Finance Act 2000 (c. 17)

(The document as of February, 2008)

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(10) For the purposes of this paragraph "PAYE deduction" means a deduction required by regulations under section 203 of the Taxes Act 1988.

PAYE: capital receipts

96 (1) Where the trustees receive a sum of money which constitutes (or forms part of) a capital receipt in respect of which a participant is chargeable to income tax under Schedule E, in accordance with this Part of this Schedule, when it is received by him--

(a) the trustees shall pay out of that sum of money to the employer company an amount equal to that on which income tax is so payable, and

(b) the employer company shall then pay over that amount to the participant, but in so doing shall make a PAYE deduction.

This is subject to sub-paragraph (3).

(2) For the purposes of this paragraph "the employer company" means the company--

(a) of which the participant is an employee at the time the trustees receive the sum of money referred to in sub-paragraph (1), and

(b) to whom the PAYE regulations (within the meaning of section 203L(3) of the Taxes Act 1988) at that time apply.

(3) Where the trustees receive a sum of money to which sub-paragraph (1) applies but--

(a) there is no company which falls within sub-paragraph (2), or

(b) the Inland Revenue are of the opinion that it is impracticable for the company which falls within that sub-paragraph to make a PAYE deduction and accordingly direct that this sub-paragraph shall apply,

then, in paying over to the participant the capital receipt, the trustees shall make a PAYE deduction in respect of an amount equal to that on which income tax is payable as mentioned in sub-paragraph (1) as if the participant were a former employee of the trustees.

(4) In a case where sub-paragraph (3) applies, section 203C of the Taxes Act 1988 (PAYE: employee of non-UK employer) does not apply.

(5) For the purposes of this paragraph "PAYE deduction" means a deduction required by regulations under section 203 of the Taxes Act 1988.

Part XI Capital gains tax

Introduction

97 The provisions of this Part apply for capital gains tax purposes in relation to an approved employee share ownership plan.

Gains accruing to trustees

98 (1) Any gain accruing to the trustees is not a chargeable gain if the shares--

(a) are shares in relation to which the requirements of Part VIII are met, and

(b) are awarded to employees, or acquired on their behalf as dividend shares, in accordance with the plan within the relevant period.

(2) If the shares are readily convertible assets at the time they are acquired by the trustees, the relevant period is the period of two years beginning with the date on which the shares are acquired by the trustees.

(3) If at the time of their acquisition by the trustees the shares are not readily convertible assets, the relevant period is--

(a) the period of five years beginning with the date on which the shares were acquired, or

(b) if within that period the shares in question become readily convertible assets, the period of two years beginning with the date on which they did so,

whichever ends first.

(4) For the purposes of determining whether shares are awarded to employees within the relevant period, shares acquired by the trustees at an earlier time are taken to be awarded to employees before shares of the same class acquired by the trustees at a later time.

This is subject to paragraph 76(1) (treatment of shares acquired from an employee share ownership trust).

Participant absolutely entitled as against trustees

99 (1) A participant is treated for capital gains tax purposes as absolutely entitled as against the trustees to any shares awarded to him under the plan.

(2) This applies notwithstanding anything in the plan or the trust instrument.

Different classes of shares

100 (1) For the purposes of Chapter I of Part IV of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (identification of shares etc.) a participant's plan shares are treated, so long as they are subject to the plan, as of a different class from any shares (which would otherwise be treated as of the same class) that are not plan shares.

(2) For the purposes of that Chapter, any shares transferred to the trustees of the plan trust by a qualifying transfer that have not been awarded to participants under the plan shall (notwithstanding that they would otherwise fall to be treated as of the same class) be treated as of a different class from any shares held by the trustees that were not transferred to them by a qualifying transfer.

(3) In sub-paragraph (2) "qualifying transfer" has the meaning given in paragraph 76 (acquisition by trustees of shares from employee share ownership trust).

No chargeable gain on shares ceasing to be subject to the plan

101 (1) Shares which cease to be subject to the plan are treated as having been disposed of and immediately reacquired by the participant at market value.

(2) Any gain accruing on that disposal is not a chargeable gain.

Treatment of forfeited shares

102 (1) If any of the participant's plan shares are forfeited, they are treated as having been disposed of by the participant and acquired by the trustees at market value at the date of forfeiture.

(2) Any gain accruing on that disposal is not a chargeable gain.

Acquisition by trustees of shares from profit sharing scheme

103 (1) Where the trustees acquire shares from the trustees of an approved profit sharing scheme, the disposal and the acquisition by the trustees are treated as being made for such consideration as to secure that neither a gain nor a loss accrues on the disposal.

(2) In such a case the relevant period for the purposes of paragraph 98 is determined as if the shares had been acquired by the trustees at the time they were acquired by the trustees of the other trust.

This does not affect the date on which the trustees are treated as acquiring the shares for the purposes of taper relief.

Disposal of rights under rights issue

104 (1) Any gain accruing on the disposal of rights under paragraph 72 (power of trustees to raise funds to subscribe for rights issue) is not a chargeable gain.

