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Finance (No. 2) BillPage 260

(c) contain a declaration within sub-paragraph (3) made by
such persons as HMRC may require.

(3) A declaration within this sub-paragraph is a declaration—

(a) that the requirements of Parts 2 to 7 of this Schedule are
5met in relation to the scheme, and

(b) if the declaration is made after the first date on which share
options are granted under the scheme (“the first grant
date”), that those requirements—

(i) were met in relation to those grants of share
10options, and

(ii) have otherwise been met in relation to the scheme
at all times on or after the first grant date when
share options granted under the scheme are
outstanding.

(4) 15If notice is given under this paragraph in relation to an SAYE
option scheme, for the purposes of the SAYE code the scheme is to
be a Schedule 3 SAYE option scheme at all times on and after the
relevant date (but not before that date).

(5) But if the notice is given after the initial notification deadline, the
20scheme is to be a Schedule 3 SAYE option scheme only from the
beginning of the relevant tax year.

(6) For the purposes of this Part—

(7) Sub-paragraph (4) is subject to the following paragraphs of this
Part.

40B Annual returns

(1) This paragraph applies if notice is given in relation to an SAYE
45option scheme under paragraph 40A.

Finance (No. 2) BillPage 261

(2) The scheme organiser must give to HMRC a return for the tax year
in which the relevant date falls and for each subsequent tax year
(subject to sub-paragraph (9)).

(3) If paragraph 40A(5) applies in relation to the scheme, in sub-
5paragraph (2) the reference to the tax year in which the relevant
date falls is to be read as a reference to the relevant tax year.

(4) A return for a tax year must—

(a) contain, or be accompanied by, such information as HMRC
may require, and

(b) 10be given on or before 6 July in the following tax year.

(5) The information which may be required under sub-paragraph
(4)(a) includes (in particular) information to enable HMRC to
determine the liability to tax, including capital gains tax, of—

(a) any person who has participated in the scheme, or

(b) 15any other person whose liability to tax the operation of the
scheme is relevant to.

(6) If during a tax year—

(a) an alteration is made in a key feature of the scheme, or

(b) variations are made under a provision made under
20paragraph 28(3) to take account of a variation in any share
capital,

the return for the tax year must contain a declaration within sub-
paragraph (7) made by such persons as HMRC may require.

(7) A declaration within this sub-paragraph is a declaration, as the
25case may be—

(a) that the alteration has, or

(b) that the variations have,

not caused the requirements of Parts 2 to 7 of this Schedule not to
be met in relation to the scheme.

(8) 30For the purposes of sub-paragraph (6)(a) a “key feature” of a
scheme is a provision of the scheme which is necessary in order for
the requirements of Parts 2 to 7 of this Schedule to be met in
relation to the scheme.

(9) A return is not required for any tax year following that in which
35the termination condition is met in relation to the scheme.

(10) For the purposes of this Part “the termination condition” is met in
relation to a scheme when—

(a) all share options granted under the scheme—

(i) have been exercised, or

(ii) 40are no longer capable of being exercised in
accordance with the scheme (because, for example,
they have lapsed or been cancelled), and

(b) no more share options will be granted under the scheme.

(11) If the scheme organiser becomes aware that—

(a) 45anything which should have been included in, or should
have accompanied, a return for a tax year was not included
in, or did not accompany, the return,

Finance (No. 2) BillPage 262

(b) anything which should not have been included in, or
should not have accompanied, a return for a tax year was
included in, or accompanied, the return, or

(c) any other error or inaccuracy has occurred in relation to a
5return for a tax year,

the scheme organiser must give an amended return correcting the
position to HMRC without delay.

(1) This paragraph applies if the scheme organiser fails to give a
return for a tax year (containing, or accompanied by, all required
10information and declarations) on or before the date mentioned in
paragraph 40B(4)(b) (“the date for delivery”).

(2) The scheme organiser is liable for a penalty of £100.

(3) If the scheme organiser’s failure continues after the end of the
period of 3 months beginning with the date for delivery, the
15scheme organiser is liable for a further penalty of £300.

(4) If the scheme organiser’s failure continues after the end of the
period of 6 months beginning with the date for delivery, the
scheme organiser is liable for a further penalty of £300.

(5) The scheme organiser is liable for a further penalty under this sub-
20paragraph if—

(a) the scheme organiser’s failure continues after the end of
the period of 9 months beginning with the date for
delivery,

(b) HMRC decide that such a penalty should be payable, and

(c) 25HMRC give notice to the scheme organiser specifying the
period in respect of which the penalty is payable.

(The scheme organiser may be liable for more than one penalty
under this sub-paragraph.)

(6) The penalty under sub-paragraph (5) is £10 for each day that the
30failure continues during the period specified in the notice under
sub-paragraph (5)(c).

(7) The period specified in the notice under sub-paragraph (5)(c)

(a) may begin earlier than the date on which the notice is
given, but

(b) 35may not begin until after the end of the period mentioned
in sub-paragraph (5)(a) or, if relevant, the end of any
period specified in any previous notice under sub-
paragraph (5)(c) given in relation to the failure.

