Finance Act 2000 (c. 17)

(The document as of February, 2008)

-- Back --

Page 23

Pages: P.1 | P.2 | P.3 | P.4 | P.5 | P.6 | P.7 | P.8 | P.9 | P.10 | P.11 | P.12 | P.13 | P.14 | P.15 | P.16 | P.17 | P.18 | P.19 | P.20 | P.21 | P.22 | P.23 | P.24 | P.25 | P.26 | P.27 | P.28 | P.29 | P.30 | P.31 | P.32 | P.33 | P.34 | P.35 | P.36 | P.37 | P.38 | P.39 | P.40 | P.41 | P.42 | P.43 | P.44 | P.45 | P.46 | P.47 | P.48 | P.49 | P.50 | P.51 | P.52 | P.53 | P.54 | P.55 | P.56 | P.57 | P.58 | P.59

(b) in the case of partnership or matching shares--

(i) if the plan does not provide for an accumulation period, a period of not more than 18 months ending with the deduction of partnership share money relating to the award, and

(ii) if the plan provides for an accumulation period, a period of not more than six months ending with the start of the accumulation period relating to the award.

(3) For the purposes of sub-paragraph (2), in the case of an award of matching shares the deduction of partnership share money or accumulation period "relating" to the award is the deduction or period relating to the award of partnership shares to which the matching shares relate.

(4) In relation to an award, the same qualifying period must apply in relation to all employees of the company or, in the case of a group plan, of the participating companies.

(5) Subject to sub-paragraphs (2) and (4), the plan may authorise the company to specify different qualifying periods in respect of different awards of shares.

The "no material interest" requirement

15 (1) The plan must provide that an individual is not eligible to participate in an award of shares if he has, or has within the preceding twelve months had, 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 regarded as having a material interest in a company if--

(a) the individual,

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

has a material interest in the company.

(3) This paragraph is supplemented--

(a) as regards the meaning of "material interest", by paragraphs 17 to 19, and

(b) as regards the meaning of "associate", by paragraph 20 (read with paragraphs 21 and 22).

The requirement of non-participation in other relevant share schemes

16 (1) The plan must provide that an individual is not to participate in an award of free shares under the plan in a tax year if in that year--

(a) shares have been (or are at the same time to be) appropriated to him in accordance with an approved profit sharing scheme established by the company or a connected company, or

(b) he has participated (or is at the same time to participate) in another employee share ownership plan established by the company or a connected company and approved under this Schedule.

(2) The plan must provide that an individual is not eligible to participate in an award of partnership or matching shares under the plan in any tax year if, in that year, he has participated (or at the same time participates) in an award of shares under another employee share ownership plan established by the company or a connected company and approved under this Schedule.

(3) For the purposes of this paragraph an individual is treated as having participated in an award of free shares under an employee share ownership plan if he would have participated in that award but for his failure to obtain a performance allowance (see paragraph 25).

(4) 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.

Meaning of "material interest"

17 (1) For the purposes of paragraph 15 (the "no material interest" requirement) a material interest in a company means--

(a) beneficial ownership of, or 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; or

(b) where the company is a close company, possession of or 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.

(2) In this paragraph--

"close company" includes a company that would be a close company but for--
(a)
section 414(1)(a) of the Taxes Act 1988 (exclusion of companies not resident in the United Kingdom), or
(b)
section 415 of that Act (exclusion of certain quoted companies); and
"participator" has the meaning given by section 417(1) of that Act.

(3) This paragraph is supplemented by paragraph 18 (options etc.) and paragraph 19 (shares held by trustees of approved profit sharing scheme etc.).

Material interest: options etc.

18 (1) For the purposes of paragraph 17(1) (meaning of material interest) a right to acquire shares (however arising) is treated as a right to control them.

(2) In any case where--

(a) the shares attributed to an individual consist of or include shares which he 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 is contractually bound to issue in the event of the exercise of the right,

then in determining at any time prior to the exercise of the right whether the number of shares attributed to the individual exceeds a particular percentage of the ordinary share capital of the company, that ordinary share capital shall be taken to be increased by the number of unissued shares referred to in paragraph (b).

(3) The references in sub-paragraph (2) to the shares attributed to an individual are to the shares which in accordance with paragraph 17(1)(a) fall to be brought into account in his case to determine whether their number exceeds a particular percentage of the company's ordinary share capital.

Material interest: shares held by trustees of approved profit sharing schemes etc.

19 In applying paragraph 17(1) (meaning of material interest) there shall be disregarded--

(a) the interest of the trustees of--

(i) any approved profit sharing scheme, or

(ii) an approved employee share ownership plan,

in any shares held by them in accordance with the scheme or plan but which have not been appropriated to or acquired on behalf of an individual; and

(b) any rights exercisable by those trustees by virtue of any such interest.

