approved, and

(b)the alteration has not been approved by the Inland Revenue,

the approval of the scheme is ineffective after the date of the alteration.

(2)Where the Inland Revenue—

(a)have been requested to approve any alteration in such a scheme, and

(b)have decided whether or not to approve the alteration,

they must give notice of their decision to the scheme organiser.

Appeal against withdrawal of approval etc.

32(1)This paragraph applies if a CSOP scheme has been approved by the Inland Revenue and they—

(a)decide to withdraw approval of the scheme under paragraph 30, or

(b)decide not to approve an alteration in the scheme under paragraph 31.

(2)The scheme organiser may appeal against the decision to the Special Commissioners.

(3)The notice of appeal must be given to the Inland Revenue within 30 days after the date on which notice of their decision was given to the scheme organiser.

Part 8Supplementary provisions

Power to require information

33(1)The Inland Revenue may by notice require any person to provide them with any information—

(a)which they reasonably require for the performance of their functions under the CSOP code, and

(b)which the person to whom the notice is addressed has or can reasonably obtain.

(2)The power conferred by this paragraph extends, in particular, to—

(a)information to enable the Inland Revenue—

(i)to decide whether to approve a CSOP scheme or to withdraw an approval already given, or

(ii)to determine the liability to tax, including capital gains tax, of any person who has participated in a scheme, and

(b)information about the administration of a scheme and any alteration of the terms of a scheme.

(3)The notice must require the information to be provided within a specified time, which must not end earlier than 3 months after the date when the notice is given.

Jointly owned companies

34(1)This paragraph applies for the purposes of the provisions of the CSOP code relating to group schemes.

(2)Each joint owner of a jointly owned company is to be treated as controlling every company within sub-paragraph (3).

(3)The companies within this sub-paragraph are—

(a)the jointly owned company, and

(b)any company controlled by that company.

(4)However, no company within sub-paragraph (3) may be—

(a)a constituent company in more than one group scheme, or

(b)a constituent company in a particular group scheme if another company within that sub-paragraph is a constituent company in a different group scheme.

(5)In this paragraph a “jointly owned company” means a company which (apart from sub-paragraph (2)) is not controlled by any one person and—

(a)of which 50% of the issued share capital is owned by one person and 50% by another, or

(b)which is otherwise controlled by two persons taken together.

(6)In this paragraph “joint owner” means one of the persons mentioned in sub-paragraph (5)(a) or (b).

Meaning of “associated company”

35(1)For the purposes of the CSOP code one company is an “associated company” of another company at a given time if, at that time or at any other time within one year previously—

(a)one has control of the other, or

(b)both are under the control of the same person or persons.

(2)For the purposes of sub-paragraph (1) the question whether a person controls a company is to be determined in accordance with section 416(2) to (6) of ICTA.

Minor definitions

36(1)In the CSOP code—

  • “company” means a body corporate;

  • “market value” has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act.

(2)For the purposes of the CSOP code a company is a member of a consortium owning another company if it is one of a number of companies—

(a)which between them beneficially own not less than 75% of the other company’s ordinary share capital, and

(b)each of which beneficially owns not less than 5% of that capital.

Index of defined expressions

37In the CSOP code the following expressions are defined or otherwise explained by the provisions indicated below:

approvedsection 521(4)
associated companyparagraph 35(1)
childsection 832(5) of ICTA, (and see section 721(6) of this Act)
close companysection 832(1) of ICTA, (and see paragraph 9(4))
companyparagraph 36(1)
connected personsection 718
constituent companyparagraph 3(3)
controlsection 719 (and see paragraph 35(2))
the CSOP codesection 521(3)
CSOP schemesection 521(4)
distributionsection 832(1) of ICTA
eligible shares (in Part 4 of this Schedule)paragraph 15(2)
employee and employmentsection 4
group schemeparagraph 3(2) (and see paragraph 34)
the Inland Revenuesection 720(1)
market valueparagraph 36(1)
member of a consortiumparagraph 36(2)
noticesection 832(1) of ICTA
the options (in relation to a participant)paragraph 2(2)
ordinary share capitalsection 832(1) of ICTA
participantparagraph 2(2)
participateparagraph 2(2)
personal representativessection 721(1)
recognised stock exchangesection 841 of ICTA
the scheme organiserparagraph 2(2)
share optionsection 521(4)
sharessection 521(4)
Special Commissionerssection 4 of TMA 1970
United Kingdomsection 830 of ICTA

Section 527

SCHEDULE 5Enterprise management incentives

Part 1Introduction

Enterprise management incentives: qualifying options

1(1)This Schedule makes provision for establishing what is a qualifying option for the purposes of the EMI code.

(2)In the EMI code a “qualifying option” means (in accordance with section 527(4)) a share option—

(a)in relation to which the requirements of this Schedule are met at the time when the option is granted, and

(b)which is notified to the Inland Revenue in accordance with Part 7.

(3)The requirements of this Schedule are—

(a)the general requirements in Part 2,

(b)that the company whose shares are the subject of the option (“the relevant company”) is a qualifying company (see Part 3),

(c)that the individual to whom it is granted is an eligible employee in relation to that company (see Part 4),

(d)that the option is granted to the employee by reason of the employee’s employment—

(i)with that company, or

(ii)if that company is a parent company, with that company or another member of the group, and

(e)the requirements of Part 5 as to the terms of the option, the types of shares that may be subject to it, and other matters.

(4)In the EMI code, as it applies to a share option, “the appropriate time” means the time when the option is granted.

Meaning of “the relevant company” and “the employer company”

2In the EMI code, in relation to a share option—

  • “the relevant company” means (in accordance with paragraph 1(3)(b)) the company whose shares are subject to the option;

  • “the employer company” means the company by reference to which the requirement in paragraph 1(3)(d) (the employment requirement) is met.

Part 2General requirements

General requirements: introduction

3A share option is not a qualifying option unless the requirements of this Part of this Schedule as to the following are met at the appropriate time—

  • the purpose for which the option is granted (see paragraph 4),

  • the maximum entitlement of an employee (see paragraphs 5 and 6),

  • the maximum value of the relevant company’s shares in respect of which unexercised options can exist (see paragraph 7).

Purpose of granting the option

4To be a qualifying option a share option must be granted for commercial reasons in order to recruit or retain an employee in a company, and not as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax.

Maximum entitlement of employee: financial limit on unexercised options

5(1)An employee may not hold unexercised qualifying options which—

(a)are in respect of shares with a total value of more than £100,000, and

(b)were granted by reason of the employee’s employment—

(i)with one company, or

(ii)with two or more companies which are members of the same group of companies.

(2)A share option cannot be a qualifying option if the limit in sub-paragraph (1) is already exceeded at the time when it is granted.

(3)If the grant of a share option causes that limit to be exceeded, the option cannot be a qualifying option so far as it relates to the excess.

(4)Where, at the time when a share option is granted to an employee (“E”), E holds unexercised CSOP options granted by reason of E’s employment—

(a)with the employer company, or

(b)if it is a member of a group of companies, with any member of that group,

those options are to be treated for the purposes of this paragraph as if they were unexercised qualifying options.

(5)A “CSOP option” is an option to acquire shares under a scheme approved under Schedule 4 (CSOP schemes).

(6)For the purposes of this paragraph—

(a)“the value” of shares in respect of which a particular share option is or has been granted means the market value, at the time when the option is or was granted, of issued shares of the same class as those that may be acquired by exercise of the option; and

(b)a share option is to be treated as granted in respect of the maximum number of shares that may be acquired under it.

(7)For the purposes of this paragraph the market value of shares subject to restrictions or risk of forfeiture is to be determined as if there were no such restriction or risk.

(8)Shares are “subject to risk of forfeiture” if the interest that may be acquired is only conditional within the meaning of section 424 (conditional interests in shares).

Maximum entitlement of employee: further limit of 3 years

6(1)Sub-paragraph (2) applies if an employee (“E”) has already been granted, by reason of E’s employment with one company, qualifying options in respect of shares with a total value of £100,000.

(2)Any further option granted by reason of E’s employment—

(a)with that company, or

(b)if it is a member of a group of companies, with any member of that group,

within the 3-year restriction period cannot be a qualifying option.

(3)Sub-paragraph (4) applies if an employee (“E”) has already been granted, by reason of E’s employment with two or more companies which are members of the same group of companies, qualifying options in respect of shares with a total value of £100,000.

(4)Any further option granted, by reason of E’s employment with any member of that group, within the 3-year restriction period cannot be a qualifying option.

(5)Sub-paragraph (2) or (4) applies whether or not the qualifying options already granted have been exercised or released.

(6)In those sub-paragraphs “the 3-year restriction period” means the period of three years after the date of the grant of the last qualifying option.

(7)Paragraph 5(6) to (8) (determination of value of shares) apply for the purposes of this paragraph as they apply for the purposes of paragraph 5.

Maximum value of options in respect of relevant company’s shares

7(1)The total value of shares in the relevant company in respect of which unexercised qualifying options exist must not exceed £3 million.

(2)A share option cannot be a qualifying option if the limit in sub-paragraph (1) is already exceeded at the time when it is granted.

(3)If the grant of a share option causes that limit to be exceeded, the option cannot be a qualifying option so far as it relates to the excess.

(4)If the grant of two or more options at the same time causes that limit to be exceeded, sub-paragraph (5) applies.

(5)For the purpose of determining which part of each option relates to the excess, the amount of the excess is to be divided pro rata among the options according to the value of the shares in respect of which each option was granted.

(6)Paragraph 5(6) to (8) (determination of value of shares) apply for the purposes of this paragraph as they apply for the purposes of paragraph 5.

Part 3Qualifying companies

Qualifying companies: introduction

8A “qualifying company” is a company in relation to which the requirements of this Part of this Schedule as to the following are met at the appropriate time—

  • independence (see paragraph 9),

  • having only qualifying subsidiaries (see paragraphs 10 and 11),

  • gross assets (see paragraph 12), and

  • trading activities (see paragraphs 13 and 14, read with paragraphs 15 to 23).

The independence requirement

9(1)The independence requirement consists of two conditions.

(2)The first condition is that the company is not—

(a)a 51% subsidiary of another company, or

(b)a company which is under the control of—

(i)another company, or

(ii)another company and any other person connected with that other company,

without being a 51% subsidiary of that other company.

(3)The second condition is that no arrangements are in existence by virtue of which the company could become such a subsidiary or fall under such control.

(4)Arrangements with a view to a qualifying exchange of shares (see paragraph 40) do not count for the purposes of the second condition.

The qualifying subsidiaries requirement

10(1)A company that has one or more subsidiaries is not a qualifying company unless every subsidiary of the company is a qualifying subsidiary (see paragraph 11).

(2)For this purpose—

(a)“subsidiary” means any company which the company controls, either on its own or together with any person connected with it, and

(b)the question whether a person controls a company is to be determined in accordance with section 416(2) to (6) of ICTA (“control” in the context of close companies).

Meaning of “qualifying subsidiary”

11(1)A company (“the subsidiary”) is a qualifying subsidiary of a company (“the holding company”) if the following conditions are met.

(2)The conditions are—

(a)that the holding company possesses not less than 75% of the issued share capital of, and not less than 75% of the voting power in, the subsidiary;

(b)that the holding company would—

(i)in the event of a winding up of the subsidiary, or

(ii)in any other circumstances,

be beneficially entitled to receive not less than 75% of the assets of the subsidiary which would then be available for distribution to the shareholders of the subsidiary;

(c)that the holding company is beneficially entitled to not less than 75% of any profits of the subsidiary which are available for distribution to the shareholders of the subsidiary;

(d)that no person other than the holding company has control of the subsidiary; and

(e)that no arrangements are in existence by virtue of which the conditions in paragraphs (a) to (d) would cease to be met.

(3)In sub-paragraph (2) any reference to the holding company is to be read as a reference to—

(a)the holding company by itself,

(b)the holding company and one or more other subsidiaries of the holding company, or

(c)one or more other subsidiaries of the holding company.

(4)Sub-paragraph (5) applies at a time when the subsidiary or another company is being wound up.

(5)The subsidiary is not to be regarded as having ceased, on account of the winding up, to be a company in relation to which the conditions in sub-paragraph (2) are met if—

(a)the conditions in that sub-paragraph would be met apart from the winding up, and

(b)the winding up is for commercial reasons and is not part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax.

(6)Sub-paragraph (7) applies at a time when arrangements are in existence for the disposal by—

(a)the holding company, or

(b)another subsidiary of the holding company,

of all of its interest in the subsidiary.

(7)The subsidiary is not to be regarded as having ceased, on account of those arrangements, to be a company in relation to which the conditions in sub-paragraph (2) are met if the disposal is to be for commercial reasons and is not to be part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax.

The gross assets requirement

12(1)The gross assets requirement in the case of a single company is that the value of the company’s gross assets does not exceed £30 million.

(2)The gross assets requirement in the case of a parent company is that the value of the group assets does not exceed £30 million.

(3)The “value of the group assets” means the aggregate of the values of the gross assets of each of the members of the group, disregarding any that consist in rights against, or shares in or securities of, another member of the group.

The trading activities requirement: single company

13(1)The trading activities requirement in the case of a single company is that the company—

(a)disregarding any purposes within sub-paragraph (2), exists wholly for the purpose of carrying on one or more qualifying trades, and

(b)is carrying on a qualifying trade or preparing to do so.

(2)The purposes referred to in sub-paragraph (1)(a) are—

(a)the holding and managing of property used by the company for one or more qualifying trades carried on by it, and

(b)any purposes having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities.

(3)This paragraph is supplemented by paragraph 15 (meaning of “qualifying trade”) read with paragraphs 16 to 23 (excluded activities).

The trading activities requirement: parent company

14(1)The trading activities requirement in the case of a parent company is that—

(a)at least one group company—

(i)disregarding any purposes within sub-paragraph (4), exists wholly for the purpose of carrying on one or more qualifying trades, and

(ii)is carrying on a qualifying trade or preparing to do so, and

(b)the business of the group does not consist (either wholly or as to a substantial part) in the carrying on of non-qualifying activities.

(2)The “business of the group” means what would be the business of the group if the activities of the group companies taken together were regarded as one business.

(3)For the purpose of determining the business of a group, activities of a group company are to be disregarded to the extent that they consist in—

(a)the holding of shares in or securities of, or the making of loans to, another group company,

(b)the holding and managing of property used by a group company for the purposes of one or more qualifying trades carried on by a group company, or

(c)incidental activities of a company which meets the trading activities requirement for a single company (see paragraph 13).

