Finance Act 2000 (c. 17)

(The document as of February, 2008)

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(ii) the period of two years from the grant of the original option comes to an end,

without the relevant company or, if it is the parent company of a group, any group company beginning to carry on that qualifying trade.

(3) A disqualifying event is also treated as occurring in relation to a qualifying option if in any tax year the employee's relevant working time amounts to less than 25 hours a week or, if less, 75% of his working time.

(4) This paragraph is supplemented by the following provisions--

paragraph 48 (company reorganisation);

paragraph 49 (alterations of share capital);

paragraph 50 (conversion of shares);

paragraph 51 (grant of CSOP option); and

paragraph 52 (actual relevant working time).

Disqualifying events: company reorganisation

48 Where a replacement option has been granted (see paragraph 61), if an event within paragraph 47(1)(a) (loss of independence) has occurred in relation to the old option at any time during the period--

(a) beginning at the same time as the period within which the replacement option had to be granted (see paragraph 62), and

(b) ending with the release of the rights under the old option,

that event shall not be regarded as a disqualifying event in relation to the old option.

Disqualifying events: alterations of share capital

49 (1) An alteration of the share capital of the relevant company is within this paragraph if--

(a) it affects (or but for the occurrence of some other event would affect) the value of the shares which are the subject of the qualifying option, and

(b) it consists of or includes--

(i) the creation, variation or removal of a right relating to any shares in the relevant company,

(ii) the imposition of a restriction relating to any such shares, or

(iii) the variation or removal of a restriction to which any such shares are subject.

For this purpose references to restrictions relating to shares or to which shares are subject, or to rights relating to shares, include restrictions imposed or rights conferred by any contract or arrangement or in any other way.

(2) The Inland Revenue shall not withhold their approval under paragraph 47(1)(e) unless it appears to them that the effect of the alteration would be--

(a) to increase the market value of the shares that are the subject of the qualifying option, or

(b) that the requirements of this Schedule would no longer be met in relation to the option.

(3) Where the Inland Revenue withhold their approval the employer company may appeal against that decision.

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

(5) An appeal under this paragraph lies to the General Commissioners or, if the employer company so elects (in accordance with section 46(1) of the [1970 c. 9.] Taxes Management Act 1970), to the Special Commissioners.

Disqualifying events: conversion of shares

50 (1) A conversion of shares is not a disqualifying event if--

(a) the conversion is a conversion of shares of one class only ("the original class") into shares of one other class only ("the new class");

(b) all shares of the original class are converted into shares of the new class; and

(2) The conditions are--

(a) that immediately before the conversion the majority of the relevant company's shares of the original class are held otherwise than by or for the benefit of--

(i) directors or employees of the relevant company,

(ii) an associated company of the relevant company, or

(iii) directors or employees of such an associated company; and

(b) that immediately before the conversion the relevant company is employee-controlled by virtue of holdings of shares of the original class.

(3) For the purposes of this paragraph "director", "employee", "associated company" and "employee-controlled" have the same meaning as in section 140D of the Taxes Act 1988 (convertible shares).

Disqualifying events: grant of CSOP option

51 (1) This paragraph applies where it falls to be determined whether a disqualifying event within sub-paragraph (1)(g) of paragraph 47 has occurred in relation to a qualifying option ("the qualifying option") granted to an employee.

(2) For the purposes of that sub-paragraph and this paragraph "CSOP option" has the meaning given in paragraph 10(6).

(3) A CSOP option is a "relevant" CSOP option if it is granted to the employee by reason of his employment with--

(a) the employer company, or

(b) if that company is a member of a group, any member of that group.

(4) An option is an "employee option" if it is--

(a) the qualifying option,

(b) another qualifying option granted to the employee by reason of his employment with the employer company or, if that company is a member of a group, any member of that group, or

(5) Paragraph 10(7) and (8) (determination of value of shares) apply for the purposes of paragraph 47(1)(g) as they apply for the purposes of paragraph 10.

Disqualifying events: actual relevant working time

52 (1) For the purposes of paragraph 47(3) an employee's relevant working time means the time that he in fact spends as an employee in relevant employment--

(a) on the business of the relevant company, or

(b) if the relevant company is a parent company, on the business of the group.

(2) The time at which the disqualifying event is taken to have occurred is determined in accordance with the following provisions.

(3) Subject to sub-paragraphs (4) and (5), the time at which the disqualifying event occurred is determined as follows:

Method

1 For each calendar month calculate whether over the tax year to date the employee's relevant working time amounts to less than 25 hours a week or, if less, 75% of his working time.

2 If it does, the disqualifying event is taken to have occurred--

(a) at the end of the previous calendar month, or

(b) if the calendar month for which the calculation is done is April, at the end of the previous tax year.