Meaning of "associate"

20 (1) In paragraph 15 (the "no material interest" requirement) "associate", in relation to a person, means--

(a) any relative or partner of that person,

(b) the trustee or trustees of any settlement in relation to which that person, or any relative of his (living or dead), is or was a settlor, and

(c) where that person is interested in any shares or obligations of the company which are subject to any trust, or are part of the estate of a deceased person, the trustee or trustees of the settlement concerned or (as the case may be) the personal representatives of the deceased.

(2) In sub-paragraph (1)(a) and (b) "relative" means husband or wife, parent or remoter forebear, child or remoter issue, or brother or sister.

(3) In sub-paragraph (1)(b) "settlor" and "settlement" have the same meaning as in Chapter IA of Part XV of the Taxes Act 1988 (see section 660G(1) and (2)).

Meaning of "associate": trustees of employee benefit trust

21 (1) This paragraph applies for the purposes of paragraph 20(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 a company ("the relevant company") in relation to which it falls to be determined whether that individual has an interest.

(2) The trustees of the employee benefit trust are not regarded as associates of the individual by reason only of his being so interested if neither--

(a) the individual, nor

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

has at any time on or after 14th 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 this paragraph "employee benefit trust" has the same meaning as in paragraph 7 of Schedule 8 to the Taxes Act 1988.

(4) Sub-paragraphs (9) to (12) of that paragraph apply for the purposes of this paragraph in relation to an individual as they apply for the purposes of that paragraph in relation to an employee.

(5) In sub-paragraph (2)(b) and (c) "associate" does not include the trustees of an employee benefit trust by reason only that the individual has an interest in shares or obligations of the trust.

Meaning of "associate": trustees of discretionary trust

22 (1) This paragraph applies for the purposes of paragraph 20(1)(c) (meaning of "associate": trustees of settlement) where--

(a) the person in question ("the beneficiary") is one of the objects of a discretionary trust, and

(b) the property subject to the trust has at any time consisted of, or included, shares or obligations of the company ("the relevant company") in relation to which it falls to be determined whether that person has an interest.

(2) If--

(a) the beneficiary has ceased to be eligible to benefit under the discretionary trust by reason of--

(i) an irrevocable disclaimer or release executed by him, or

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

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

(c) during the period of twelve months ending with the date when the beneficiary ceased to be so eligible, neither he nor any associate of his received any benefit under the trust,

the beneficiary is not regarded by reason only of the matters mentioned in sub-paragraph (1) as having been interested in the shares or obligations of the relevant company at any time during the period of twelve months mentioned in paragraph (c).

(3) In sub-paragraph (2) "associate" has the meaning given by paragraph 20, but with the omission of sub-paragraph (1)(c) of that paragraph (trusts and estates).

Part IV Free shares

Introduction

23 If the plan provides for free shares it must comply with the requirements of this Part of this Schedule.

Maximum annual award

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

(2) For this purpose 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 shall be determined as if there were no such restriction or risk.

For this purpose shares are "subject to risk of forfeiture" if the interest that may be acquired is only conditional within the meaning of section 140C of the Taxes Act 1988.

Performance allowances

25 (1) Sub-paragraph (2) applies if the plan provides for performance allowances, that is 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.

(2) Where this sub-paragraph applies--

(a) the requirements of--

paragraph 26 (performance allowances: general application),

paragraph 27 (performance measures and targets), and

paragraph 28 (performance allowances: information to be given to employees), and

(b) the requirements of either paragraph 29 (method one) or paragraph 30 (method two),

must be complied with.

Performance allowances: general application

26 If the plan provides for performance allowances in relation to an award it must make provision for such allowances for all qualifying employees in relation to that award.

Performance allowances: measures and targets

27 (1) If the plan provides for performance allowances the following requirements must be met with respect to performance measures and performance targets.

(2) 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.

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

(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

28 (1) If the plan provides for performance allowances in relation to an award of shares, the plan must require the company--

(a) to notify each employee participating 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 him; and

(b) to notify all qualifying employees of the company or, in the case of a group plan, of any participating 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 the disclosure of which the company reasonably considers would prejudice commercial confidentiality.

Performance allowances: method one

29 (1) The requirements of this paragraph are that if the plan provides for performance allowances in relation to an award of shares--

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

(2) In determining for the purposes of sub-paragraph (1)(a) whether the requirement of paragraph 9 (participation on same terms) is met the shares to which sub-paragraph (1)(a) above applies are treated as a separate award of free shares.