(2) Sub-paragraph (1) does not apply to a disposal of rights unless similar rights are conferred in respect of all ordinary shares in the company.

Part XII Corporation tax deductions

Introduction

105 References in this Part of 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.

This is subject to paragraph 114 (application of provisions to expenses of management of investment companies etc.).

Deduction for providing free or matching shares

106 (1) Where, under an approved employee share ownership 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 that company or any associated company in respect of the provision of those shares.

This is subject to paragraphs 111 (deduction for costs of setting up the plan) and 112 (deductions for 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.

For this purpose "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.

(5) 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.

(6) 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.

(7) This paragraph has effect subject to paragraph 108 (cases in which no deduction is allowed).

Deduction for additional expenses in providing partnership shares

107 (1) Where under an approved employee share ownership 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 111 (deduction for costs of setting up the plan) and 112 (deductions for 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 108 (cases in which no deduction is allowed).

Cases in which no deduction is allowed

108 (1) No deduction is allowed under paragraph 106 or 107 in the following cases.

(2) No deduction is allowed in respect of shares awarded to an individual who is not a Schedule E taxpayer at the date the shares are awarded to him under the plan.

A "Schedule E taxpayer" means an individual who--

(a) is chargeable to tax under Schedule E in respect of emoluments from the employment by reference to which he is eligible to participate in the award, or

(b) would be so chargeable if any such emoluments were remitted to the United Kingdom.

(3) 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.

(4) 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.

This applies whatever the nature or purpose of the other trust and whatever the basis on which the deduction was made.

(5) 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.

No deduction for expenses in providing dividend shares

109 (1) No deduction is allowed for expenses in providing shares that are acquired on behalf of individuals under an approved employee share ownership plan as dividend shares.

(2) This is subject to paragraph 112 (deductions for contributions to running expenses of plan).

Treatment of forfeited shares

110 If any of a participant's plan shares are forfeited--

(a) the shares are treated for the purposes of this Part as acquired by the trustees--

(i) when the forfeiture occurs, and

(ii) for no consideration, and

(b) no deduction is allowed under paragraph 106 or 107 in respect of any subsequent award of those shares under the plan.

Deduction for costs of setting up the plan

111 (1) A deduction is allowed under this paragraph for expenses incurred by a company in establishing an employee share ownership 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 that 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

112 (1) Nothing in this Part of this Schedule affects any deduction for expenses incurred by a company in contributing to the expenses of the trustees in operating an approved employee share ownership 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.

Withdrawal of deductions on withdrawal of approval

113 (1) If approval of an employee share ownership plan is withdrawn the Inland Revenue may by notice to a company direct that the benefit of any deductions under paragraph 106 (deduction for providing free or matching shares) or 107 (deduction for contributing to additional expenses in providing partnership shares) 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.

Application of provisions to expenses of management of investment companies etc.

114 (1) The provisions of this Part apply in relation to--

(a) investment companies, and

(b) companies to which section 75 of the Taxes Act 1988 (management expenses) applies by virtue of section 76 of that Act (insurance companies),

in accordance with the following provisions.

(2) The provisions of this Part which allow a deduction in calculating the profits of a trade apply to treat amounts as disbursed as expenses of management.

(3) Paragraph 113(2) (effect of direction as to withdrawal of deductions) 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.

Part XIII Supplementary provisions

Company reconstructions

115 (1) This paragraph applies where there occurs in relation to any of the participant's plan shares ("the original holding")--

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

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

other than a transaction within sub-paragraph (2).

A transaction in relation to which this paragraph applies is referred to below as a "company reconstruction".

(2) Where an issue of shares of any of the following descriptions (in respect of which a charge to income tax arises) is made as part of a company reconstruction, those shares shall be treated for the purposes of this paragraph as not forming part of the new holding--

(a) redeemable shares or securities issued as mentioned in section 209(2)(c) of the Taxes Act 1988;

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

(3) In this paragraph--

"corresponding 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;
"new shares" means shares comprised in the new holding which were issued in respect of, or otherwise represent, shares comprised in the original holding;
"original holding" has the meaning given by sub-paragraph (1).

(4) Subject to the following provisions of this paragraph, in relation to an employee share ownership plan, references in this Schedule to a participant's plan shares shall be construed, after the time of the company reconstruction, as being or, as the case may be, as including references to any new shares.

(5) For the purposes of this Schedule--

(a) a company reconstruction shall be treated as not involving a disposal of shares comprised in the original holding,

(b) the date on which any new shares are to be treated as having been awarded to the participant shall be that on which the corresponding shares were awarded,

(c) the conditions in Part VIII shall be treated as fulfilled with respect to any new shares if they were (or were treated as) fulfilled with respect to the corresponding shares, and

(d) the provisions of Part X (income tax) and Part XI (capital gains tax) shall apply in relation to the new shares as they would have applied to the corresponding shares.

Where the corresponding shares were dividend shares, the reference in paragraph (b) to the shares being awarded shall be read as a reference to the shares being acquired on behalf of the participant.

(6) Sub-paragraphs (4) and (5) are subject to paragraph 116 (treatment of shares acquired under rights issue).