(4) In the case of an employee who begins or ceases to be in relevant employment during the tax year, the references in sub-paragraph (3) above and paragraph 47(3) to that tax year shall be construed as references to the part of the tax year in which he is in relevant employment.

(5) If the time determined under sub-paragraph (3) or (4) falls before the grant of the option, the option is treated for the purposes of this Schedule as if it had never been a qualifying option.

(6) Expressions used in paragraph 47(3) or this paragraph that are defined for the purposes of paragraph 29 (requirement as to commitment of working time) have the same meaning as in that paragraph.

Effect of disqualifying event

53 (1) This paragraph applies where--

(a) a disqualifying event occurs in relation to a qualifying option before the option is exercised, and

(b) the option is not exercised within 40 days of that event.

(2) For the purposes of section 135 of the Taxes Act 1988 (taxation of share options) the amount of the gain realised on the exercise of the option is taken--

(a) where paragraph 44 applies (option to acquire shares at market value), to be, and

(b) where paragraph 45 or 46 applies (option to acquires shares at less than market value or for nil cost), to be increased by,

the amount (if any) by which the market value of the shares when the option is exercised exceeds their market value immediately before the disqualifying event.

This is subject to sub-paragraph (3).

(3) Paragraphs 44 to 46 and sub-paragraph (2) of this paragraph do not apply if the amount chargeable under section 135 of the Taxes Act 1988 on the exercise of the option would, in the absence of those provisions, be less than the amount so chargeable by virtue of those provisions.

Exclusion of charge on acquisition at under-value

54 (1) Section 162(1) of the Taxes Act 1988 (deemed employment-related loan in case of acquisition of shares at an undervalue), as it applies in relation to an employee chargeable to tax under Case I of Schedule E, does not apply in relation to the acquisition of shares by the exercise of a qualifying option.

(2) This does not affect any charge to tax under section 162(6) of that Act (stop-loss provisions).

Saving for other income tax charges

55 (1) Nothing in this Part of this Schedule affects--

(a) any charge to tax under section 135 of the Taxes Act 1988 (taxation of share options) in respect of the release of rights conferred by a qualifying option;

(b) any charge to tax under section 78 or 80 of the [1988 c. 39.] Finance Act 1988 (charge on removal of restrictions etc. or on special benefits) in respect of shares acquired under a qualifying option; or

(i) section 140A of the Taxes Act 1988 (charge on interest in shares ceasing to be only conditional), or

(ii) section 140D of that Act (convertible shares),

in respect of shares acquired under a qualifying option.

(2) The amount of relief under this Schedule shall be treated as a deductible amount for the purposes of any charge to tax under section 140A or 140D of the Taxes Act 1988 in respect of shares acquired under a qualifying option.

The amount of relief means the difference between the amount on which tax would have been chargeable under section 135 of that Act in respect of the exercise of the option apart from this Schedule and the amount (if any) in fact so chargeable.

Part VII Capital gains tax

Qualifying shares

56 (1) In this Part of this Schedule "qualifying shares"--

(a) means shares acquired by the exercise of a qualifying option, subject to sub-paragraphs (2) and (3), and

(b) includes shares ("replacement shares") which--

(i) are treated under section 127 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (company reorganisations etc.) as the same asset as a holding of qualifying shares, and

(ii) meet the requirements of paragraph 38 (type of shares that may be acquired under qualifying option).

(2) If a disqualifying event occurs in relation to a qualifying option (whether the original option or a replacement option), shares acquired by the exercise of the option are qualifying shares only if the option is exercised within 40 days of that event.

(3) References in this Part to "the original option", where there has been one or more replacement options, are to the option that the replacement option (or, if there has been more than one, the first of them) replaced.

Taper relief on disposal of qualifying shares

57 For the purposes of computing taper relief on a disposal of qualifying shares, the shares are treated as if they had been acquired when the original option was granted.

Rights issues in respect of qualifying shares

58 Where--

(a) an individual holds qualifying shares, and

(b) there is, by virtue of any such allotment for payment as is mentioned in section 126(2)(a) of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992, a reorganisation affecting that holding,

sections 127 to 130 of that Act shall not apply in relation to that holding.

Part VIII Company reorganisations

Introduction

59 (1) The provisions of this Part of this Schedule apply in relation to company reorganisations.

(2) For the purposes of this Part a "company reorganisation" means where a company ("the acquiring company")--

(a) obtains control of a company whose shares are subject to a qualifying option which has yet to be exercised--

(i) as a result of making a general offer to acquire the whole of the issued ordinary share capital of that company which is made on a condition such that if it is satisfied 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; or

(b) obtains control of such a company in pursuance of a compromise or arrangement sanctioned by the court under section 425 of the [1985 c. 6.] Companies Act 1985 or Article 418 of the [S.I. 1986/1032 N.I. 6.] Companies (Northern Ireland) Order 1986; or

(c) becomes bound or entitled under sections 428 to 430 of that Act or Articles 421 to 423 of that Order to acquire shares of the same class as shares that are subject to a qualifying option that has yet to be exercised; or

(d) obtains all the shares of a company whose shares are subject to such a qualifying option as a result of a qualifying exchange of shares (see paragraph 60).