(4)The purposes referred to in sub-paragraph (1)(a)(i) are—

(a)the carrying on of any activities within sub-paragraph (3), and

(b)any purposes having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities.

(5)In this paragraph—

(a)“group company” means any member of the group;

(b)“incidental activities” means activities carried on in pursuance of purposes having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities;

(c)“non-qualifying activities” means—

(i)excluded activities, or

(ii)activities carried on otherwise than in the course of a trade.

(6)This paragraph is supplemented by paragraph 15 (meaning of “qualifying trade”) read with paragraphs 16 to 23 (excluded activities).

Meaning of “qualifying trade”

15(1)A trade is a qualifying trade if—

(a)it is carried on wholly or mainly in the United Kingdom,

(b)it is conducted on a commercial basis and with a view to the realisation of profits, and

(c)it does not consist (either wholly or as to a substantial part) in the carrying on of excluded activities.

(2)The carrying on of activities of research and development from which it is intended that a connected qualifying trade will be derived or benefit counts as the carrying on of a qualifying trade.

(3)But preparing to carry on such activities does not count as preparing to carry on a qualifying trade.

(4)In sub-paragraph (2) “connected qualifying trade” means a qualifying trade carried on—

(a)by the company carrying on the activities of research and development, or

(b)if that company is a member of a group, by any other member of the group.

Excluded activities

16The following are excluded activities—

(a)dealing in land, in commodities or futures or in shares, securities or other financial instruments;

(b)dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution (see also paragraph 17);

(c)banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities;

(d)leasing, including letting ships on charter or other assets on hire (see also paragraph 18);

(e)receiving royalties or licence fees (see also paragraph 19);

(f)providing legal or accountancy services;

(g)property development (see also paragraph 20);

(h)farming or market gardening;

(i)holding, managing or occupying woodlands, any other forestry activities or timber production;

(j)operating or managing hotels or comparable establishments, or managing property used as a hotel or comparable establishment (see also paragraph 21);

(k)operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home (see also paragraph 22);

(l)any activities which are excluded activities under paragraph 23.

Excluded activities: wholesale and retail distribution

17(1)This paragraph supplements paragraph 16(b).

(2)A trade of wholesale distribution is one in which the goods are offered for sale and sold to persons—

(a)for resale by them, or

(b)for processing and resale by them,

to members of the general public for their use or consumption.

(3)A trade of retail distribution is one in which the goods are offered for sale and sold to members of the general public for their use or consumption.

(4)A trade is not an ordinary trade of wholesale or retail distribution if—

(a)it consists, to a substantial extent—

(i)in dealing in goods of a kind which are collected or held as an investment, or

(ii)in that activity and any other excluded activity taken together, and

(b)a substantial proportion of those goods are held by the company for a period which is significantly longer than the period for which a vendor would reasonably be expected to hold them while endeavouring to dispose of them at their market value.

(5)In determining whether a trade carried on by any person (“P”) is an ordinary trade of wholesale or retail distribution, consideration must be given to the extent to which it has the following features—

(a)the goods are bought by P in quantities larger than those in which P sells them;

(b)the goods are bought and sold by P in different markets;

(c)P employs staff and incurs expenses in the trade in addition—

(i)to the cost of the goods, and

(ii)in the case of a trade carried on by a company, to any remuneration paid to any person connected with it;

(d)there are purchases or sales from or to persons who are connected with P;

(e)purchases are matched with forward sales or vice versa;

(f)the goods are held by P for longer than is normal for goods of the kind in question;

(g)the trade is carried on otherwise than at a place or places commonly used for wholesale or retail trade;

(h)P does not take physical possession of the goods.

(6)The features in sub-paragraph (5)(a) to (c) are indications that the trade is such an ordinary trade.

(7)Those in sub-paragraph (5)(d) to (h) are indications to the contrary.

Excluded activities: leasing of certain ships

18(1)This paragraph supplements paragraph 16(d) so far as it relates to the leasing of ships other than oil rigs or pleasure craft.

(2)In the following provisions “ship” accordingly means a ship other than an oil rig or a pleasure craft.

(3)If the requirements of sub-paragraph (4) are met, a trade is not to be regarded as consisting in the carrying on of excluded activities within paragraph 16(d) as a result only of its consisting in the letting of ships on charter.

(4)The requirements of this sub-paragraph are that—

(a)every ship let on charter by the company carrying on the trade is beneficially owned by the company;

(b)every ship beneficially owned by the company is registered in the United Kingdom;

(c)the company is solely responsible for arranging the marketing of the services of its ships; and

(d)the conditions mentioned in sub-paragraph (5) are satisfied in relation to every letting of a ship on charter by the company.

(5)The conditions are that—

(a)the letting is for a period not exceeding 12 months and no provision is made at any time (in the charterparty or otherwise) for extending it beyond that period otherwise than at the option of the charterer;

(b)during the period of the letting there is no provision in force (as a result of being contained in the charterparty or otherwise) for the grant of a new letting to end, otherwise than at the option of the charterer, more than 12 months after that provision is made;

(c)the letting is by way of a bargain made at arm’s length between the company and a person who is not connected with it;

(d)under the terms of the charter the company is responsible as principal—

(i)for taking, throughout the period of the charter, management decisions in relation to the ship, other than those of a kind generally regarded by persons engaged in trade of the kind in question as matters of husbandry, and

(ii)for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses, other than those directly incidental to a particular voyage or to the employment of the ship during that period; and

(e)no arrangements exist as a result of which a person other than the company may be appointed to be responsible for the matters mentioned in paragraph (d) on behalf of the company.

(6)If in the case of a letting by the company carrying on the trade (“the letting company”) the charterer is also a company and—

(a)the charterer is a qualifying subsidiary of the letting company, or

(b)the letting company is a qualifying subsidiary of the charterer, or

(c)both companies are qualifying subsidiaries of a third company,

sub-paragraph (5) has effect with the omission of paragraph (c).

(7)Where any of the requirements in sub-paragraph (4) is not met in relation to any lettings, the trade is not, as a result, to be treated as consisting in the carrying on of excluded activities if those lettings and any other excluded activities do not, taken together, amount to a substantial part of the trade.

(8)In this paragraph—

  • “oil rig” means any ship which is an offshore installation for the purposes of the Mineral Workings (Offshore Installations) Act 1971 (c. 61); and

  • “pleasure craft” means any ship of a kind primarily used for sport or recreation.

Excluded activities: receipt of royalties or licence fees

19(1)This paragraph supplements paragraph 16(e) (receipt of royalties or licence fees).

(2)If the requirement of sub-paragraph (3) is met, a trade is not to be regarded as consisting in the carrying of excluded activities within paragraph 16(e) as a result only of its consisting to a substantial extent in the receiving of royalties or licence fees.

(3)The requirement of this sub-paragraph is that the royalties or licence fees (or all of them except for a part that is not substantial in terms of value) are attributable to the exploitation of relevant intangible assets.

(4)For this purpose a “relevant intangible asset” is an intangible asset the whole or greater part of which (in terms of value) has been created—

(a)by the company carrying on the trade, or

(b)by a company which, for the whole of the period during which it created the asset, was—

(i)the parent company of the company carrying on the trade, or

(ii)a qualifying subsidiary of that parent company.

(5)In the case of an intangible asset which is intellectual property, any reference in sub-paragraph (4) to the creation of the asset by a company is to its creation in circumstances in which the right to exploit it vests in the company (either alone or jointly with others).

(6)In sub-paragraph (5) “intellectual property” means—

(a)any patent, trade mark, registered design, copyright, design right, performer’s right or plant breeder’s right; or

(b)any rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a).

(7)In this paragraph “intangible asset” means any asset which falls to be treated as an intangible asset in accordance with generally accepted accounting practice.

Excluded activities: property development

20(1)This paragraph supplements paragraph 16(g).

(2)“Property development” means the development of land—

(a)by a company which has, or at any time has had, an interest in the land, and

(b)with the sole or main object of realising a gain from the disposal of an interest in the land when it is developed.

(3)For this purpose “interest in land” means—

(a)any estate, interest or right in or over land, including any right affecting the use or disposition of land, or

(b)any right to obtain such an estate, interest or right from another which is conditional on the other’s ability to grant it.

(4)References in this paragraph to an interest in land do not, however, include—

(a)the interest of a creditor (other than a creditor in respect of a rentcharge) whose debt is secured by way of mortgage, an agreement for a mortgage or a charge of any kind over land, or

(b)in the case of land in Scotland, the interest of a creditor in a charge or security of any kind over land.

Excluded activities: hotels and comparable establishments

21(1)This paragraph supplements paragraph 16(j).

(2)A “comparable establishment” means a guest house, hostel or other establishment offering overnight accommodation.

(3)An establishment offers overnight accommodation if the main purpose of maintaining it is the provision of facilities for such accommodation (with or without catering services).

(4)The activities of a person are not to be taken to fall within paragraph 16(j) unless that person has an estate or interest in, or is in occupation of, the hotel or comparable establishment in question.

Excluded activities: nursing homes and residential care homes

22(1)This paragraph supplements paragraph 16(k).

(2)“Nursing home” means an establishment that exists wholly or mainly for the provision of nursing care—

(a)for persons suffering from sickness, injury or infirmity, or

(b)for women who are pregnant or have given birth to children.

(3)“Residential care home” means an establishment that exists wholly or mainly for the provision of residential accommodation, together with board and personal care, for persons in need of personal care by reason of—

(a)old age,

(b)mental or physical disability,

(c)past or present dependence on alcohol or drugs,

(d)any past illness, or

(e)past or present mental disorder.

(4)The activities of a person are not to be taken to fall within paragraph 16(k) unless that person has an estate or interest in, or is in occupation of, the nursing home or residential care home in question.

Excluded activities: provision of facilities for another business

23(1)This paragraph applies where a company (“the service provider”) provides services or facilities for a business carried on by another person.

(2)Providing those services or facilities is an excluded activity if—

(a)the business consists to a substantial extent in carrying on excluded activities within any of sub-paragraphs (a) to (k) of paragraph 16, and

(b)a controlling interest in the business is held by a person (other than a company of which the service provider is a subsidiary) who also has a controlling interest in the business carried on by the service provider.

(3)Sub-paragraphs (4) to (6) explain what is meant by a controlling interest in a business for the purposes of sub-paragraph (2)(b).

(4)In the case of a business carried on by a company, a person (“P”) has a controlling interest in the business if—

(a)P controls the company,

(b)the company is a close company and P, or an associate of P's, is a director of the company and either—

(i)is the beneficial owner of more than 30% of the ordinary share capital of the company, or

(ii)is able (directly or through the medium of other companies or by any other indirect means) to control more than 30% of that share capital, or

(c)not less than half of the business could, in accordance with section 344(2) of ICTA (company reconstructions: supplemental), be regarded as belonging to him for the purposes of section 343 of that Act (company reconstructions without a change of ownership).

(5)In any other case, a person has a controlling interest in a business if that person is entitled to not less than half—

(a)of the assets used for the business, or

(b)of the income arising from it.

(6)For the purposes of sub-paragraph (4)(a) the question whether a person controls a company is to be determined in accordance with section 416(2) to (6) of ICTA (“control” in the context of close companies).

(7)For the purposes of this paragraph any rights or powers of a person who is an associate of another person are to be attributed to that other person.

(8)In this paragraph—

  • “associate” has the meaning given in section 417(3) and (4) of ICTA (expressions relating to close companies), except that in those subsections as they apply for the purposes of this paragraph “relative” does not include a brother or sister;

  • “business” includes any trade, profession or vocation;

  • “director” is to be construed in accordance with section 417(5) of ICTA (expressions relating to close companies).

Part 4Eligible employees

Eligible employees: introduction

24An individual is an “eligible employee” in relation to the relevant company if the requirements of this Part of this Schedule as to the following are met at the appropriate time—

  • employment (see paragraph 25),

  • commitment of working time (see paragraphs 26 and 27), and

  • having no material interest (see paragraphs 28 to 33).

The employment requirement

25To be an eligible employee in relation to the relevant company an individual must be an employee—

(a)of that company, or

(b)if that company is a parent company, of that company or a qualifying subsidiary of that company.

The requirement as to commitment of working time

26(1)For an individual (“the employee”) to be an eligible employee in relation to the relevant company the average amount per week of the employee’s committed time must equal or exceed the statutory threshold, that is—

(a)25 hours a week, or

(b)if less, 75% of the employee’s working time (see paragraph 27).

(2)The employee’s “committed time” means the time that the employee is required, as an employee in relevant employment, to spend—

(a)on the business of the relevant company, or

(b)if the relevant company is a parent company, on the business of the group.

(3)It includes any time which the employee would have been required to spend as mentioned in sub-paragraph (2) but for—

(a)injury, ill-health or disability,

(b)pregnancy, childbirth, maternity or paternity leave or parental leave,

(c)reasonable holiday entitlement, or

(d)not being required to work during a period of notice of termination of employment.

(4)In this paragraph “relevant employment” means employment—

(a)by the relevant company, or

(b)where the relevant company is a parent company, by any member of the group.

Meaning of “working time”

27(1)In paragraph 26 “working time” means—

(a)time spent on remunerative work as an employee or self-employed person, or

(b)time which would have been so spent but for any of the reasons set out in paragraph 26(3)(a) to (d).

(2)In sub-paragraph (1)(a) “remunerative work”, in the context of work undertaken as an employee, means work the earnings from which—

(a)are general earnings to which section 15 or 21 applies (earnings for year when employee resident or ordinarily resident in the United Kingdom), or

(b)would be general earnings within paragraph (a) if the employee were resident and ordinarily resident in the United Kingdom.

(3)In sub-paragraph (1)(a) “remunerative work”, in the context of work undertaken as a self-employed person, means work which is undertaken with a view to profit and the profits (if any) from which—

(a)are (or would be) chargeable to tax under Case I or II of Schedule D, or

(b)would be so chargeable if the employee were resident and ordinarily resident in the United Kingdom.

The “no material interest” requirement

28(1)An individual is not an eligible employee in relation to the relevant company if the individual has a material interest—

(a)in that company, or

(b)if that company is a parent company, in any member of the group.

(2)For the purposes of this paragraph an individual is to be regarded as having a material interest in a company if—

(a)the individual,

(b)the individual together with one or more of the individual’s associates, or

(c)any such associate, with or without any other such associates,

has a material interest in the company.