(3) Where the plan meets the requirements of sub-paragraph (1), the requirement of paragraph 9 (participation on same terms) does not apply to any provision of the plan relating to the awarding of shares within sub-paragraph (1)(b).

(4) If free shares of different classes are awarded, the requirements of sub-paragraph (1) apply separately in relation to each class.

Performance allowances: method two

30 (1) The requirements of this paragraph are that in relation to an award of free shares under the plan--

(a) some or all of the shares 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).

(2) In determining for the purposes of sub-paragraph (1)(b) whether the requirement of paragraph 9 (participation on same terms) is met the free shares awarded in respect of each performance unit are treated as a separate award of free shares.

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

The holding period

31 (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 his free shares to remain in the hands of the trustees, and

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

(2) The holding period--

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

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

(3) The plan may authorise the company to specify different holding periods from time to time.

But it 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--

(a) come to an end if during the period he ceases to be in relevant employment, and

(b) are subject to--

paragraph 32 (power to authorise trustees to accept general offers etc.);

paragraph 73 (meeting PAYE obligations); and

paragraph 121(5) (termination of plan: early removal of shares with participant's consent).

Holding period: power to authorise trustees to accept general offers etc.

32 A participant may direct the trustees to do any of the following during the holding period--

(a) to accept an offer for any of his 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; or

(b) to accept an offer of a qualifying corporate bond (whether alone or with other assets or cash or both) for his free shares if the offer forms part of such a general offer as is mentioned in paragraph (c); or

(c) to accept an offer of cash, with or without other assets, for his free shares if the offer forms part of a general offer which is made to holders of shares of the same class as his or of shares in the same company and which 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, within the meaning of section 416 of the Taxes Act 1988; or

(d) to agree to a transaction affecting his free shares or such of them as are of a particular class, if the transaction would be entered into pursuant to a compromise, arrangement or scheme applicable to or affecting--

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

(ii) 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 employee share ownership plan.

Part V Partnership shares

Introduction

33 If the plan provides for partnership shares it must comply with the requirements of this Part of this Schedule.

Partnership share agreements

34 The plan must provide for qualifying employees to enter into agreements with the company ("partnership share agreements") under which--

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

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

Deductions from salary

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

Amounts so deducted are referred to in this Part of this Schedule as "partnership share money".

(2) The partnership share agreement must specify--

(a) what amounts are to be deducted, and

(b) at what intervals.

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

(3) For the purposes of sub-paragraph (2)(a) the agreement may specify a percentage of the employee's salary.

(4) The plan must require the employer company to calculate the amounts and intervals having regard to the provisions of paragraph 36 (maximum amount of deductions from salary).

For this purpose "the employer company" is the company by reference to which the employee meets the requirement of paragraph 14 (the employment requirement) in relation to the plan.

Maximum amount of deductions

36 (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.

This 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).

Different limits may be specified in relation to different awards of shares.

(4) 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

37 (1) The plan may provide that the amount to be deducted in pursuance of 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.

Notice of possible effect of deductions on benefit entitlement

38 (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.

Partnership share money held for employee

39 (1) The plan must provide that partnership share money deducted in accordance with 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.

This is subject to paragraphs 40(4)(b) and 42(5)(b) and (6) (obligations to pay money to employee).

(2) References in this Schedule to the trustees acquiring partnership shares on behalf of an employee include their appropriating to an employee shares already held by them.

(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) an institution authorised under the [1987 c. 22.] Banking Act 1987,

(b) a building society, or

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

Plan with no accumulation period

40 (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) For this purpose "the acquisition date" means the date set by the trustees in relation to the award of partnership shares, being a date within 30 days after the last date on which the partnership share money to be applied in acquiring the shares was deducted.

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

(4) 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.

(5) This paragraph is subject to paragraph 43 (restriction imposed on number of shares awarded).

Plan with accumulation period

41 (1) The plan may provide for accumulation periods not exceeding twelve months.

(2) Where it does so--

(a) the partnership share agreement must specify when each accumulation period begins and ends (the beginning of the first period being not later than the date on which the first deduction is made), and

(b) the accumulation period which applies in relation to each award of partnership shares must be the same for all individuals who are eligible to participate in the award.

(3) The partnership share agreement may specify that an accumulation period comes to an end on the occurrence of a specified event.

This is subject to sub-paragraph (2)(b).

(4) Where the plan provides for accumulation periods, it 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 gives his consent for the purposes of this sub-paragraph,

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

Application of money deducted in accumulation period

42 (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 period to be applied by the trustees in acquiring partnership shares on behalf of the employee on the acquisition date.

This is subject to sub-paragraphs (6) and (7).

-- Back --

Stat