(3) In this Part of this Schedule "control" has the meaning given by section 840 of the Taxes Act 1988.

Meaning of "qualifying exchange of shares"

60 (1) For the purposes of this Part of this Schedule there is a "qualifying exchange of shares" where 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 the following conditions are met.

(2) The conditions are--

(a) that the consideration for the old shares consists wholly of the issue of shares ("new shares") in the new company;

(b) that 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) that the consideration for new shares of each description consists wholly of old shares of the corresponding description;

(d) that new shares of each description are issued to the holders of old shares of the corresponding description in respect of, and in proportion to, their holdings; and

(e) that by virtue of section 127 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 as applied by section 135(3) of that Act, 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 references to "shares", except in the expression "subscriber shares", include securities.

Grant of replacement option

61 (1) This paragraph applies where in the case of a company reorganisation--

(a) the holder of a qualifying option, by agreement with the acquiring company, releases his rights under that option ("the old option") in consideration of the grant to him of rights ("the new option") which are equivalent but relate to shares in the acquiring company, and

(b) the requirements of the following paragraphs are met--

paragraph 62 (period within which replacement option must be granted), and

paragraph 63 (qualifying requirements for replacement option).

(2) Where this paragraph applies, the new option shall be treated for the purposes of this Schedule as a "replacement option".

(3) Except as otherwise provided--

(a) references in this Schedule to a qualifying option include a replacement option, and

(b) a replacement option is treated for the purposes of this Schedule as if it had been granted on the date on which the old option was granted.

(4) In this Schedule references to "the old option" or "the new option" shall be construed in accordance with this paragraph.

Period within which replacement option must be granted

62 The new option does not qualify as a replacement option unless it is granted within--

(a) if the company reorganisation falls within paragraph 59(2)(a), the period of six months beginning with the time when the person making the offer has obtained control of the company and any condition subject to which the offer is made is satisfied;

(b) if the company reorganisation falls within paragraph 59(2)(b) or (d), the period of six months beginning with the time when the acquiring company obtains control of the company whose shares are subject to the old option;

(c) if the company reorganisation falls within paragraph 59(2)(c), the period during which the acquiring company remains bound or entitled as mentioned in that paragraph.

Qualifying requirements for replacement option

63 A new option qualifies as a replacement option only if--

(a) the option is granted to the holder of the old option by reason of his employment--

(i) with the acquiring company, or

(ii) if that company is a parent company, with that company or another group company;

(b) at the time of the release of rights under the old option, the requirements of--

(i) paragraph 9 (purpose of granting the option), and

(ii) paragraph 11 (number of employees who may hold qualifying options),

are met in relation to the new option;

(c) at that time, the independence requirement and the trading activities requirement are met in relation to the acquiring company;

(d) at that time, the individual to whom the new option is granted is an eligible employee in relation to the acquiring company;

(e) at that time, the requirements of Part V are met in relation to the new option;

(f) the total market value, immediately before the release, of the shares which were subject to the old option is equal to the total market value, immediately after the grant, of the shares in respect of which the new option is granted; and

(g) the total amount payable by the employee for the acquisition of shares in pursuance of the new option is equal to the total amount that would have been payable for the acquisition of shares in pursuance of the old option.

Part IX Supplementary provisions

Power to require information

64 (1) The Inland Revenue may by notice require any person to furnish them, within such time as the Inland Revenue may direct (not being less than three months), with such information as--

(a) the Inland Revenue think necessary for the performance of their functions under this Schedule, and

(b) 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 an 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) 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 64 of Schedule 14 to the Finance Act 2000; " .

Annual returns

65 (1) A company whose shares are the subject of 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 within three months after the end of the tax year to which it relates.

(3) In section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalties in connection with returns, etc.), in the second column of the table, after the final entry insert--

" paragraph 65 of Schedule 14 to the Finance Act 2000; " .

Meaning of "market value" of shares

66 (1) For the purposes of this Schedule the "market value" of shares has the same meaning as, for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992, it has by virtue of Part VIII of that Act.

This is subject to paragraph 10(8) (determination of value of shares subject to restriction or risk of forfeiture).

(2) Where the market value of shares on any date falls to be determined for the purposes of this Schedule, the Inland Revenue and the employer company may agree that it shall be determined by reference to such date or dates, or to an average of the values on a number of dates, as may be provided in the agreement.

Determination of market value

67 (1) The market value of shares for the purposes of this Schedule, if not agreed between the employer company and the Inland Revenue or referred to the Commissioners under sub-paragraph (4), shall be determined by the Inland Revenue.

