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

(The document as of February, 2008)

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Part 7 Exchange of share options

Exchange of options on company reorganisation

38 (1) An SAYE option scheme may provide that if--

(a) there is a company reorganisation affecting a scheme company (that is, a company whose shares may be acquired by the exercise of share options obtained under the scheme: see paragraph 18), and

(b) a participant has obtained share options under the scheme which are to acquire shares of the scheme company ("the old options"),

the participant may agree with the acquiring company to release the old options in consideration of the participant being granted new share options.

(2) For the purposes of this paragraph there is a company reorganisation affecting a scheme company if another company ("the acquiring company")--

(a) obtains control of the scheme company--

(i) as a result of making a general offer to acquire the whole of the issued ordinary share capital of the scheme company which is made on a condition such that, if it is met, the person making the offer will have control of that company, or

(ii) as a result of making a general offer to acquire all the shares in the scheme company which are of the same class as those subject to the old options;

(b) obtains control of the scheme company as a result of a compromise or arrangement sanctioned by the court under--

(i) section 425 of the Companies Act 1985 (power to compromise with creditors and members), or

(ii) Article 418 of the Companies (Northern Ireland) Order 1986) (corresponding provision for Northern Ireland); or

(i) sections 428 to 430 of that Act (power to acquire shares of shareholders dissenting from schemes or contract approved by majority), or

(ii) Articles 421 to 423 of that Order (corresponding provision for Northern Ireland).

(3) A scheme that makes provision under sub-paragraph (1) must require the agreement referred to in that sub-paragraph to be made--

(a) where control is obtained in the way set out in sub-paragraph (2)(a)(i) or (ii), within the period of 6 months beginning with the time when the acquiring company obtains control and any condition subject to which the offer is made is met,

(b) where control is obtained in the way set out in sub-paragraph (2)(b), within the period of 6 months beginning with the time when the court sanctions the compromise or arrangement, and

(c) where sub-paragraph (2)(c) applies, within the period during which the acquiring company remains bound or entitled as mentioned in that provision.

Requirements about share options granted in exchange

39 (1) This paragraph applies to a scheme that makes provision under paragraph 38 (exchange of options on company reorganisation).

(2) The scheme must require the new share options to relate to shares in a company which--

(a) is different from the company whose shares are subject to the old options, and

(b) is either the acquiring company itself or some other company within sub-paragraph (b) or (c) of paragraph 18 (shares must be ordinary shares of certain companies), namely--

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

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

For this purpose the control in question may be through the medium of the acquiring company.

(3) The scheme must also require the new share options to be equivalent to the old options.

(4) For the new options to be regarded as equivalent to the old options--

(a) the shares to which they relate must meet the conditions in paragraphs 18 to 22 (types of share that may be used),

(b) they must be exercisable in the same manner as the old options and subject to the provisions of the scheme as it had effect immediately before the release of the old options,

(c) the total market value of the shares subject to the old options immediately before the release of those options by the participant must equal the total market value, immediately after the grant of the new options to the participant, of the shares subject to those options, and

(d) the total amount payable by the participant for the acquisition of shares under the new options must be equal to the total amount that would have been so payable under the old options.

(5) For the purposes of the SAYE code, new share options granted under the terms of a provision included in a scheme under paragraph 38 are to be treated as having been granted at the time when the corresponding old options were granted.

(6) This also applies for the purposes of the provisions of the scheme in their operation, after the grant of the new options, by virtue of a condition complying with sub-paragraph (4)(b).

Part 8 Approval of schemes

Application for approval

40 (1) Where--

(a) an SAYE option scheme has been established, and

(b) the scheme organiser makes an application to the Inland Revenue for approval of the scheme,

the Inland Revenue must approve the scheme if they are satisfied that it meets the requirements of Parts 2 to 7 of this Schedule.

(2) An application for approval--

(a) must be in writing, and

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

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

Appeal against refusal of approval

41 (1) If the Inland Revenue refuse to approve the scheme, the scheme organiser may appeal to the Special Commissioners.

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

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

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

Withdrawal of approval

42 (1) If any disqualifying event occurs in connection with an approved SAYE option scheme, the Inland Revenue may by a notice given to the scheme organiser withdraw the approval with effect from--

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

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

(2) A "disqualifying event" occurs in connection with a scheme if--

(a) any of the requirements of Parts 2 to 7 of this Schedule ceases to be met; or

(b) the scheme organiser fails to provide information requested by the Inland Revenue under paragraph 45.

(3) If share options granted under an SAYE option scheme before the withdrawal of approval under this paragraph are exercised after the withdrawal, the scheme is to be treated for the purposes of--

(a) section 519 (exemption in respect of exercise of share option), and

(b) section 520 (exemption in respect of post-acquisition benefits),

in their application to such options, as if it were still approved at the time of the exercise.

Approval ineffective after unapproved alteration

43 (1) If--

(a) an alteration is made in an SAYE option scheme that has been approved, and

(b) the alteration has not been approved by the Inland Revenue,

the approval of the scheme is ineffective after the date of the alteration.