(3)This paragraph is supplemented—

(a)as regards the meaning of “material interest”, by paragraphs 29 and 30; and

(b)as regards the meaning of “associate” by paragraph 31 (read with paragraphs 32 and 33).

Meaning of “material interest”

29(1)In paragraph 28 (the “no material interest” requirement) references to a “material interest” in a company are to—

(a)a material interest in the share capital of the company, or

(b)where it is a close company, a material interest in its assets.

(2)A material interest in the share capital of a company means—

(a)beneficial ownership of, or

(b)the ability to control (directly or through the medium of other companies or by any other indirect means),

more than 30% of the ordinary share capital of the company.

(3)A material interest in the assets of a close company means—

(a)possession of, or

(b)an entitlement to acquire,

such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive more than 30% of the assets that would then be available for distribution among the participators.

(4)In this paragraph—

  • “close company” includes a company that would be a close company but for—

    (a)

    section 414(1)(a) of ICTA (exclusion of companies not resident in the United Kingdom), or

    (b)

    section 415 of ICTA (exclusion of certain quoted companies);

  • “participator” has the meaning given by section 417(1) of ICTA (expressions relating to close companies).

(5)This paragraph is supplemented by paragraph 30 (options and interests in SIPs).

Material interest: options and interests in SIPs

30(1)This paragraph applies for the purposes of paragraph 29 (meaning of “material interest”).

(2)A right to acquire shares (however arising) is to be treated as a right to control them.

(3)However, shares that an individual may acquire under a qualifying option are to be left out of account until such time as they are actually acquired.

(4)Sub-paragraph (5) applies in a case where—

(a)the shares to be attributed to an individual consist of or include shares which the individual or another person has a right to acquire, and

(b)the circumstances are such that, if that right were to be exercised, the shares acquired would be shares which were previously unissued and which the company would be contractually bound to issue in the event of the exercise of the right.

(5)In determining at any time prior to the exercise of the right whether the number of shares to be attributed to the individual exceeds 30% of the ordinary share capital of the company, that ordinary share capital is to be treated as increased by the number of unissued shares referred to in sub-paragraph (4)(b).

(6)The references in sub-paragraphs (4) and (5) to the shares to be attributed to an individual are to the shares which—

(a)for the purposes of paragraph 29(2) (material interest in share capital), and

(b)in accordance with paragraph 28(2) (material interest can consist of or include that of individual’s associates),

fall to be brought into account in the individual’s case so that it can be determined whether their number exceeds 30% of the company’s ordinary share capital.

(7)In applying paragraph 29 the following are to be disregarded—

(a)the interest of the trustees of any share incentive plan approved under Schedule 2 (SIPs) in any shares which are held by them in accordance with the plan but which have not been appropriated to, or acquired on behalf of, an individual, and

(b)any rights exercisable by the trustees as a result of that interest.

Meaning of “associate”

31(1)In paragraph 28(2) (the “no material interest” requirement) “associate”, in relation to an individual, means—

(a)any relative or partner of that individual,

(b)the trustee or trustees of any settlement in relation to which that individual, or any of that individual’s relatives (living or dead), is or was a settlor, and

(c)where that individual is interested in any shares or obligations of the company mentioned in paragraph 28(2) which are subject to any trust, or are part of the estate of a deceased person—

(i)the trustee or trustees of the settlement concerned, or

(ii)the personal representatives of the deceased,

as the case may be.

(2)Sub-paragraph (1)(c) needs to be read with paragraphs 32 and 33 (which relate to employee benefit trusts and discretionary trusts).

(3)In this paragraph—

  • “relative” means—

    (a)

    spouse, or

    (b)

    parent, child or remoter relation in the direct line;

  • “settlor” and “settlement” have the same meaning as in Chapter 1A of Part 15 of ICTA (see section 660G(1) and (2)).

Meaning of “associate”: trustees of employee benefit trust

32(1)This paragraph applies for the purposes of paragraph 31(1)(c) (meaning of “associate”: trustees of settlement) where the individual is interested as a beneficiary of an employee benefit trust in shares or obligations of the company mentioned in paragraph 28(2).

(2)The trustees of the employee benefit trust are not to be regarded as associates of the beneficiary by reason only of the individual’s being so interested if neither—

(a)the individual, nor

(b)the individual together with one or more of the individual’s associates, nor

(c)any such associate, with or without any other such associates,

has at any time after 13th March 1989 been the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 30% of the ordinary share capital of the company.

(3)In sub-paragraph (2)(b) and (c) “associate” has the meaning given by paragraph 31(1), but does not include the trustees of an employee benefit trust as a result only of the individual’s having an interest in shares or obligations of the trust.

(4)Chapter 11 of Part 7 of this Act (which deals with the attribution of interests in companies to beneficiaries of employee benefit trusts) applies for the purposes of sub-paragraph (2).

(5)In this paragraph “employee benefit trust” has the same meaning as in that Chapter (see sections 550 and 551).

Meaning of “associate”: trustees of discretionary trust

33(1)This paragraph applies for the purposes of paragraph 31(1)(c) (meaning of “associate”: trustees of settlement) where—

(a)the individual (“the beneficiary”) is one of the objects of a discretionary trust,

(b)the property subject to the trust has at any time consisted of or included shares or obligations of the company mentioned in paragraph 28(2),

(c)the beneficiary has ceased to be eligible to benefit under the trust as a result of—

(i)an irrevocable disclaimer or release executed by the beneficiary, or

(ii)the irrevocable exercise by the trustees of a power to exclude the beneficiary from the objects of the trust,

(d)immediately after the beneficiary ceased to be so eligible, no associate of the beneficiary was interested in the shares or obligations of the company which were subject to the trust, and

(e)during the period of 12 months ending with the date on which the beneficiary ceased to be so eligible, neither the beneficiary nor any associate of the beneficiary received any benefit under the trust.

(2)The beneficiary is not, as a result only of the matters mentioned in sub-paragraph (1)(a) and (b), to be regarded as having been interested in the shares or obligations of the company at any time during that period of 12 months.

(3)In sub-paragraph (1) “associate” has the meaning given by paragraph 31, but with the omission of sub-paragraph (1)(c) of that paragraph (trusts and estates).

Part 5Requirements relating to options

Requirements relating to options: introduction

34A share option is not a qualifying option unless the requirements of this Part of this Schedule as to the following are met at the appropriate time—

  • the type of shares that may be acquired (see paragraph 35),

  • when the option is capable of being exercised (see paragraph 36),

  • the terms being agreed in writing (see paragraph 37), and

  • the non-assignability of rights (see paragraph 38).

Type of shares that may be acquired

35(1)The option must confer a right to acquire shares that—

(a)form part of the ordinary share capital of the relevant company,

(b)are fully paid up, and

(c)are not redeemable.

(2)Shares are not fully paid up for the purposes of sub-paragraph (1)(b) if there is any undertaking to pay cash to the relevant company at a future date.

(3)For the purposes of sub-paragraph (1)(c) “redeemable” shares include shares that may become redeemable at a future date.

Option to be capable of exercise within 10 years

36(1)The option must be capable of being exercised within the period of 10 years beginning with the date on which it is granted.

(2)Where the exercise of the option is dependent on the fulfilment of conditions, the option is to be taken to be capable of being exercised within the period mentioned in sub-paragraph (1) if the conditions may be fulfilled within that period.

Terms of option to be agreed in writing

37(1)The option must take the form of a written agreement between the person granting the option and the employee which meets the following requirements.

(2)The agreement must state—

(a)the date on which the option is granted;

(b)that it is granted under the provisions of this Schedule;

(c)the number, or maximum number, of shares that may be acquired;

(d)the price (if any) payable by the employee to acquire them, or the method by which that price is to be determined; and

(e)when and how the option may be exercised.

(3)The agreement must set out any conditions, such as performance conditions, affecting the terms or extent of the employee’s entitlement.

(4)The agreement must contain details of any restrictions attaching to the shares.

(5)Where the shares that may be acquired by the employee are subject to risk of forfeiture, the agreement must contain details of the conditions.

(6)For the purposes of sub-paragraph (5) shares are “subject to risk of forfeiture” if the interest that may be acquired is only conditional within the meaning of section 424 (conditional interests in shares).

Non-assignability of rights

38The terms on which the option is granted—

(a)must prohibit the person to whom it is granted from transferring any of that person’s rights under it, and

(b)if they permit it to be exercised after that person’s death, must not permit it to be exercised more than one year after the date of the death.

Part 6Company reorganisations

Company reorganisations: introduction

39(1)This Part applies in connection with company reorganisations.

(2)For the purposes of this Part there is a “company reorganisation” where a company (“the acquiring company”)—

(a)obtains control of a company whose shares are subject to an outstanding qualifying option—

(i)as a result of making a general offer to acquire the whole of the issued share capital of that company which is made on a condition such that, if it is met, the person making the offer will have control of the company, or

(ii)as a result of making a general offer to acquire all the shares in the company which are of the same class as those to which the option relates;

(b)obtains control of such a company as a result of a compromise or arrangement sanctioned by the court under—

(i)section 425 of the Companies Act 1985 (c. 6) (power to compromise with creditors and members), or

(ii)Article 418 of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)) (corresponding provision for Northern Ireland);

(c)becomes bound or entitled under—

(i)sections 428 to 430 of that Act (power to acquire shares of shareholders dissenting from schemes or contract approved by majority), or

(ii)Articles 421 to 423 of that Order (corresponding provision for Northern Ireland),

to acquire shares of the same class as shares that are subject to an outstanding qualifying option; or

(d)obtains all the shares of a company whose shares are subject to an outstanding qualifying option as a result of a qualifying exchange of shares (see paragraph 40).

(3)In sub-paragraph (2) “outstanding qualifying option” means a qualifying option that has yet to be exercised.

Meaning of “qualifying exchange of shares”

40(1)For the purposes of the EMI code there is a “qualifying exchange of shares” where—

(a)arrangements are made in accordance with which a company (“the new company”) acquires all the shares (“old shares”) in another company (“the old company”), and

(b)the following conditions are met.

(2)The conditions are that—

(a)the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company;

(b)new shares are issued in consideration of old shares only at times when there are no issued shares in the new company other than—

(i)subscriber shares, and

(ii)new shares previously issued in consideration of old shares;

(c)the consideration for new shares of each description consists wholly of old shares of the corresponding description;

(d)new shares of each description are issued to holders of old shares of the corresponding description in respect of, and in proportion to, their holdings; and

(e)by virtue of the CGT capital reorganisation provisions, the exchange of shares is not treated as involving a disposal of the old shares or an acquisition of the new shares.

(3)For the purposes of this paragraph old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights.

(4)In this paragraph—

(a)references to “shares”, except in the expression “subscriber shares”, include securities; and

(b)“the CGT capital reorganisation provisions” means section 127 of TCGA 1992, as applied by section 135(3) of that Act (exchange of securities).

Grant of replacement option

41(1)This paragraph applies if both of the following conditions are met in connection with a company reorganisation.

(2)The first condition is that the holder of a qualifying option, by agreement with the acquiring company, releases the holder’s rights under that option (“the old option”) in consideration of the granting to him of rights (“the new option”) which are equivalent but relate to shares in the acquiring company.

(3)The second condition is that the requirements of the following paragraphs are met—

  • paragraph 42 (period within which replacement option must be granted), and

  • paragraph 43 (further requirements to be met as to replacement option).

(4)If this paragraph applies, the new option is to be treated for the purposes of the EMI code as a “replacement option”.

(5)Except where the contrary is indicated—

(a)references in the EMI code to a qualifying option include a replacement option, and

(b)a replacement option is to be treated for the purposes of the EMI code as if it had been granted on the date on which the old option was granted.

(6)For the purposes of any of paragraphs 5 to 7 or section 536(1)(e), the total value of the shares in the acquiring company that are subject to the replacement option is to be taken to be equal to—

(a)the total value (as calculated in accordance with paragraph 5(6) to (8)) of the shares that were subject to the old option immediately before the release of rights under that option, or

(b)if the replacement option has been partially exercised, the proportion of that total value which corresponds to the proportion which the number of shares that remain subject to the option bears to the number of shares that were subject to it at the time when it was granted as a new option (see sub-paragraph (2) above).

(7)In the EMI code references to “the old option” or “the new option” are to be construed in accordance with this paragraph.

Period within which replacement option must be granted

42(1)To qualify as a replacement option the new option must be granted within the required period (see sub-paragraphs (2) to (4)).

(2)If the company reorganisation falls within paragraph 39(2)(a), the required period is the period of 6 months after the date on which—

(a)the person making the offer has obtained control of the company, and

(b)any condition subject to which the offer is made is met.

(3)If the company reorganisation falls within paragraph 39(2)(b) or (d), the required period is the period of 6 months after the date on which the acquiring company obtains control of the company whose shares are subject to the old option.

(4)If the company reorganisation falls within paragraph 39(2)(c), the required period is the period during which the acquiring company remains bound or entitled as mentioned in that provision.

Further requirements to be met as to replacement option

43(1)For the new option to qualify as a replacement option the following requirements must also be met.

(2)The new option must be granted to the holder of the old option by reason of the holder’s employment—

(a)with the acquiring company, or

(b)if that company is a parent company, with that company or another member of the group.

(3)The requirements of—

(a)paragraph 4 (purpose of granting option),

(b)paragraph 7 (maximum value of options in respect of relevant company) (as it has effect under sub-paragraph (4)), and

(c)Part 5 (requirements as to options),

must be met in relation to the new option at the time of the release of rights under the old option (“the relevant time”).

(4)For the purposes of paragraph 7 (as applied by sub-paragraph (3)(b)) the total value of the shares in the acquiring company that are subject to the new option is to be taken to be equal to the total value (as calculated in accordance with paragraph 5(6) to (8)) of the shares that were subject to the old option immediately before the relevant time.

(5)In addition to the requirements mentioned in sub-paragraph (3)—

(a)the independence requirement and the trading activities requirement must be met in relation to the acquiring company at the relevant time, and

(b)the individual to whom the new option is granted must be an eligible employee in relation to the acquiring company at that time.

(6)The total market value, immediately before the relevant time, of the shares which were subject to the old option must be equal to the total market value, immediately after the grant of the new option, of the shares in respect of which that option is granted.

(7)The total amount payable by the employee for the acquisition of the shares under the new option must be equal to the total amount that would have been payable for the acquisition of shares under the old option.