(2) The employer company may appeal against any such determination.

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

(4) The employer company may, at any time before notice of determination by the Inland Revenue has been given to it, by notice given to the Inland Revenue require the question of the market value of the shares to be referred to the Commissioners.

Any such reference shall be determined by the Commissioners in the same way as an appeal.

(5) An appeal or reference under this paragraph lies to the General Commissioners or, if the employer company so elects (in accordance with section 46(1) of the [1970 c. 9.] Taxes Management Act 1970), to the Special Commissioners.

Exercise of functions conferred on "the Inland Revenue"

68 Functions conferred by this Schedule on "the Inland Revenue" may be exercised by any officer of the Board.

Power to amend by Treasury order

69 The Treasury may by order amend this Schedule--

(a) to make such amendments of paragraphs 17 to 26 (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--

paragraph 10(1), (4) and (5) (maximum entitlement of employee), or

paragraph 16(1) and (2) (the gross assets requirement).

Compliance with time limits

70 (1) For the purposes of this Part and Part I of this Schedule a person is not taken to have failed to do anything required to be done within a limited time if--

(a) he had a reasonable excuse for not doing it within that time, and

(b) if the excuse ceased, he did it without unreasonable delay after the excuse ceased.

(2) Where sub-paragraph (1)(b) applies any further time limit expressed by reference to the time when the thing should have been done shall have effect as if it had been expressed by reference to the time when it was done.

Minor definitions

71 (1) In this Schedule--

"arrangements" includes any scheme, agreement or understanding, whether or not legally enforceable;
"company" means any body corporate;
"group", in relation to a parent company, means that company and its 51% subsidiaries;
"group company", in relation to a parent company, means that company or any of its 51% subsidiaries;
"parent company" means a company that has one or more 51% subsidiaries and "single company" means a company that does not;
"option" means any right to acquire shares;
"ordinary share capital" has the meaning given in section 832(1) of the Taxes Act 1988;
"research and development" has the meaning given by section 837A of the Taxes Act 1988;
"shares" includes stock; and
"tax year" means a year of assessment.

(2) Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this Schedule.

Index of defined expressions

72 In this Schedule the following expressions are defined or otherwise explained by the provisions indicated:

arrangements	paragraph 71(1)
closure notice (in Part I)	paragraph 5(4)
company	paragraph 71(1)
company reorganisation (in Part VIII)	paragraph 59(2)
connected person	paragraph 71(2)
disqualifying event	paragraphs 47 to 52
eligible employee	paragraph 27
employer company	paragraph 1(3)
excluded activities	paragraph 19
gross assets requirement	paragraph 16
group and group company	paragraph 71(1)
the independence requirement	paragraph 13
the Inland Revenue	paragraph 68
market value	paragraph 66 (and see paragraph 10(8))
new option	paragraph 61(4)
old option	paragraph 61(4)
option	paragraph 71(1)
ordinary share capital	paragraph 71(1)
original option (in Parts VI and VII)	paragraph 56(3)
parent company	paragraph 71(1)
qualifying company	paragraph 12
qualifying option	paragraph 1 (and see paragraph 61(3))
qualifying shares (in Part VII)	paragraph 56
qualifying subsidiary	paragraph 15
qualifying trade	paragraph 18
relevant company	paragraph 1(3)
replacement option	paragraph 61(2)
research and development	paragraph 71(1)
shares	paragraph 71(1) (and see paragraph 60(4))
single company	paragraph 71(1)
tax year	paragraph 71(1)
trading activities requirement	paragraph 17

Section 63(1).

SCHEDULE 15 The corporate venturing scheme

Part I Investment relief: introduction

Meaning of "investment relief"

1 This Schedule makes provision for--

(a) relief against corporation tax ("investment relief") on amounts subscribed by companies for shares (see this Part and Parts II to VI of this Schedule);

(b) relief against income of companies for losses on disposals of shares to which investment relief is attributable (see Part VII of this Schedule); and

(c) the postponement of certain chargeable gains of companies where the gains are reinvested in shares to which investment relief is attributable (see Part VIII of this Schedule).

Eligibility for investment relief

2 A company ("the investing company") is eligible for investment relief in respect of an amount subscribed by it for an issue of shares in another company ("the issuing company") if--

(a) the shares ("the relevant shares") are issued to the investing company;

(b) the investing company is a qualifying investing company in relation to the relevant shares (see Part II of this Schedule);

(c) the issuing company is a qualifying issuing company in relation to the relevant shares (see Part III of this Schedule); and

(d) the general requirements of Part IV of this Schedule are met in respect of the relevant shares.

Meaning of "the qualification period"

3 (1) In this Schedule "the qualification period", in relation to the relevant shares, means the period beginning with the issue of the shares and ending--

(a) immediately before the third anniversary of the issue date; or

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