(2) Where the Inland Revenue--

(a) have been requested to approve any alteration in such a scheme, and

(b) have decided whether or not to approve the alteration,

they must give notice of their decision to the scheme organiser.

Appeal against withdrawal of approval etc.

44 (1) This paragraph applies if an SAYE option scheme has been approved by the Inland Revenue and they--

(a) decide to withdraw approval of the scheme under paragraph 42, or

(b) decide not to approve an alteration in the scheme under paragraph 43.

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

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

Part 9 Supplementary provisions

Power to require information

45 (1) The Inland Revenue may by notice require any person to provide them with any information--

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

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

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

(a) information to enable the Inland Revenue--

(i) to decide whether to approve an SAYE option scheme or to withdraw an approval already given, or

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

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

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

Jointly owned companies

46 (1) This paragraph applies for the purposes of the provisions of the SAYE code relating to group schemes.

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

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

(a) the jointly owned company, and

(b) any company controlled by that company.

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

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

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

(5) In this paragraph a "jointly owned company" means a company which (apart from sub-paragraph (2)) is not controlled by any one person and--

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

(b) which is otherwise controlled by two persons taken together.

(6) In this paragraph "joint owner" means one of the persons mentioned in sub-paragraph (5)(a) or (b).

Meaning of "associated company"

47 (1) For the purposes of the SAYE code, except in paragraph 35(3) (time when "scheme-related employment" ends), one company is an "associated company" of another company at a given time if, at that time or at any other time within one year previously--

(a) one has control of the other, or

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

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

Minor definitions

48 (1) In the SAYE code--

"certified contractual savings scheme" has the meaning given in section 326(2) to (6) of ICTA;
"company" means a body corporate;
"market value" has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act.

(2) For the purposes of the SAYE code a company is a member of a consortium owning another company if it is one of a number of companies--

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

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

Index of defined expressions

49 In the SAYE code the following expressions are defined or otherwise explained by the provisions indicated below:

approved	section 516(4) (and see paragraph 42(3))
associated company	paragraph 47(1)
the bonus date	paragraph 30(3)
certified contractual savings scheme (CCS scheme)	paragraph 48(1)
child	section 832(5) of ICTA, (and see section 721(6) of this Act)
close company	section 832(1) of ICTA, (and see paragraph 11(4))
company	paragraph 48(1)
connected person	section 718
constituent company	paragraph 3(3)
control	section 719 (and see paragraphs 35(4) and 47(2))
distribution	section 832(1) of ICTA
earnings	section 62 and see section 721(7)
eligible shares (in Part 4 of this Schedule)	paragraph 17(2)
employee and employment	section 4
group scheme	paragraph 3(2) (and see paragraph 46)
the Inland Revenue	section 720(1)
interest	section 832(1) of ICTA
market value	paragraph 48(1)
member of a consortium	paragraph 48(2)
notice	section 832(1) of ICTA
the options (in relation to a participant)	paragraph 2(2)
ordinary share capital	section 832(1) of ICTA
participant	paragraph 2(2)
participate	paragraph 2(2)
personal representatives	section 721(1)
recognised stock exchange	section 841 of ICTA
the SAYE code	section 516(3)
SAYE option scheme	section 516(4)
the scheme organiser	paragraph 2(2)
share option	section 516(4)
shares	section 516(4)
Special Commissioners	section 4 of TMA 1970
specified age	paragraph 31
tax	section 832(3) of ICTA
United Kingdom	section 830 of ICTA

Section 521

SCHEDULE 4 Approved CSOP schemes

Part 1 Introduction

Approval of CSOP schemes

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

(2) Parts 2 to 6 of this Schedule contain requirements that have to be met in order for schemes to be approved under this Schedule.

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

the eligibility of individuals to participate in a scheme (see Part 3),
the shares to which a scheme can apply (see Part 4),
the share options which may be granted under a scheme (see Part 5), and
the exchange of share options (see Part 6).

(4) Part 7 of this Schedule deals with the approval of schemes and the withdrawal of approval.

CSOP schemes

2 (1) In the CSOP code a "CSOP scheme" means (in accordance with section 521(4)) a scheme which--

(a) is established by a company,

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

(2) In the CSOP code, in relation to a CSOP scheme--

"participant" means an individual who has been granted (but has not yet exercised) share options under the scheme ("the options");
"participate" means obtain and exercise share options under the scheme;
"the scheme organiser" means the company which has established the scheme.

Group schemes

3 (1) A CSOP scheme established by a company that controls one or more other companies (a "parent scheme company") may extend to all or any of those other companies.

(2) In the CSOP code a CSOP scheme established by a parent scheme company which so extends is called a "group scheme".

(3) In relation to a group scheme a "constituent company" means--

(a) the parent scheme company, or

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

(4) Paragraph 34 deals with jointly owned companies and companies controlled by them.

Part 2 General requirements for approval

General requirements for approval: introduction

4 A CSOP scheme must meet the requirements of--

paragraph 5 (general restriction on contents of scheme), and
paragraph 6 (limit on value of shares subject to options).