(7) For the purposes of this Schedule if, as part of a company reconstruction, trustees become entitled to a capital receipt, their entitlement to the capital receipt shall be taken to arise before the new holding comes into being.

(8) In the context of a new holding, any reference in this Schedule to shares includes securities and rights of any description which form part of the new holding for the purposes of Chapter II of Part IV of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.

Treatment of shares acquired under rights issue

116 (1) Where the trustees exercise rights under a rights issue conferred in respect of a participant's plan shares, any shares or securities or rights allotted as a result shall be treated for the purposes of this Schedule 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.

This is subject to sub-paragraphs (2) to (4).

(2) Where the funds used by the trustees to exercise rights under a rights issue are provided otherwise than by virtue of the exercise by the trustees of their powers under paragraph 72 (power of trustees to raise funds to subscribe for rights issue)--

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

(b) sections 127 to 130 of the Taxation of Chargeable Gains Act 1992 shall not apply in relation to them.

(3) Sub-paragraph (1) does not apply in relation to rights arising under a rights issue unless similar rights are conferred in respect of all ordinary shares in the company.

(4) Where sub-paragraph (1) does not apply by virtue of sub-paragraph (3)--

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

(b) sections 127 to 130 of the Taxation of Chargeable Gains Act 1992 shall not apply in relation to them.

(5) In this paragraph references to rights arising under a rights issue are to be construed in accordance with paragraph 72(2).

Power to require information

117 (1) The Inland Revenue may by notice require any person to provide them with such information as they reasonably require for the performance of their functions under this Schedule and as 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 employee share ownership plan or 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 time, which must not be less than three months.

(4) In section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalties in connection with returns, etc.), in the first column of the table, after the final entry insert-- " paragraph 117 of Schedule 8 to the Finance Act 2000 " .

Withdrawal of approval

118 (1) If any disqualifying event occurs in relation to an approved employee share ownership plan, the Inland Revenue may by notice to the company withdraw the approval with effect from the time at which the disqualifying event occurred or such later time as the Inland Revenue may specify.

(2) The following are disqualifying events--

(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) any 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 30 (method two), the setting, in respect of an award of shares, of performance targets that, at the time they are set in accordance with the plan, cannot reasonably be viewed as being comparable;

(d) any 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, the company or, in the case of a group plan, a company which is or has been a participating company failing to furnish any information which they are or it is required to furnish under paragraph 117.

(3) For the purposes of sub-paragraph (2)(b)--

(a) an alteration is an alteration of a "key feature" of the plan if it relates to a provision that is necessary in order to meet the requirements of this Schedule; and

(b) the Inland Revenue shall not withhold their approval unless it appears to them that the plan as proposed to be altered would not now be approved on an application under paragraph 4.

(4) For the purposes of sub-paragraph (2)(c) performance targets are comparable if they are comparable in terms of the likelihood of their being met by the performance units to which they apply.

(5) Sub-paragraph (2)(e) applies, in particular, to different treatment in respect of--

(a) the dividend payable;

(b) repayment;

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

This is subject to sub-paragraph (6).

(6) Sub-paragraph (2)(e) does not apply--

(a) where the difference in treatment arises from--

(i) a key feature of the plan, or

(ii) any of the participants' shares being subject to provision for forfeiture, or

(b) on the ground only 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.

(7) The withdrawal of approval of an employee share ownership plan does not affect the operation of this Schedule in relation to shares awarded to participants in the plan before the time with effect from which approval was withdrawn.

References in this Schedule to an approved employee share ownership plan in relation to such shares are to a plan that was approved at the time the shares were awarded.

Appeal against withdrawal of approval

119 (1) The company may appeal against a decision of the Inland Revenue--

(a) to withdraw approval of an employee share ownership plan, or

(b) to give a direction under paragraph 113 (withdrawal of corporation tax deductions on withdrawal of approval), or

(2) The appeal lies to the Special Commissioners.

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

Termination of plan

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

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

(a) the Inland Revenue,

(b) the trustees, and

(i) who has plan shares, or

(ii) who has entered a partnership share agreement which was in force immediately before the notice was issued.

Effect of plan termination notice

121 (1) This paragraph applies where the company has issued a plan termination notice under paragraph 120.

(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--

(a) the end of the notice period, or

(b) if later, the first date on which the shares may be removed from the plan without giving rise to a charge to income tax under Part X of this Schedule on the participant on whose behalf they are held.

Paragraph 46 (repayment of partnership share money) and paragraph 58(2) (cash dividend paid over if not reinvested) provide for the payment to employees of money held on their behalf.

(4) In sub-paragraph (3) "the notice period" means the period of three months beginning with the date on which the requirements imposed by the plan in accordance with paragraph 120(2) (copy of termination notice to Inland Revenue, participants etc.) are met in respect of the plan termination notice.

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

(6) Any consent given by the participant before he receives a copy of the plan termination notice shall be disregarded for this purpose.

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

(8) In this paragraph references to the trustees removing the plan shares from the plan are to their--

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

(9) Where the participant has died, the references in sub-paragraph (8) to the participant shall be read as references to his personal representatives.

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