Part 7Notification of option to Inland Revenue

Notice of option to be given to Inland Revenue

44(1)For a share option to be a qualifying option, notice of the option must be given to the Inland Revenue within 92 days after the date of the grant of the option.

(2)The notice must—

(a)be given by the employer company, and

(b)be in a form required or authorised by the Inland Revenue.

(3)The notice must contain, or be supported by, such information as the Inland Revenue may require for the purpose of determining whether the requirements of this Schedule are met.

(4)The notice must also contain a declaration within each of sub-paragraphs (5) and (6).

(5)A declaration within this sub-paragraph is a declaration by a director, or the secretary, of the employer company—

(a)that in the opinion of that person the requirements of this Schedule are met in relation to the option, and

(b)that the information provided is, to the best of that person’s knowledge, correct and complete.

(6)A declaration within this sub-paragraph is a declaration by the individual to whom the option has been granted that the individual meets the requirement of paragraph 26 (commitment of working time) in relation to the option.

(7)Any reference in this Part of this Schedule to the requirements (or any of the requirements) of this Schedule being met in relation to a share option is a reference to the requirements or requirement being met in relation to it at the appropriate time.

Correction of notice by Inland Revenue

45(1)The Inland Revenue may amend a notice given under paragraph 44 so as to correct obvious errors or omissions in the notice.

(2)A correction under this paragraph must be made by a notice given to the employer company.

(3)No correction may be made under this paragraph more than 9 months after the day on which the notice under paragraph 44 was given to the Inland Revenue.

(4)A correction under this paragraph is of no effect if the employer company, within 3 months after the date of issue of the notice of correction, gives notice to the Inland Revenue rejecting the correction.

Notice of enquiry

46(1)This paragraph applies where notice of a share option is given under paragraph 44.

(2)The Inland Revenue may enquire into the option if they give notice to the employer company of their intention to do so in accordance with this paragraph.

(3)The Inland Revenue may enquire into whether the requirement of paragraph 26 (commitment of working time) is met in relation to the option by the individual to whom it has been granted if they give that individual notice of their intention to do so in accordance with this paragraph.

(4)The Inland Revenue must give a copy of a notice under sub-paragraph (3) to the employer company.

(5)Unless given by virtue of sub-paragraph (6), a notice of enquiry may not be given more than 12 months after the end of the period of 92 days mentioned in paragraph 44(1) (the period within which a notice under that paragraph must be given).

(6)A notice of enquiry may be given at any time if the Inland Revenue discover that any of the information provided in or in connection with the notice under paragraph 44 was false or misleading in a material respect.

(7)An option that has been the subject of one notice of enquiry under sub-paragraph (2) or (3) may not be the subject of another notice under that sub-paragraph, unless the notice is given by virtue of sub-paragraph (6).

(8)In this paragraph a “notice of enquiry” means a notice given under sub-paragraph (2) or (3).

Completion of enquiry: closure notices

47(1)An enquiry under paragraph 46(2) is completed when the Inland Revenue give the employer company a notice—

(a)informing the company that they have completed their enquiry, and

(b)stating their decision as to whether the requirements of this Schedule are met in relation to the option.

(2)If the Inland Revenue conclude that the requirements of this Schedule are not so met, they must also give notice of that decision to the person to whom the option has been granted.

(3)An enquiry under paragraph 46(3) is completed when the Inland Revenue give the individual concerned and the employer company a notice—

(a)informing the recipients that they have completed their enquiry, and

(b)stating their decision as to whether the requirement of paragraph 26 (commitment of working time) is met by that individual in relation to the option.

(4)References in the EMI code to a “closure notice” are to a notice under sub-paragraph (1) or (3).

(5)A closure notice takes effect when it is issued.

Completion of enquiry: application for closure notice to be given

48(1)An application may be made under this paragraph for a direction requiring the Inland Revenue to give a closure notice within a specified period.

(2)The application may be made—

(a)by the employer company, or

(b)in a case within paragraph 46(3), by the individual concerned.

(3)The application must be made—

(a)to the General Commissioners, or

(b)if the applicant so elects (in accordance with section 46(1) of TMA 1970), to the Special Commissioners.

(4)The Commissioners hearing the application must hear and determine it in the same way as an appeal.

(5)Those Commissioners must give a direction unless they are satisfied that the Inland Revenue have reasonable grounds for not giving a closure notice within a specified period.

Effect of enquiry

49(1)If the Inland Revenue do not give a notice of enquiry, the requirements of this Schedule are taken to be met in relation to the option.

(2)If the Inland Revenue do give a notice of enquiry, their decision stated in the closure notice is conclusive as to whether the requirements of this Schedule are met in relation to the option.

(3)But this is subject—

(a)if their decision is that the requirements are not met, to the outcome of any appeal against that decision under paragraph 50;

(b)if their decision is that the requirements are met, to the outcome of any subsequent enquiry under paragraph 46(6) (enquiry arising from discovery of false or misleading information).

(4)This paragraph does not affect the provisions of sections 532 to 539 (which relate to disqualifying events).

Appeals

50(1)The employer company may appeal against a decision of the Inland Revenue—

(a)that notice of the grant of the option was not given in accordance with paragraph 44, or

(b)that the requirements of this Schedule are not met in relation to the option.

(2)An individual may appeal against a decision of the Inland Revenue that the individual does not meet the requirement of paragraph 26 (commitment of working time).

(3)Notice of the appeal must be given to the Inland Revenue within 30 days after the date when the closure notice is given to the appellant.

(4)The appeal lies—

(a)to the General Commissioners, or

(b)if the employer company or individual so elects (in accordance with section 46(1) of TMA 1970), to the Special Commissioners.

Part 8Supplementary provisions

Power to require information

51(1)The Inland Revenue may by notice require a person to provide them with information—

(a)which they reasonably require for the performance of their functions under the EMI code, and

(b)which the person to whom the notice is addressed has or can reasonably obtain.

(2)The power conferred by this paragraph extends, in particular, to information to enable the Inland Revenue—

(a)to decide whether a share option is a qualifying option, or

(b)to determine the liability to tax, including capital gains tax, of any person who has been granted a qualifying option.

(3)The notice must require the information to be provided within a specified period, which must not end earlier than 3 months after the date when the notice is given.

Annual returns

52(1)A company whose shares are subject to a qualifying option at any time during a tax year must deliver a return to the Inland Revenue.

(2)The return must—

(a)contain such information as the Inland Revenue may require, and

(b)be made before 7th July in the tax year following that to which it relates.

Compliance with time limits

53(1)For the purposes of this Part and Part 7 a person is not to be regarded as having failed to do anything required to be done within a particular period of time if—

(a)the person had a reasonable excuse for not doing it within that period, and

(b)if the excuse ceased to exist, the person did it without unreasonable delay after the excuse ceased to exist.

(2)Where sub-paragraph (1)(b) applies, any further time limit running from the end of the period concerned is instead to run from the time when the thing in question was actually done.

Power to amend by Treasury order

54(1)The Treasury may by order amend the EMI code—

(a)to make such amendments of paragraphs 13 to 23 (the trading activities requirement and related provisions) as they consider expedient;

(b)to substitute different sums of money for those for the time being specified in—

(i)paragraphs 5(1) and 6(1) and (3) (maximum entitlement of employee);

(ii)paragraph 12(1) and (2) (the gross assets requirement).

(2)An order under sub-paragraph (1)(b) which amends paragraphs 5(1) and 6(1) and (3) may amend section 536(1)(e) (other disqualifying events) so as to substitute the same sum for the one that is for the time being specified there.

Meaning of “market value” of shares

55(1)For the purposes of the EMI code the “market value” of shares has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act.

(2)Sub-paragraph (1) is subject to paragraph 5(7) (valuation of shares subject to restriction or risk of forfeiture) as it applies for the purposes of any provision of the EMI code.

Determination of market value of shares

56(1)This paragraph applies to the determination of the market value of shares for the purposes of the EMI code.

(2)Unless—

(a)it is agreed between the employer company and the Inland Revenue, or

(b)a reference is made under sub-paragraph (4),

the market value of shares is to be determined by the Inland Revenue.

(3)Where the market value of shares on any date needs to be determined for the purposes of the EMI code, the Inland Revenue and the employer company may agree that it is to be determined by reference to a date or dates, or to the average of the values on a number of dates, stated in the agreement.

(4)At any time before notice of the Inland Revenue’s determination has been given to the employer company, the company may give the Inland Revenue a notice requiring the question of the market value of the shares to be referred to the Commissioners.

(5)Any reference under sub-paragraph (4) must be made—

(a)to the General Commissioners, or

(b)if the applicant so elects (in accordance with section 46(1) of TMA 1970), to the Special Commissioners.

(6)The Commissioners to whom the reference is made must determine it in the same way as an appeal.

Appeal against determination of market value of shares

57(1)The employer company may appeal against any determination by the Inland Revenue under paragraph 56.

(2)Notice of appeal must be given to the Inland Revenue within 30 days after the date when notice of their determination is given to the employer company.

(3)An appeal under this paragraph lies—

(a)to the General Commissioners, or

(b)if the applicant so elects (in accordance with section 46(1) of TMA 1970), to the Special Commissioners.

Minor definitions

58In the EMI code—

  • “arrangements” includes any scheme, agreement or understanding, whether it is legally enforceable or not;

  • “company” means a body corporate;

  • “group of companies” means a parent company and its 51% subsidiaries;

  • “the group”, in relation to a parent company, means that company and its 51% subsidiaries;

  • “parent company” means a company that has one or more 51% subsidiaries and “single company” means a company that does not;

  • “research and development” has the meaning given by section 837A of ICTA;

  • “shares” includes stock.

Index of defined expressions

59In the EMI code the following expressions are defined or otherwise explained by the provisions indicated below:

the appropriate timeparagraph 1(4)
arrangementsparagraph 58(1)
childsection 832(5) of ICTA, (and see section 721(6) of this Act)
close companysection 832(1) of ICTA, (and see paragraph 29(4))
closure noticeparagraph 47(4)
companyparagraph 58
company reorganisation (in Part 6 of this Schedule)paragraph 39(2)
connected personsection 718
controlsection 719 (and see paragraphs 10(2) and 23(6))
disqualifying eventsee sections 532 to 539
distributionsection 832(1) of ICTA
earningssection 62 and see section 721(7)
the EMI codesection 527(3)
employee and employmentsection 4
eligible employeeparagraph 24
employer companyparagraph 2
excluded activitiesparagraph 16
farmingsection 832(1) of ICTA
General Commissionerssection 2 of TMA 1970
generally accepted accounting practicesection 836A of ICTA
group of companiesparagraph 58
the groupparagraph 58
the Inland Revenuesection 720(1)
market valueparagraph 55 (and see paragraph 5(7))
met (in Part 7 of this Schedule)paragraph 44(7)
new optionparagraph 41(7)
noticesection 832(1) of ICTA
old optionparagraph 41(7)
ordinary share capitalsection 832(1) of ICTA
original optionsection 529(3)
parent companyparagraph 58
personal representativessection 721(1)
qualifying companyparagraph 8
qualifying optionsection 527(4) (and see paragraph 41(5))
qualifying subsidiaryparagraph 11
qualifying tradeparagraph 15
relevant companyparagraph 2
replacement optionsection 527(4)
the requirements of this Schedulesection 527(4)
research and developmentparagraph 58
share optionsection 527(4)
sharesparagraph 58 (and see paragraph 40(4)(a))
single companyparagraph 58
Special Commissionerssection 4 of TMA 1970
51% subsidiarysection 838(1) of ICTA
taxsection 832(3) of ICTA
tax yearsection 721(1)
tradesection 832(1) of ICTA
United Kingdomsection 830 of ICTA

Section 722

SCHEDULE 6Consequential Amendments

Part 1Income and Corporation Taxes Act 1988

1The Income and Corporation Taxes Act 1988 (c. 1) is amended as follows.

2(1)Amend section 1 (the charge to income tax) as follows.

(2)For subsection (1) substitute—

(1)Income tax is charged in accordance with the Income Tax Acts on—

(a)all amounts which, under those Acts, are charged to tax under any of Schedules A, D and F (set out in sections 15, 18 and 20),

(b)all amounts which are charged to tax under any of the following provisions of ITEPA 2003—

(i)Part 2 (employment income),

(ii)Part 9 (pension income), and

(iii)Part 10 (social security income), and

(c)any other amounts which, under the Income Tax Acts, are charged to income tax.

(3)In subsection (5A) for “section 203” substitute “PAYE regulations”.

3In section 4(1) (construction of references in Income Tax Acts to deduction of tax) for “in pursuance of section 203” substitute “under PAYE regulations”.

4In section 9(3) (computation of income for corporation tax: application of income tax principles)—

(a)for “the like Schedules and Cases as apply for purposes of income tax” substitute—

(a)Schedules A, D and F, and the Cases of those Schedules, as they apply for purposes of income tax, and

(b)the following provisions of ITEPA 2003 (which impose charges to income tax)—

(i)Part 2 (employment income),

(ii)Part 9 (pension income), and

(iii)Part 10 (social security income), and

(b)after “those Schedules and Cases” insert “and those Parts”.

5(1)Amend section 18 (Schedule D) as follows.

(2)In subsection (1), in paragraph (b) of Schedule D, for “or E” substitute “or under ITEPA 2003 as employment income, pension income or social security income”.

(3)In subsection (3)—

(a)in Case V for “income consisting of emoluments of any office or employment” substitute “employment income, pension income or social security income on which tax is charged under ITEPA 2003”;

(b)in Case VI for “or E” substitute “or by virtue of ITEPA 2003 as employment income, pension income or social security income”.

6Omit section 19 (Schedule E).

7In section 21A(2) (computation of amount chargeable)—

(a)for “sections 588 and 589” substitute “section 588”;

(b)for “sections 589A and 589B” substitute “section 589A”;

(c)for “1989 (deductions in respect of certain emoluments)” substitute “1989 (Schedule D: computation)”.

8Omit section 58 (foreign pensions).

9In section 65(2) (Cases IV and V assessments: general) omit “Subject to section 330,”.

10After section 68 insert—

68AShare incentive plans: application of section 68B

(1)Section 68B applies for income tax purposes in connection with shares awarded under an approved share incentive plan.

(2)But that section does not apply to an individual if, at the time of the award of shares in question—

(a)the earnings from the eligible employment are not (or would not be if there were any) general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 apply, or

(b)in the case of an award made before 6th April 2003, he was not chargeable to tax under Schedule E in respect of the employment by reference to which he met the requirement of paragraph 14 of Schedule 8 to the Finance Act 2000 (employee share ownership plans: the employment requirement) in relation to the plan.

