Income Tax (Earnings and Pensions) Act 2003 (c. 1)

(The document as of February, 2008)

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(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 7 Matching shares

Matching shares: introduction

58 If 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

(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

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

Part 8 Cash 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

65 The 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

67 Paragraphs 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

(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 9 Trustees

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),

(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

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

(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)),

(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

76 The 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

(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

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 10 Approval 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,

(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

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