General restriction on contents of scheme

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

Limit on value of shares subject to options

6 (1) The scheme must provide that an individual may not be granted share options under it which would at the time when they are granted cause the aggregate market value of the shares which the individual may acquire by exercising share options granted under--

(a) the scheme, or

(b) any other approved CSOP scheme established by the scheme organiser or an associated company of the scheme organiser,

to exceed or further exceed £30,000.

(2) For the purposes of sub-paragraph (1) share options that have already been exercised are to be left out of account.

(3) For the purposes of sub-paragraph (1) the market value of shares is to be calculated as at--

(a) the time when the options relating to them were granted, or

(b) if an agreement relating to them has been made under paragraph 22 (requirements as to price for acquisition of shares) the earlier time or times stated in the agreement.

Part 3 Eligibility of individuals to participate in scheme

Requirements relating to the eligibility of individuals: introduction

7 A CSOP scheme must meet the requirements of--

paragraph 8 (the employment requirement), and
paragraph 9 (the "no material interest" requirement).

The employment requirement

8 (1) The scheme must ensure that an individual is not eligible to be granted share options under the scheme at a particular time unless the individual is then a full-time director or a qualifying employee of--

(a) the scheme organiser, or

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

(2) A "qualifying employee", in relation to a company, means an employee of the company other than one who is a director of--

(a) the company, or

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

The "no material interest" requirement

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

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

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

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

(a) the individual, or

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

has a material interest in the company.

(3) This paragraph is supplemented--

(a) as regards the meaning of "material interest", by paragraphs 10 and 11, and

(b) as regards the meaning of "associate", by paragraph 12 (read with paragraphs 13 and 14).

(4) In this paragraph and paragraph 10 "close company" includes a company that would be a close company but for--

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

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

Meaning of "material interest"

10 (1) In paragraph 9 (the "no material interest" requirement) references to a "material interes" in a company are to--

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

(b) a material interest in its assets.

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

(a) beneficial ownership of, or

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

more than 10% of the ordinary share capital of the company.

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

(a) possession of, or

(b) an entitlement to acquire,

such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive more than 10% of the assets that would then be available for distribution among the participators.

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

(5) This paragraph is supplemented by paragraph 11 (material interest: options etc.).

Material interest: options and interests in SIPs

11 (1) For the purposes of paragraph 10 (meaning of "material interest") a right to acquire shares (however arising) is to be treated as a right to control them.

(2) Sub-paragraph (3) also applies for the purposes of paragraph 10 in a case where--

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

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

(3) In determining at any time prior to the exercise of the right whether the number of shares to be attributed to the individual exceeds 10% of the ordinary share capital of the company, that ordinary share capital is to be treated as increased by the number of unissued shares referred to in sub-paragraph (2)(b).

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

(a) for the purposes of paragraph 10(2) (material interest in share capital), and

(b) in accordance with paragraph 9(2) (material interest can consist of or include that of individual's associates),

fall to be brought into account in the individual's case so that it can be determined whether their number exceeds 10% of the company's ordinary share capital.

(5) In applying paragraph 10 the following are to be disregarded--

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

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

Meaning of "associate"

12 (1) In paragraph 9(2) (the "no material interest" requirement) "associate", in relation to an individual, means--

(a) any relative or partner of that individual,

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

(c) where that individual is interested in any shares or obligations of the company mentioned in paragraph 9(2) which are subject to any trust or are part of the estate of a deceased person--

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

(ii) the personal representatives of the deceased,

as the case may be.

(2) Sub-paragraph (1)(c) needs to be read with paragraphs 13 and 14 (which relate to employee benefit trusts and discretionary trusts).

(3) In this paragraph--

"relative" means--
(a)
spouse,
(b)
parent, child or remoter relation in the direct line, or
(c)
brother or sister;
"settlor" and "settlement" have the same meaning as in Chapter 1A of Part 15 of ICTA (see section 660G(1) and (2)).

Meaning of "associate": trustees of employee benefit trust

13 (1) This paragraph applies for the purposes of paragraph 12(1)(c) (meaning of "associate": trustees of settlement) where the individual is interested as a beneficiary of an employee benefit trust in shares or obligations of the company mentioned in paragraph 9(2).

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

(a) the individual, nor

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

has at any time after 13th March 1989 been the beneficial owner of, or been able (directly or through the medium of other companies or by any other indirect means) to control, more than 10% of the ordinary share capital of the company.

(3) In sub-paragraph (2)(b) and (c) "associate" has the meaning given by paragraph 12(1), but does not include the trustees of an employee benefit trust as a result only of the individual's having an interest in shares or obligations of the trust.

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

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

Meaning of "associate": trustees of discretionary trust

14 (1) This paragraph applies for the purposes of paragraph 12(1)(c) (meaning of "associate": trustees of settlement) where--

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

(b) the property subject to the trust has at any time consisted of, or included, shares or obligations of the company mentioned in paragraph 9(2),

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

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

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

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

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

(3) In sub-paragraph (1) "associate" has the meaning given by paragraph 12(1) but with the omission of paragraph (c).

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