(3)For the purposes of subsection (2)(a)—

(a)“the eligible employment” means the employment which results in the individual meeting the employment requirement in relation to the plan, and

(b)the reference to any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 has the same meaning as it has in the employment income Parts of that Act (see sections 14(3) and 20(3) of that Act).

68BShare incentive plans: cash dividends and dividend shares

(1)Where a cash dividend is paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not reinvested), the participant is chargeable to tax on the amount paid over, to the extent that it represents a foreign cash dividend, under Case V of Schedule D for the year of assessment in which the dividend is paid over to the participant.

(2)If dividend shares cease to be subject to the plan before the end of the period of three years beginning with the date on which the shares were acquired on the participant’s behalf, the participant is chargeable to tax on the amount of the relevant dividend, to the extent that it represents a foreign cash dividend, under Case V of Schedule D for the year of assessment in which the shares cease to be subject to the plan.

For this purpose “the relevant dividend” is the cash dividend applied to acquire those shares on the participant’s behalf.

(3)Where the participant is charged to tax under subsection (2) the tax due shall be reduced by the amount or aggregate amount of any tax paid on any capital receipts under section 501 of ITEPA 2003 in respect of those shares.

(4)Subsection (2) has effect subject to section 498 of that Act (no charge on shares ceasing to be subject to plan in certain circumstances).

68CShare incentive plans: interpretation

(1)Sections 68A and 68B and this section form part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).

(2)Accordingly, expressions used in those sections and contained in the index at the end of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.

(3)In section 68B, “foreign cash dividend” means a cash dividend paid in respect of plan shares in a company not resident in the United Kingdom.

11(1)Amend section 84A (costs of establishing share option or profit sharing schemes: relief from corporation tax) as follows.

(2)After subsection (3) insert—

(3A)In this section, “share option scheme” means—

(a)an SAYE option scheme within the meaning of the SAYE code (see section 516(4) of ITEPA 2003 (approved SAYE option schemes)), or

(b)a CSOP scheme within the meaning of the CSOP code (see section 521(4) of that Act (approved CSOP schemes)).

(3)In subsection (4), at the end add “to this Act or under Schedule 3 or 4 to ITEPA 2003 (approved SAYE option schemes and approved CSOP schemes)”.

12After section 85A insert—

85BApproved share incentive plans

Schedule 4AA (which provides for deductions relating to approved share incentive plans) shall have effect.

13(1)Amend section 86A (charitable donations: contributions to agent’s expenses) as follows.

(2)In subsection (1)(a) for “by virtue of section 203 and regulations under that section” substitute “under PAYE regulations”.

(3)In subsection (1)(b) for the words from “a scheme” to the end of the paragraph substitute “an approved scheme and pays the sums to an approved agent”.

(4)After subsection (1) insert—

(1A)In subsection (1)(b) “approved scheme” and “approved agent” have the same meaning as in section 714 of ITEPA 2003.

14Omit sections 131 to 134 (miscellaneous provisions relating to the Schedule E charge).

15Omit sections 135 to 137 (provisions relating to gains by directors and employees from share options).

16(1)Amend section 138 (share acquisitions by directors and employees) as follows.

(2)In subsection (1)(b) for “Schedule E” substitute “the employment income Parts of ITEPA 2003”.

(3)In subsection (4)(b) for “Case I of Schedule E” substitute “section 15 or 21 of ITEPA 2003 (earnings of employee resident and ordinarily resident in the UK)”.

17Omit section 140 (further interpretation of sections 135 to 139).

18Omit sections 140A to 140H (further provisions relating to share acquisitions by directors and employees).

19Omit sections 141 to 144 (vouchers and credit-tokens).

20Omit section 144A (payments received free of tax).

21Omit sections 145 to 147 (living accommodation).

22Omit sections 148 to 151A (payments on retirement, sick pay and certain social security benefits).

23For the sidenote to section 152 (notification of amount taxable under section 151) substitute “Notification of taxable amount of certain benefits”.

24Omit sections 153 to 159AC and sections 160 to 168G (employees earning £8,500 or more and directors: expenses and benefits in kind).

25Omit section 185 (approved share option schemes).

26(1)Amend section 186 (approved profit sharing schemes) as follows.

(2)In subsection (3)—

(a)omit “the participant shall be chargeable to income tax under Schedule E for the year of assessment in which the entitlement arises on”, and

(b)at the end add “counts as employment income of the participant for the year of assessment in which the entitlement arises”.

(3)In subsection (4)—

(a)omit “the participant shall be chargeable to income tax under Schedule E for the year of assessment in which the disposal takes place on”, and

(b)at the end add “counts as employment income of the participant for the year of assessment in which the disposal takes place”.

(4)In subsection (5)(a), for the words from “chargeable to income tax” to “those shares” substitute entitled to a capital receipt (within the meaning of subsection (3) above) which is referable to those shares and—

(i)an amount calculated by reference to that capital receipt counts as his employment income by virtue of subsection (3) above, or

(ii)if the entitlement to the capital receipt arose before 6th April 2003, he was chargeable to income tax by virtue of that subsection (as it had effect before that date) in respect of that capital receipt,.

27In section 187 (interpretation of sections 185 and 186 and Schedules 9 and 10) omit subsections (1) to (4), (6) and (7), except so far as relating to profit sharing schemes.

28Omit the following provisions (which give relief from income tax on various kinds of income)—

(a)section 187A;

(b)sections 189 to 198;

(c)sections 199 to 202.

29Omit sections 202A and 202B (assessment on receipts basis).

30Omit sections 203 to 204 (pay as you earn).

31Omit sections 205 and 206 (assessments).

32Omit section 206A (PAYE settlement agreements).

33Omit section 207 (disputes as to domicile or ordinary residence).

34After section 251 insert—

Approved share incentive plans

251AApplication of sections 251B and 251C

(1)Sections 251B and 251C apply for income tax purposes in connection with shares awarded under an approved share incentive plan.

(2)But those sections do not apply to an individual if, at the time of the award of shares in question—

(a)the earnings from the eligible employment are not (or would not be if there were any) general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 apply, or

(b)in the case of an award made before 6th April 2003, he was not chargeable to tax under Schedule E in respect of the employment by reference to which he met the requirement of paragraph 14 of Schedule 8 to the Finance Act 2000 (employee share ownership plans: the employment requirement) in relation to the plan.

(3)For the purposes of subsection (2)—

(a)“the eligible employment” means the employment which results in the individual meeting the employment requirement in relation to the plan, and

(b)the reference to any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 has the same meaning as it has in the employment income Parts of that Act (see sections 14(3) and 20(3) of that Act).

251BTreatment of cash dividend retained and then later paid out

(1)Where a cash dividend is paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not reinvested), the participant is chargeable to tax on the appropriate amount under Schedule F for the year of assessment in which the dividend is paid over.

(2)In subsection (1), the “appropriate amount” means the amount of the dividend paid over (except to the extent that it represents a foreign cash dividend).

(3)For the purposes of determining the tax credit (if any) to which the participant is entitled under section 231, the reference in subsection (1) of that section to the tax credit fraction in force when the distribution is made shall be read as a reference to the fraction in force when the dividend is paid over to the participant.

251CCharge on dividend shares ceasing to be subject to plan

(1)If dividend shares cease to be subject to the plan before the end of the period of three years beginning with the date on which the shares were acquired on the participant’s behalf, the participant is chargeable to tax on the appropriate amount under Schedule F for the year of assessment in which the shares cease to be subject to the plan.

(2)In subsection (1) “the appropriate amount” means the amount of the cash dividend applied to acquire the shares on the participant’s behalf (except to the extent that it represents a foreign cash dividend).

(3)For the purposes of determining the tax credit (if any) to which the participant is entitled under section 231, the reference in subsection (1) of that section to the tax credit fraction in force when the distribution is made shall be read as a reference to the fraction in force when the shares cease to be subject to the plan.

(4)Where the participant is charged to tax under this section the tax due shall be reduced by the amount or aggregate amount of any tax paid on any capital receipts under section 501 of ITEPA 2003 in respect of those shares.

(5)In subsection (4) “the tax due” means the amount of tax due after deduction of the tax credit determined under subsection (3).

(6)This section has effect subject to section 498 of ITEPA 2003 (no charge on shares ceasing to be subject to plan in certain circumstances).

251DInterpretation of sections 251A to 251C

(1)Sections 251A to 251C and this section form part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).

(2)Accordingly, expressions used in those sections and contained in the index at the end of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.

(3)In sections 251B and 251C “foreign cash dividend” means a cash dividend paid in respect of plan shares in a company not resident in the United Kingdom.

35In section 257C(2A) (indexation of amounts in sections 257 and 257A) for “section 203” substitute “PAYE regulations”.

36After section 266 insert—

266ALife assurance premiums paid by employer

(1)This section applies if—

(a)pursuant to a non-approved retirement benefits scheme, the employer in any year of assessment pays a sum with a view to the provision of any relevant benefits for or in respect of any employee of that employer, and

(b)the payment is made under such an insurance or contract as is mentioned in section 266.

This section applies whether or not the accrual of the relevant benefits is dependent on any contingency.

(2)Relief, if not otherwise allowable, shall be given to that employee under section 266 in respect of the payment to the extent, if any, to which such relief would have been allowable to him if—

(a)the payment had been made by him, and

(b)the insurance or contract under which the payment is made had been made with him.

(3)For the purposes of subsection (1)(a)—

(a)a retirement benefits scheme is “non-approved” unless it is—

(i)an approved scheme,

(ii)a relevant statutory scheme, or

(iii)a scheme set up by a government outside the United Kingdom for the benefit of its employees or primarily for their benefit, and

(b)benefits are provided in respect of an employee if they are provided for the employee’s spouse, widow or widower, children, dependants or personal representatives.

(4)Sections 611, 611A and 612 apply for the purposes of this section as they apply for the purposes of Chapter 1 of Part 14.

(5)Section 388 of ITEPA 2003 (apportionment of payments in respect of more than one employee) applies in relation to a sum within subsection (1) as it applies in relation to a sum within section 386 of that Act (charge on payments to non-approved retirement benefits schemes).

(6)This section does not apply in any case where either of the following provisions of ITEPA 2003 provides for section 386 of that Act not to apply—

(a)section 389 (employments where earnings charged on remittance basis), and

(b)section 390 (non-domiciled employees with foreign employers).

37In section 306(7) (claims) for “regulations made under section 203” substitute “PAYE regulations”.

38In section 307(6)(a)(i) (withdrawal of relief) for “regulations under section 203” substitute “PAYE regulations”.

39Omit section 313 (taxation of consideration for certain restrictive undertakings).

40In section 314(1) (divers and diving supervisors) for the words from “and accordingly” to the end of the subsection substitute “and accordingly any employment income taken into account in computing the profits or gains of that trade is not chargeable under Part 2 of ITEPA 2003.”

41Omit sections 315 to 318 (pensions etc. paid in respect of military or war service etc.).

42Omit section 319 (crown servants: foreign service allowance).

43Omit section 321 (consuls and other official agents).

44(1)Amend section 322 (consular officers and employees) as follows.

(2)In subsection (1) for “any income of his falling within Case IV or V of Schedule D” substitute “any qualifying income of the consular officer or employee”.

(3)After subsection (1) insert—

(1A)In subsection (1) “qualifying income” means—

(a)income falling within Case IV or V of Schedule D,

(b)income to which section 573 or 629 of ITEPA 2003 applies (foreign pensions and pre-1973 pensions paid under the Overseas Pensions Act 1973),

(c)income arising from a source outside the United Kingdom to which section 609, 610, 611 or 633 of ITEPA 2003 applies (certain employment-related annuities and voluntary annual payments), and

(d)a benefit to which section 678 of ITEPA applies (foreign benefits).

(4)Omit subsection (2).

45(1)Amend section 323 (visiting forces) as follows.

(2)Omit subsection (1).

(3)In subsection (2) for “subsection (1) above” substitute “section 303(1) of ITEPA 2003 (exemption for earnings of visiting forces etc.)”.

(4)In subsection (4)—

(a)for “subsections (1) and (2)” substitute “subsection (2)”;

(b)for “those subsections” substitute “that subsection”;

(c)before “the Visiting Forces Act 1952” insert “Part 1 of”.

(5)In subsection (5) for “subsections (1) and (2)” substitute “subsection (2)”.

(6)Omit subsection (6)(b) and the word “and” preceding it.

(7)Omit subsection (7).

46Omit section 330 (compensation for National-Socialist persecution).

47(1)Amend section 332 (expenditure and houses of ministers of religion) as follows.

(2)Omit subsections (1) and (2).

(3)In subsection (3)—

(a)for “(whether under Schedule E or any other Schedule)” substitute “under Schedule D”,

(b)for “profits, fees or emoluments” substitute “profits or fees”, and

(c)in paragraph (c), for the words from “in right of” to “that subsection” substitute “an interest belongs to a charity or ecclesiastical corporation and, in right of that interest, in which he has a residence from which to perform his duties as a clergyman or minister”.

(4)Omit subsections (3A), (3B) and (4).

48(1)Amend section 336 (temporary residents in the United Kingdom) as follows.

(2)In subsection (1) for “Schedule D” substitute “a charge to which subsection (1A) applies”.

(3)After subsection (1) insert—

(1A)This subsection applies to—

(a)the charge under Schedule D,

(b)the charge under Part 9 of ITEPA 2003 (pension income) in respect of—

(i)income to which section 573, 605, 609, 610, 611, 623 or 629 of that Act applies,

(ii)any annual payment to which section 633 of that Act applies which is made by or on behalf of a person who is outside the United Kingdom, or

(iii)income to which section 583 of that Act applies if the paying scheme (see subsection (3) of that section) is a pilots' benefit fund (see section 587 of that Act), and

(c)the charge under Part 10 of ITEPA 2003 (social security income) in respect of benefits to which section 678 of that Act applies (foreign benefits).

49In section 347A(5) (annual payments: general rule) for “, 68(1)(b) or 192(3)” substitute “or 68(1)(b) of this Act or section 355 of ITEPA 2003 (deductions for certain payments by non-domiciled employees with foreign employers)”.

50(1)Amend section 348 (payments out of profits or gains brought into charge to income tax: deduction of tax) as follows.

(2)In subsection (1) for “charged with tax under Case III of Schedule D, not being interest,” substitute “to which this subsection applies”.

(3)After subsection (1) insert—

(1A)Subsection (1) applies to any annuity or other annual payment, not being interest—

(a)which is charged with tax under Case III of Schedule D,

(b)which is charged with tax under Part 9 of ITEPA 2003 (pension income) because section 605 of that Act applies to it (retirement annuity contracts: annuities), or

(c)which arises from a source in the United Kingdom and is charged with tax under Part 9 of ITEPA 2003 because section 609, 610 or 611 of that Act applies to it (certain employment-related annuities).

51(1)Amend section 349 (payments not out of profits or gains brought into charge to income tax, and annual interest) as follows.

(2)In subsection (1)(a) for “charged with tax under Case III of Schedule D, not being interest” substitute “to which this paragraph applies”.

(3)After the first sentence of subsection (1) insert—

(1A)Paragraph (a) of subsection (1) applies to any annuity or other annual payment, not being interest—

(a)which is charged with tax under Case III of Schedule D,

(b)which is charged with tax under Part 9 of ITEPA 2003 (pension income) because section 605 of that Act applies to it, or

(c)which arises from a source in the United Kingdom and is charged with tax under Part 9 of ITEPA 2003 because section 609, 610 or 611 of that Act applies to it.

(4)Number the second sentence of subsection (1) as subsection (1B).

(5)In the new subsection (1B) for “This subsection” substitute “Subsection (1)”.

52In section 376(2) (qualifying borrowers and qualifying lenders) for the words from “an office or employment” to “Schedule E” substitute “an office or employment which would, but for some special exemption or immunity from tax, be a taxable employment under Part 2 of ITEPA 2003 (as defined by section 66(3) of that Act)”.

53In section 391(2) (losses from trade etc. carried on abroad) for “, 192(2), (3) or (4) or 196” substitute “of this Act or section 23, 355 or 615 of ITEPA 2003”.

54(1)Amend section 392 (Case VI losses) as follows.

(2)For subsection (1)(a) and (b) substitute—

(a)that the amount of the loss sustained by him shall, as far as may be, be deducted from or set off against the total of—

(i)the amount of any profits or gains arising from any transaction in respect of which he is assessed for that year under that Case, and

(ii)the amount of any qualifying income on which tax is charged under Part 9 of ITEPA 2003 (pension income) for that year, and

(b)that any portion of the loss for which relief is not so given shall, as far may be, be carried forward and deducted from or set off against the total of—

(i)the amount of any profits or gains arising from any transaction in respect of which he is assessed under that Case for any subsequent year of assessment, and

(ii)the amount of any qualifying income on which tax is charged under Part 9 of ITEPA 2003 for the subsequent year of assessment.

(3)For subsection (3) substitute—

(3)Any relief under this section by way of the carrying forward of the loss shall be given as far as possible from the first subsequent assessment in respect of—

(a)any profits or gains arising from any transaction in respect of which he is assessed under Case VI of Schedule D for any year, or

(b)any qualifying income on which tax is charged under Part 9 of ITEPA 2003 for any year,

and so far as it cannot be so given, then from the next such assessment, and so on.

(4)After subsection (5) insert—

(6)For the purposes of subsection (1)(a)(ii) and (b)(ii) and subsection (3)(b) income is “qualifying income” if—

(a)section 583 of ITEPA 2003 applies to it and the paying scheme (see subsection (3) of that section) is a pilots' benefit fund (see section 587 of ITEPA 2003), or

(b)section 623 of ITEPA 2003 applies to it.

55(1)Amend section 418 (“distribution” to include certain expenses of close companies) as follows.

(2)In subsection (3)(a)—

(a)for “to which Chapter II of Part V applies” substitute “to which Part 3 of ITEPA 2003 applies (earnings and benefits etc. treated as employment income) without the exclusion in section 216 of that Act (provisions not applicable to lower-paid employment)”; and

(b)for “sections 154 to 165” substitute “Chapters 6 to 10 of Part 3 and section 223 of that Act (cars and vans, loans, shares, other benefits, and payments on account of director’s tax)”.

(3)In subsection (3)(b) for “section 145” substitute “Chapter 5 of Part 3 of ITEPA 2003”.

(4)In subsection (4) for “Chapter II of Part V” substitute “Chapters 6 to 10 of Part 3 of ITEPA 2003”.

56In section 545(1)(a) (capital redemption policies) after “Schedule D” insert “or under Part 9 of ITEPA 2003 (pension income) because section 609, 610 or 611 applies to them (certain employment-related annuities)”.

57In section 550(7) (relief where gain charged at a higher rate) for “, 36 or 148” substitute “or 36 of this Act or any amount which counts as employment income under section 403 of ITEPA 2003 (payments and benefits on termination of employment etc.)”.

58In section 559(1A) (sub-contractors in the construction industry) for “chargeable to income tax under Schedule E by virtue of section 134(1)” substitute “treated as earnings from an employment by virtue of Chapter 7 of Part 2 of ITEPA 2003 (agency workers)”.

59In section 561(6) (exceptions from section 559), for “the same meaning as in Chapter II of Part V” substitute “the meaning given by section 67 of ITEPA 2003”.

60In section 565(2C)(a) (conditions to be satisfied by companies), for “the meaning of Chapter II of Part V” substitute “the meaning given by section 67 of ITEPA 2003”.

61In section 566(1) (general powers to make regulations under Chapter 4) for “regulations may be made under section 203” substitute “PAYE regulations may be made”.

62(1)Section 577 (business entertaining expenses) is amended as follows.

(2)Omit subsection (1)(b) and the word “and” preceding it.

(3)In subsection (3) omit the words from “but where-” to the end of the subsection.

63Omit section 579(1) (statutory redundancy payments).

64Omit section 580(3) (provisions supplementary to section 579(1)).

65In section 580A(7)(b) (relief from tax on annual payments under certain insurance policies) for “Schedule E” substitute “Parts 3 to 7 (employment income) or Part 9 (pension income) of ITEPA 2003”.

66(1)Amend section 585 (relief from tax on delayed remittances) as follows.

(2)In subsection (1) omit the words “, or under Case III of Schedule E,”.

(3)Omit subsection (9)(b) and the word “and” preceding it.

67(1)Amend section 588 (training courses for employees) as follows.

(2)For subsections (1) and (2) substitute—

(1)This section applies where a person (“the employer”) incurs retraining course expenses within the meaning of section 311 of ITEPA 2003 (exemptions: retraining courses).

(3)For paragraphs (a) and (b) of subsection (3) substitute—

(a)an employer incurs expenditure in paying or reimbursing retraining course expenses as mentioned in subsection (1) above; and

(b)by virtue of section 311 of ITEPA 2003, no liability to income tax arises in respect of the payment or reimbursement,.

(4)Omit subsection (5)(a).

(5)In subsection (5)(b) for the words from “such a failure” to the end of the paragraph substitute “a failure to meet a condition of the kind mentioned in section 312(1)(b)(i) or (ii) of ITEPA 2003”.

(6)In subsection (6) for “comply with any provision of section 589(3) and (4)” substitute “meet a condition in section 312(1)(b)(i) or (ii) of ITEPA 2003”.

68Omit section 589 (qualifying courses of training etc.).

69(1)Section 589A (counselling services for employees) is amended as follows.

(2)For subsection (1) substitute—

(1)This section applies where expenditure (“relevant expenditure”)—

(a)is incurred in the provision of services to a person (“the employee”) in connection with the cessation of the person’s office or employment, or

(b)is incurred in the payment or reimbursement of—

(i)fees for such provision, or

(ii)travelling expenses incurred in connection with such provision,

and (in either case) the relevant conditions are met.

(1A)In subsection (1) above “the relevant conditions” means—

(a)conditions A to D for the purposes of section 310 of ITEPA 2003 (exemptions: counselling and other outplacement services), and

(b)in the case of travel expenses, condition E for those purposes.

(3)Omit—

(a)subsections (2) to (6), and

(b)subsection (10).

70(1)Section 589B (qualifying counselling services etc.) is amended as follows.

(2)Omit subsections (1) to (4A).

(3)In subsection (5) omit “this section or”.

71In section 591D (provisions supplementary to section 591C) omit subsection (6).

72For section 592(7) (exempt approved schemes) substitute—

(7)Any contribution paid under the scheme shall be allowed to be deducted from employment income for the year of assessment in which the contribution is paid.

A deduction under this subsection may only be made once in respect of the same contribution.

73In section 594(1) (exempt statutory schemes)—

(a)for the words “shall, in assessing tax under Schedule E, be allowed to be deducted as an expense incurred in” substitute “shall be allowed to be deducted from employment income for”;

(b)at the end insert—

A deduction under this section may only be made once in respect of the same contribution.

74Omit sections 595 and 596 (payments by employer to retirement benefits scheme).

75Omit sections 596A to 596C (benefits under non-approved retirement benefits schemes).

76Omit section 597 (charge to tax: pensions).

77In section 599A (charge to tax: payments out of surplus funds) omit subsections (5), (6) and (8).

78Omit section 600 (charge to tax: unauthorised payments to or for employees).

79(1)Amend section 606 (default of administrator of retirement benefits scheme) as follows.

(2)In subsection (9) after “this Chapter” insert “or Chapter 2 of Part 6 of ITEPA 2003 (benefits from non-approved pension schemes)”.

(3)In subsection (11)(b) after “this Chapter” insert “or Chapter 2 of Part 6 of ITEPA 2003 (benefits from non-approved pension schemes)”.

80(1)Amend section 607 (marine pilots: pilots' benefit fund) as follows.

(2)In subsection (2)(a) for “597 to 600” substitute “598 to 599A”.

(3)In subsection (2)(b) for “under section 600” substitute “in accordance with section 584 of ITEPA 2003 (unauthorised payments)”.

(4)For subsection (3)(a) substitute—

(a)in section 592—

(i)subsections (4) to (6) shall be omitted; and

(ii)for subsection (7) there shall be substituted—

(7)Any contribution paid under the scheme by a member of the fund shall, in assessing tax under Schedule D, be allowed to be deducted as an expense.;.

(5)In subsection (3)(b) for “sections 597 to 606 (except sections 601 to 603)” substitute “sections 598 to 599A and sections 604 to 606”.

(6)Omit subsection (3)(b)(iv) and the word “and” preceding it.

81In section 608 (charge to tax on annuities paid out of superannuation funds approved before 6th April 1980) omit subsection (4).

82In section 612(1) (interpretation etc. of Chapter) in the definition of “remuneration”—

(a)in paragraph (a) for “in respect of which tax is chargeable under Schedule E and which” substitute “which is chargeable to tax as employment income and”; and

(b)in paragraph (b) for “section 148” substitute “Chapter 3 of Part 6 of ITEPA 2003 (payments and benefits on termination of employment etc.)”.

83In section 613 (Parliamentary pension funds) omit subsections (1) to (3).

84In section 614(3) (exemptions and reliefs in respect of income tax from investments etc. of certain pension schemes) for “paragraph (b), (c), (d) or (f) of subsection (2) of section 615” substitute “section 648, 649, 650 or 651 of ITEPA 2003”.

85In section 615 (exemption from tax in respect of certain pensions) omit subsections (1), (2), (4), (5) and (8).

86Omit section 616 (other overseas pensions).

87(1)Amend section 617 (social security benefits and contributions) as follows.

(2)Omit subsections (1) and (2).

(3)For subsection (4)(d) and (e) substitute—

(d)as a deduction under section 336 of ITEPA 2003 (deductions for expenses) from the taxable earnings from an office or employment; or

(e)as a deduction under section 332(3)(a) from the profits or fees of the profession or vocation of a minister of religion, or a deduction under section 351(1) of ITEPA 2003 from the taxable earnings from an employment as such a minister.

88Omit section 617A (tax credits under Part 1 of Tax Credits Act 2002 (c. 21)).

89In section 624(2) (sponsored superannuation schemes and controlling directors) for “Case I of Schedule E in respect of his emoluments” substitute “section 15 of ITEPA 2003 in respect of his general earnings”.

90(1)Amend section 638 (other restrictions on approval of a personal pension scheme) as follows.

(2)In subsection (7) for “emoluments” substitute “general earnings”.

(3)In subsection (11)—

(a)for “a savings-related share option scheme” substitute “an SAYE option scheme”, and

(b)for “an employee share ownership plan” substitute “a share incentive plan”.

(4)In subsection (12)—

(a)in paragraph (a), for “a savings-related share option scheme” substitute “an SAYE option scheme”, and

(b)in paragraph (b)—

(i)for “an employee share ownership plan” substitute “a share incentive plan”, and

(ii)for “employee share ownership plan”, in the second place in which it appears, substitute “share incentive plan”.

(5)In subsection (13)—

(a)omit the definition of “employee share ownership plan”, and

(b)for the definition of “savings-related share option scheme” substitute—

“SAYE option scheme” has the same meaning as in the SAYE code (see section 516 of ITEPA 2003 (approved SAYE option schemes)), and

“share incentive plan” has the same meaning as in the SIP code (see section 488 of that Act (approved share incentive plans)).

91(1)Section 643 (employer’s contributions and personal pension income etc.) is amended as follows.

(2)Omit subsection (1).

(3)In subsection (5) omit “shall be assessable to tax under Schedule E (and section 203 shall apply accordingly) and”.

92(1)Amend section 644 (meaning of “relevant earnings”) as follows.

(2)In subsection (2)(a) for “emoluments chargeable under Schedule E” substitute “general earnings”.

(3)In subsection (2)(b) for “emoluments of” substitute “earnings from”.

(4)In subsection (3) for “emoluments”, in both places where it occurs, substitute “general earnings”.

(5)In subsection (4)(a) for “Schedule E” substitute “ITEPA 2003”.

(6)In subsection (4)(b) for “section 148” substitute “Chapter 3 of Part 6 of ITEPA 2003 (payments and benefits on termination of employment etc.)”.

(7)In each of the following provisions for “emoluments” substitute “general earnings”—

(a)subsection (5);

(b)subsection (6A);

(c)subsection (6D)(c);

(d)subsection (6E)(d).

93(1)Amend section 645 (earnings from pensionable employment) as follows.

(2)In subsection (3)(c) for “section 596(1)(a), (b) or (c)” substitute “section 387(2) of ITEPA 2003 (meaning of non-approved retirement benefits scheme)”.

(3)In subsection (4A)—

(a)for “emoluments” substitute “earnings”;

(b)for “foreign emoluments within the meaning of section 192” substitute “earnings and amounts treated as earnings to which subsection (4B) applies”;

(c)for “section 596(1)(a), (b) or (c)” substitute “section 387(2) of ITEPA 2003 (meaning of non-approved retirement benefits scheme)”.

(4)After subsection (4A) insert—

(4B)This subsection applies to earnings and amounts treated as earnings for a year of assessment if—

(a)the employee or office-holder is not domiciled in the United Kingdom in that year, and

(b)the employment is with a foreign employer.

(4C)If there is a dispute as to whether the employee or office-holder is not domiciled in the United Kingdom, sections 42 and 43 of ITEPA 2003 (Board to determine dispute as to domicile) apply to the dispute as they apply to a dispute mentioned in section 42(1) of that Act.

(4D)In this section—

  • “earnings and amounts treated as earnings” means earnings and amounts treated as earnings which constitute employment income (see section 7(2)(a) or (b) of ITEPA 2003);

  • “foreign employer” has the meaning given by section 721 of ITEPA 2003.

94In section 646(2) (meaning of “net relevant earnings”) for paragraph (b) substitute—

(b)deductions made by virtue of section 232, 336, 343, 344 or 351 of ITEPA 2003 (mileage allowance, expenses, professional membership fees, annual subscriptions, ministers of religion);

(ba)travelling or subsistence expenses deducted by virtue of Part 5 of that Act;

(bb)deductions made by virtue of section 332(3) of this Act;.

95(1)Amend section 646A (earnings from associated employments) as follows.

(2)In subsection (2) for “emoluments” substitute “general earnings”.

(3)In subsection (3) for “emoluments” substitute “general earnings”.

96Omit sections 647 to 648A (personal pensions: unauthorised payments, contributions under unapproved arrangements and annuities).

97In section 657(2)(f)(i) (purchased life annuities to which section 656 applies) for “section 596(1)” substitute “section 387(2) of ITEPA 2003 (meaning of non-approved retirement benefits scheme)”.

98In section 658A(1) (charges and assessments on administrators) after “this Part” insert “or under section 394(2) of ITEPA 2003 (benefits from non-approved pension schemes)”.

99(1)Amend section 659B (definition of insurance company) as follows.

(2)For subsection (9)(a) substitute—

(a)any duty to pay under PAYE regulations tax charged under Part 9 of ITEPA 2003 (pension income) because section 580 of that Act applies (approved retirement benefits schemes: pensions and annuities);.

(3)In subsection (9)(c) after “section 605” insert “of this Act or section 589 of ITEPA 2003”.

(4)For subsection (9)(d) substitute—

(d)any duty to pay under PAYE regulations tax charged under Part 9 of ITEPA 2003 (pension income) because section 595 of that Act applies (approved personal pension schemes: annuities).

100After section 686A insert—

686BShare incentive plans: distributions in respect of unappropriated shares

(1)This section applies to income of the trustees of an approved share incentive plan consisting of dividends or other distributions in respect of shares held by them in relation to which the requirements of Part 4 of Schedule 2 to ITEPA 2003 (approved share incentive plans: types of shares that may be awarded) are met.

(2)Income to which this section applies is income to which section 686 applies only if and when—

(a)the period applicable to the shares under the following provisions of this section comes to an end without the shares being awarded to a participant in accordance with the plan, or

(b)if earlier, the shares are disposed of by the trustees.

(3)If any of the shares in the company in question are readily convertible assets at the time the shares are acquired by the trustees, the period applicable to the shares is the period of two years beginning with the date on which the shares were acquired by the trustees.

This is subject to subsection (5).

(4)If at the time of the acquisition of the shares by the trustees none of the shares in the company in question are readily convertible assets, the period applicable to the shares is—

(a)the period of five years beginning with the date on which the shares were acquired by the trustees, or

(b)if within that period any of the shares in that company become readily convertible assets, the period of two years beginning with the date on which they did so,

whichever ends first.

This is subject to subsection (5).

(5)If the shares are acquired by the trustees by virtue of a payment in respect of which a deduction is allowed under paragraph 9 of Schedule 4AA (deduction for contribution to plan trust), the period applicable to the shares is the period of ten years beginning with the date of acquisition.

(6)For the purposes of determining whether shares are awarded to a participant within the period applicable under the above provisions, shares acquired by the trustees at an earlier time are taken to be awarded to a participant before shares of the same class acquired by the trustees at a later time.

(7)For the purposes of this section shares which are subject to provision for forfeiture are treated as acquired by the trustees if and when the forfeiture occurs.

(8)In relation to shares acquired by the trustees before 11th May 2001 this section has effect with the substitution—

(a)in subsection (3), of “Subject to subsection (4)” for the words before “the period applicable”, and

(b)in subsection (4)(b), of “the shares in question” for “any of the shares in that company”.

686CInterpretation of section 686B

(1)Section 686B and this section form part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).

(2)Accordingly, expressions used in section 686B or this section and contained in the index at the end of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.

(3)References in section 686B to shares being awarded to a participant include references to the shares being acquired on behalf of the participant as dividend shares.

(4)In section 686B, “readily convertible assets” has the meaning given by sections 701 and 702 of ITEPA 2003, but this is subject to subsection (5).

(5)In determining for the purposes of section 686B whether shares are readily convertible assets, any market for the shares that—

(a)is created by virtue of the trustees acquiring shares for the purposes of the plan, and

(b)exists solely for the purposes of the plan,

shall be disregarded.

101In section 779(13)(e) (sale and lease-back: limitation on tax reliefs), for “a deduction from emoluments to be assessed under Schedule E made in pursuance of section 198(1)” substitute “a deduction from earnings allowed under section 336 of ITEPA 2003 (expenses)”.

102In section 781(4)(d) (assets leased to traders and others), for “a deduction from emoluments to be assessed under Schedule E made in pursuance of section 198(1)” substitute “a deduction from earnings allowed under section 336 of ITEPA 2003 (expenses)”.

103In section 794(2)(b) (requirements as to residence) for “income tax chargeable under Schedule E” substitute “income tax on employment income”.

104In section 824(4A) (repayment supplement: individuals and others) for “section 203” substitute “PAYE regulations”.

105(1)Amend section 828 (orders and regulations made by the Treasury or the Board) as follows.

(2)In subsection (1), for “subsection (2)” substitute “subsections (2) and (5)”.

(3)In subsection (3), for “subsection (4)” substitute “subsections (4) and (5)”.

(4)At the end add—

(5)Nothing in this section applies in relation to any of the following (in relation to which section 717 of ITEPA 2003 applies)—

(a)any power of the Treasury or the Board to make any order or regulations under ITEPA 2003;

(b)any statutory instrument containing any order or regulations made by the Treasury or the Board under that Act.

106In section 830 (territorial sea and designated areas) omit subsection (5).

107In section 831(3) (interpretation of ICTA) before the entry relating to “the Management Act” insert—

“ITEPA 2003” means the Income Tax (Earnings and Pensions) Act 2003;.

108(1)Amend section 833 (interpretation of Income Tax Acts) as follows.

(2)For subsection (3)(a) substitute—

(a)any payment or other benefit charged to tax under Chapter 3 of Part 6 of ITEPA 2003 (payments and other benefits on termination of employment);.

(3)For subsection (4)(a) and (b) substitute—

(a)any income charged to tax under ITEPA 2003 except—

(i)payments that meet the conditions in section 623 of that Act (return of surplus employee additional voluntary contributions); and

(ii)jobseeker’s allowance (to which Chapter 3 of Part 10 of that Act applies);

(b)any income from any property which is attached to or forms part of the general earnings from any employment;.

(4)For paragraphs (a) to (e) of subsection (5) substitute “income which is earned income by virtue of section 529”.

109After Schedule 4 insert—

Section 85B

SCHEDULE 4AAShare incentive plans: corporation tax deductions

Introductory

1(1)This Schedule forms part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).

(2)Accordingly, expressions used in this Schedule and contained in the index at the end of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.

(3)References in this Schedule to deductions are to deductions by a company in calculating for the purposes of corporation tax the profits of a trade carried on by it.

(4)Sub-paragraph (3) is subject to paragraph 13 (application of provisions to expenses of management of investment companies etc.).

Deduction for providing free or matching shares

2(1)Where, under an approved share incentive plan, shares are awarded to employees as free or matching shares by reason of their employment with a company, a deduction is allowed under this paragraph to that company.

(2)Any such deduction—

(a)is of an amount equal to the market value of the shares at the time they are acquired by the trustees, and

(b)must be made for the period of account in which the shares are awarded to employees in accordance with the plan.

(3)Except as provided by sub-paragraph (1), no deduction may be made by the company or any associated company in respect of the provision of those shares.

This is subject to paragraphs 7 and 8 (deductions for costs of setting up, and contributions to running expenses of, plan).

(4)Where the shares are awarded under a group plan, the market value of the shares at the time they are acquired by the trustees shall for the purposes of this paragraph be taken to be the relevant proportion of the total market value of the shares included in the award.

(5)For the purposes of sub-paragraph (4) “the relevant proportion” means the proportion that the number of shares in the award awarded to the employees of the company concerned bears to the total number of shares in the award.

(6)In determining the market value of any shares for the purposes of this paragraph, if shares have been acquired by the trustees on different days it shall be assumed that those acquired on an earlier day are awarded to employees under the plan before those acquired by the trustees on a later day.

(7)If a deduction is made under this paragraph by a company, no deduction may be made by any other company under this paragraph in respect of the provision of the shares.

(8)This paragraph has effect subject to paragraph 4 (cases in which no deduction is allowed).

Deduction for additional expenses in providing partnership shares

3(1)Where under an approved share incentive plan—

(a)partnership shares are awarded to employees by reason of their employment with a company, and

(b)the market value of those shares at the time they are acquired by the trustees exceeds the partnership share money paid by the participants to acquire those shares,

a deduction is allowed under this paragraph to that company.

(2)Any such deduction—

(a)is of an amount equal to the amount of the excess referred to in sub-paragraph (1)(b), and

(b)must be made for the period of account in which the shares are awarded to employees in accordance with the plan.

(3)Except as provided by sub-paragraph (1), no deduction may be made by that company or any associated company in respect of the provision of those shares.

This is subject to paragraphs 7 and 8 (deductions for costs of setting up, and contributions to running expenses of, plan).

(4)If a deduction is made under this paragraph by a company, no deduction may be made by any other company under this paragraph in respect of the provision of the shares.

(5)This paragraph has effect subject to paragraph 4 (cases in which no deduction is allowed).

Cases in which no deduction is allowed

4(1)No deduction is allowed under paragraph 2 or 3 (deductions for providing free or matching shares or for additional expenses in providing partnership shares) in the following cases.

(2)No deduction is allowed in respect of shares awarded to an individual under the plan unless, at the time of the award, any earnings from the required employment are (or would be) chargeable earnings.

(3)In sub-paragraph (2)—

  • “chargeable earnings” means general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 apply, and

  • the “required employment” means the employment by reference to which the individual is eligible to participate in the award.

(4)In sub-paragraph (3), the reference to any of the charging provisions of Chapter 4 or 5 of Part 2 of that Act has the same meaning as it has in the employment income Parts of ITEPA 2003 (see sections 14(3) and 20(3) of that Act).

(5)No deduction is allowed in respect of shares that are liable to depreciate substantially in value for reasons that do not apply generally to shares in the company.

(6)No deduction is allowed if a deduction has been made—

(a)by the company, or

(b)by an associated company of the company,

in respect of the provision of the same shares for this or another trust.

(7)Sub-paragraph (6) applies whatever the nature or purpose of the other trust and whatever the basis on which the deduction was made.

(8)For the purposes of determining whether the same shares have been provided to more than one trust, if shares have been acquired by the trustees of the plan trust on different days it shall be assumed that those acquired on an earlier day are awarded under the plan before those acquired by the trustees on a later day.

(9)No deduction is allowed in respect of the award of shares acquired by the trustees by virtue of a payment in respect of which a deduction has been made under paragraph 9 (deduction for contribution to plan trust) or 10(3) (further deduction where deduction under paragraph 9 withdrawn).

No deduction for expenses in providing dividend shares

5(1)No deduction is allowed for expenses in providing shares that are acquired on behalf of individuals under an approved share incentive plan as dividend shares.

(2)This is subject to paragraph 8 (deductions for contributions to running expenses of plan).

Treatment of forfeited shares

6(1)This paragraph applies if any of a participant’s plan shares are forfeited.

(2)The shares are treated for the purposes of this Schedule as acquired by the trustees—

(a)when the forfeiture occurs, and

(b)for no consideration.

(3)No deduction is allowed under paragraph 2 or 3 (deductions for providing free or matching shares or for additional expenses in providing partnership shares) in respect of any subsequent award of those shares under the plan.

Deduction for costs of setting up the plan

7(1)A deduction is allowed under this paragraph for expenses incurred by a company in establishing a share incentive plan which is approved by the Inland Revenue.

(2)No deduction may be made under this paragraph if—

(a)any employee acquires rights under the plan, or

(b)the trustees acquire any shares for the purposes of the plan,

before the Inland Revenue approve the plan.

(3)If Inland Revenue approval of the plan is given more than nine months after the end of the period of account in which the expenses are incurred, the expenses are treated for the purposes of this paragraph as incurred in the period in which the approval is given.

(4)No other deduction is allowed in respect of expenses for which a deduction is allowed under this paragraph.

Deductions for contributions to running expenses of plan

8(1)Nothing in this Schedule affects any deduction for expenses incurred by a company in contributing to the expenses of the trustees in operating an approved share incentive plan.

(2)For this purpose the expenses of the trustees in operating the plan—

(a)do not include expenses in acquiring shares for the purposes of the trust, other than incidental acquisition costs, but

(b)do include the payment of interest on money borrowed by them for that purpose.

(3)In sub-paragraph (2)(a) “incidental acquisition costs” means any fees, commission, stamp duty and similar incidental costs attributable to the acquisition of the shares.

Deduction for contribution to plan trust

9(1)A deduction is allowed to a company under this paragraph where—

(a)on or after 6th April 2003, that company makes a payment to the trustees of an approved share incentive plan in order to enable them to acquire shares in that company or a company which controls it,

(b)the payment is applied by the trustees to acquire such shares,

(c)the shares are not acquired from a company, and

(d)the condition in sub-paragraph (2) is met in relation to the company in which the shares are acquired.

(2)The condition in this sub-paragraph is that, at the end of the period of 12 months beginning with the date of the acquisition, the trustees hold shares in the company for the plan trust that—

(a)constitute not less than 10 per cent of the ordinary share capital of the company, and

(b)carry rights to not less than 10 per cent of—

(i)any profits available for distribution to shareholders of the company,

(ii)any assets of that company available for distribution to its shareholders in the event of a winding-up.

(3)For the purposes of sub-paragraph (2), shares that have been appropriated to, and acquired on behalf of, an individual under the plan shall continue to be treated as held by the trustees of the plan trust for the beneficiaries of that trust until such time as they cease to be subject to the plan (within the meaning of the SIP code).

(4)A deduction allowed under this paragraph—

(a)is of an amount equal to the amount of the payment referred to in sub-paragraph (1), and

(b)must be made for the period of account in which the condition in sub-paragraph (2) is met.

(5)No other deduction is allowed for any amount in respect of which a deduction has been made under this paragraph (except as specified in paragraph 10).

Withdrawal of deduction under paragraph 9

10(1)The Inland Revenue may by notice direct that the benefit of a deduction made under paragraph 9 is withdrawn where—

(a)fewer than 30 per cent of the shares acquired by virtue of the payment in respect of which the deduction is made have been awarded under the plan before the end of the period of 5 years beginning with the date of acquisition, or

(b)not all the shares acquired by virtue of that payment have been so awarded before the end of the period of 10 years beginning with that date.

(2)The effect of a direction under sub-paragraph (1)(a) or (b) is that the amount of the deduction is treated as a trading receipt of the company for the period of account in which the direction is given.

(3)However, where—

(a)the Inland Revenue give a direction under sub-paragraph (1)(a) or (b) in respect of any deduction, and

(b)at any time after the giving of the direction, all the shares acquired by virtue of the payment in respect of which the deduction was made are awarded under the plan,

a further deduction is allowed under this sub-paragraph to the company which made the payment.

(4)A deduction under sub-paragraph (3)—

(a)is of an amount equal to the amount of the payment referred to in that sub-paragraph, and

(b)must be made for the period of account in which sub-paragraph (3)(b) is first satisfied.

(5)No other deduction is allowed in respect of any amount for which a deduction has been made under sub-paragraph (3).

(6)Sub-paragraph (8) applies where—

(a)a deduction is made under paragraph 9 (deduction for contribution to plan trust) or sub-paragraph (3) in respect of a payment for the acquisition of shares, but

(b)shares are awarded under the plan to an individual at a time when the earnings from the required employment are not (or would not be if there were any) chargeable earnings.

(7)In sub-paragraph (6) “required employment” and “chargeable earnings”, in relation to an individual, have the same meanings as they have in paragraph 4(2) (cases in which no deduction is allowed).

(8)An amount equal to the appropriate proportion of the deduction is treated as a trading receipt of the company for the period of account in which the shares are so awarded.

(9)For the purposes of sub-paragraph (8), the appropriate proportion of the deduction is the proportion which the number of shares awarded to the individual bears to the total number of shares acquired by virtue of the payment.

(10)For the purposes of this paragraph, where shares are acquired by the trustees on different days, it shall be assumed that those acquired on an earlier day are awarded to employees under the plan before those acquired by the trustees on a later day.

Withdrawal of deductions on withdrawal of approval

11(1)If approval of a share incentive plan is withdrawn the Inland Revenue may by notice to a company direct that the benefit of—

(a)any deductions under paragraph 2 (deduction for providing free or matching shares),

(b)any deductions under paragraph 3 (deduction for additional expenses in providing partnership shares),

(c)any deductions under paragraph 9 (deduction for contribution to plan trust) (in so far as not already withdrawn under paragraph 10), or

(d)any deductions under paragraph 10(3) (further deduction where deduction under paragraph 9 withdrawn),

in relation to the plan is also withdrawn.

(2)The effect of the direction is that the aggregate amount of the deductions is treated as a trading receipt of that company for the period of account in which the Inland Revenue give notice of the withdrawal of approval.

Termination of plan: shares acquired as mentioned in paragraph 9 but not yet awarded

12(1)This paragraph applies where the company has issued a plan termination notice under paragraph 89 of Schedule 2 to ITEPA 2003 (termination of plan).

(2)In a case where—

(a)by virtue of a payment made to the trustees by the company, the trustees acquire shares in the company, or a company which controls it,

(b)a deduction under paragraph 9 (deduction for contribution to plan trust) has been made in respect of that payment (and has not been withdrawn under paragraph 10), and

(c)not all the shares acquired by virtue of the payment have been awarded under the plan before issue of the plan termination notice,

an amount equal to the appropriate proportion of the deduction is treated as a trading receipt of the company for the period of account in which the plan termination notice is given.

(3)For the purposes of sub-paragraph (2), the appropriate proportion of the deduction is the proportion which the number of shares acquired by virtue of the payment and not awarded as specified in sub-paragraph (2)(c) bears to the total number of shares so acquired.

Application of provisions to expenses of management of investment companies etc.

13(1)The provisions of this Schedule apply in relation to—

(a)investment companies, and

(b)companies to which section 75 (expenses of management: investment companies) applies by virtue of section 76 (expenses of management: insurance companies),

in accordance with the following provisions.

(2)The provisions of this Schedule which allow a deduction in calculating the profits of a trade apply to treat amounts as disbursed as expenses of management.

(3)Paragraph 11(2) applies as if the reference to a trading receipt for the period of account in which the Inland Revenue give notice of the withdrawal of approval were a reference to profits or gains chargeable to tax under Case VI of Schedule D arising when the Inland Revenue give notice of the withdrawal.

110Omit Schedules 6 and 6A (taxation of directors and others: cars and vans).

111Omit Schedules 7 and 7A (taxation of benefit of loans).

112(1)Amend Schedule 9 (approved share option schemes and profit sharing schemes) as follows.

(2)Omit Parts 1, 2 and 6 except so far as relating to profit sharing schemes.

(3)Omit Parts 3 and 4.

113(1)Amend Schedule 10 (further provisions relating to profit sharing schemes) as follows.

(2)In paragraphs 3(1) and 6(4) for “charging an individual to income tax under Schedule E” substitute “under which an amount counts as employment income of an individual”.

(3)In paragraph 7—

(a)in sub-paragraph (1), for “a participant in the scheme is chargeable to income tax under Schedule E” substitute “an amount counts as employment income of the participant”,

(b)in sub-paragraph (6), for the words from “section 203” to “Schedule E” substitute “section 684 of ITEPA 2003 (PAYE regulations) and PAYE regulations as PAYE income payable to the recipient”, and

(c)in sub-paragraph (7)(b)—

(i)omit second “to”, and

(ii)for “the participant is chargeable” substitute “is charged on the participant”.

114Omit Schedule 11 (payments and other benefits in connection with termination of employment etc.).

115Omit Schedule 11A (removal benefits and expenses).

116Omit Schedule 12 (foreign earnings).

117Omit Schedule 12AA (mileage allowances).

118Omit Schedule 12A (ordinary commuting and private travel).

119In Schedule 14 (modification of section 266 in certain cases), in paragraph 5 for “section 595” substitute “section 386 of ITEPA 2003 (payments to non-approved retirement benefits schemes)”.

120(1)Amend paragraph 2 of Schedule 15A (contractual savings schemes) as follows.

(2)In sub-paragraph (1)(a) for “savings-related share” substitute “SAYE”.

(3)For sub-paragraph (2) substitute—

(2)In sub-paragraph (1) above, “approved” and “SAYE option scheme” have the same meanings as in the SAYE code (see section 516(4) of ITEPA 2003 (approved SAYE option schemes)).

121(1)Amend paragraph 5B of Schedule 18 (group relief: equity holders and profits available for distribution) as follows.

(2)In sub-paragraph (4)(d) for “approved under Schedule 9” substitute “which was approved”.

(3)After sub-paragraph (4) insert—

(4A)In sub-paragraph (4)(d) above—

  • “share option scheme” means—

    (a)

    an SAYE option scheme within the meaning of the SAYE code (see section 516(4) of ITEPA 2003 (approved SAYE option schemes)), or

    (b)

    a CSOP scheme within the meaning of the CSOP code (see section 521(4) of that Act (approved CSOP schemes)); and

  • “approved” means—

    (a)

    in relation to an SAYE option scheme, approved under Schedule 3 to that Act (approved SAYE option schemes), and

    (b)

    in relation to a CSOP scheme, approved under Schedule 4 to that Act (approved CSOP schemes).

Part 2Other enactments

Finance Act 1969 (c. 32)

122(1)Section 58 of the Finance Act 1969 (disclosure of information for statistical purposes by Board of Inland Revenue) is amended as follows.

(2)In subsection (1)(a)—

(a)for “section 203 of the Taxes Act 1988 (pay as you earn)” substitute “PAYE regulations”;

(b)for “emoluments to which that section applies” substitute “earnings or amounts treated as earnings from an employment”.

(3)In subsection (1)(b) for “emoluments” substitute “earnings or amounts treated as earnings”.

(4)After subsection (1) insert—

(1A)In subsection (1) “earnings or amounts treated as earnings” means earnings or amounts treated as earnings which constitute employment income (see section 7(2)(a) or (b) of the Income Tax (Earnings and Pensions) Act 2003).

Taxes Management Act 1970 (c. 9)

123The Taxes Management Act 1970 is amended as follows.

124In section 7(4) and (5) (notice of liability to income tax and capital gains tax) for “section 203 of the principal Act” substitute “PAYE regulations”.

125(1)Amend section 9 (returns to include self-assessment) as follows.

(2)In subsection (1) for “, 547(5) or 599A(5) of the principal Act” substitute “or 547(5) of the principal Act or section 626 of ITEPA 2003”.

(3)In subsection (1A) after “the principal Act” insert “or under section 394(2) of ITEPA 2003”.

126(1)Amend section 15 (return of employee’s emoluments etc.) as follows.

(2)For the sidenote to the section substitute “Return of employees' earnings etc.”

(3)In subsection (3)(a) for “employment to which Chapter II of Part V of the principal Act applies” substitute “employment which, for the purposes of the benefits code in ITEPA 2003, is a taxable employment under Part 2 of that Act (see section 66) but is not an excluded employment (see section 63 of that Act)”.

(4)In subsection (8)(a) for “the relevant sections, that is to say, sections 141, 142, 143, 144A, 145, 146 and 154 to 165 of the principal Act” substitute “the relevant provisions, that is to say, Chapters 4 to 10 of Part 3 and sections 222 and 223 of ITEPA 2003”.

(5)In subsection (9)(a) for “the relevant sections” substitute “the relevant provisions”.

(6)In subsection (11)—

(a)for “the relevant sections”, in each place, substitute “the relevant provisions”; and

(b)in paragraph (a)(ii) for “section 141(3), 142(2), 145(3) or 156(8) of the principal Act” substitute “section 328(1), 362, 363, 364 or 365 of ITEPA 2003”.

(7)In subsection (13)—

(a)in the definition of “employee”, for “whose emoluments fall to be assessed under Schedule E” substitute “whose earnings are within the charge to tax under ITEPA 2003”; and

(b)for the definition of “the relevant sections” substitute—

“the relevant provisions” has the meaning given by section (8)(a) above.

127For section 16A substitute—

16AAgency workers

(1)This section applies where—

(a)any services which an individual provides or is obliged to provide under an agency contract are treated under section 44(2) of ITEPA 2003 as the duties of an office or employment held by him with the agency, or

(b)any remuneration receivable under or in consequence of arrangements falling within section 45 of that Act is treated as earnings from an office or employment held by an individual with the agency.

(2)Where this section applies—

(a)section 15 above shall apply as if the individual were employed by the agency, and

(b)section 16 above shall not apply to any payments made to the individual under or in consequence of the agency contract or the arrangements.

(3)In this section “agency contract” and “remuneration” have the same meaning as in Chapter 7 of Part 2 of ITEPA 2003.

128In section 42(3) (procedure for making claims etc.) for “section 203 of the principal Act” substitute “PAYE regulations”.

129In section 46B(5) (questions as to the application of provisions concerning the territorial sea to be determined by Special Commissioners) at the end of paragraph (b) insert— , or

(c)section 41 of ITEPA 2003,.

130In section 59A (payments on account of income tax)—

(a)in subsection (8)(b) for “section 203 of the principal Act” substitute “PAYE regulations”; and

(b)in subsection (10) for “Regulations under section 203 of the principal Act (PAYE)” substitute “PAYE regulations”.

131(1)Amend section 59B (payment of income tax and capital gains tax) as follows.

(2)In subsection (1) for “, 547(5) or 599A(5) of the principal Act” substitute “or 547(5) of the principal Act or section 626 of ITEPA 2003”.

(3)In subsection (2)(a) for “section 203 of the principal Act” substitute “PAYE regulations”.

(4)In subsection (8) for “Regulations under section 203 of the principal Act (PAYE)” substitute “PAYE regulations”.

132In section 62(1A)(a) (priority of claim for tax)—

(a)for “emoluments” substitute “taxable earnings (as defined by section 10 of ITEPA 2003)”;

(b)for “section 203 of the principal Act (pay as you earn)” substitute “PAYE regulations”.

133In section 63(3)(a) (recovery of tax in Scotland) for “section 203 of the principal Act (pay as you earn)” substitute “PAYE regulations”.

134In section 64(1A)(a) (priority of claim for tax in Scotland)—

(a)for “emoluments” substitute “taxable earnings (as defined by section 10 of ITEPA 2003)”;

(b)for “section 203 of the principal Act (pay as you earn)” substitute “PAYE regulations”.

135(1)Amend section 70 (evidence) as follows.

(2)In subsection (2)(a) for “or the principal Act” substitute “, the principal Act or ITEPA 2003”.

(3)In subsection (4) for “emoluments” in both places where it occurs substitute “earnings or amounts treated as earnings”.

(4)After subsection (4) insert—

(5)In subsection (4) “earnings or amounts treated as earnings” means earnings or amounts treated as earnings which constitute employment income (see section 7(2)(a) or (b) of ITEPA 2003).

136In section 91(3)(c) (effect on interest of reliefs) for “section 203 of the principal Act” substitute “PAYE regulations”.

137(1)Amend the Table in section 98 (special returns, etc.) as follows.

(2)Omit from the first column of the Table the entries relating to—

(a)regulations under section 202 of ICTA;

(b)paragraph 117 of Schedule 8 to FA 2000;

(c)paragraph 64 of Schedule 14 to FA 2000.

(3)At the end of the first column of the Table insert the following entries—