(8) Liability for a penalty under this paragraph does not arise if the
40scheme organiser satisfies HMRC (or, on an appeal under
paragraph 40K, the tribunal) that there is a reasonable excuse for
its failure.

(9) For the purposes of sub-paragraph (8)

(a) an insufficiency of funds is not a reasonable excuse, unless
45attributable to events outside the scheme organiser’s
control,

Finance (No. 2) BillPage 263

(b) where the scheme organiser relies on any other person to
do anything, that is not a reasonable excuse unless the
scheme organiser took reasonable care to avoid the failure,
and

(c) 5where the scheme organiser had a reasonable excuse for
the failure but the excuse ceased, the scheme organiser is to
be treated as having continued to have the excuse if the
failure is remedied without unreasonable delay after the
excuse ceased.

40D 10Notices and returns to be given electronically etc

(1) A notice under paragraph 40A, and any information
accompanying the notice, must be given electronically.

(2) A return under paragraph 40B, and any information
accompanying the return, must be given electronically.

(3) 15But, if HMRC consider it appropriate to do so, HMRC may allow
the scheme organiser to give a notice or return or any
accompanying information in another way; and, if HMRC do so,
the notice, return or information must be given in that other way.

(4) The Commissioners for Her Majesty’s Revenue and Customs—

(a) 20must prescribe how notices, returns and accompanying
information are to be given electronically;

(b) may make different provision for different cases or
circumstances.

(1) This paragraph applies if a return under paragraph 40B, or any
25information accompanying such a return—

(a) is given otherwise than in accordance with paragraph 40D,
or

(b) contains a material inaccuracy—

(i) which is careless or deliberate, or

(ii) 30which is not corrected as required by paragraph
40B(11).

(2) The scheme organiser is liable for a penalty of an amount decided
by HMRC.

(3) The penalty must not exceed £5,000.

(4) 35For the purposes of sub-paragraph (1)(b)(i) an inaccuracy is
careless if it is due to a failure by the scheme organiser to take
reasonable care.

40F Enquiries

(1) This paragraph applies if notice is given in relation to an SAYE
40option scheme under paragraph 40A.

(2) HMRC may enquire into the scheme if HMRC give notice to the
scheme organiser of HMRC’s intention to do so no later than—

(a) 6 July in the tax year following the tax year in which the
initial notification deadline falls, or

Finance (No. 2) BillPage 264

(b) if the notice under paragraph 40A is given after the initial
notification deadline, 6 July in the second tax year
following the relevant tax year.

(3) HMRC may enquire into the scheme if HMRC give notice to the
5scheme organiser of HMRC’s intention to do so no later than 12
months after the date on which a declaration within paragraph
40B(7) is given to HMRC.

(4) Sub-paragraph (5) applies if (at any time) HMRC have reasonable
grounds for believing that requirements of Parts 2 to 7 of this
10Schedule—

(a) are not met in relation to the scheme, or

(b) have not been met in relation to the scheme.

(5) HMRC may enquire into the scheme if HMRC give notice to the
scheme organiser of HMRC’s intention to do so.

(6) 15Notice may be given, and an enquiry may be conducted, under
sub-paragraph (2), (3) or (5) even though the termination
condition is met in relation to the scheme.

(1) An enquiry under paragraph 40F(2), (3) or (5) is completed when
HMRC give the scheme organiser a notice (a “closure notice”)
20stating—

(a) that HMRC have completed the enquiry, and

(b) that—

(i) paragraph 40H is to apply,

(ii) paragraph 40I is to apply, or

(iii) 25neither paragraph 40H nor paragraph 40I is to
apply.

(2) If the scheme organiser receives notice under paragraph 40F(2), (3)
or (5), the scheme organiser may make an application to the
tribunal for a direction requiring a closure notice for the enquiry
30to be given within a specified period.

(3) The application is to be subject to the relevant provisions of Part 5
of TMA 1970 (see, in particular, section 48(2)(b) of that Act).

(4) The tribunal must give a direction unless satisfied that HMRC
have reasonable grounds for not giving the closure notice within
35the specified period.

(1) This paragraph applies if HMRC decide—

(a) that requirements of Parts 2 to 7 of this Schedule—

(i) are not met in relation to the scheme, or

(ii) have not been met in relation to the scheme, and

(b) 40that the situation is, or was, so serious that this paragraph
should apply.

(2) If this paragraph applies—

(a) the scheme is not to be a Schedule 3 SAYE option scheme
with effect from—

(i) 45such relevant time as is specified in the closure
notice, or

Finance (No. 2) BillPage 265

(ii) if no relevant time is specified, the time of the
giving of the closure notice, and

(b) the scheme organiser is liable for a penalty of an amount
decided by HMRC.

(3) 5Sub-paragraph (4) applies in relation to a share option granted
under the scheme if the option—

(a) is granted at a time before that mentioned in sub-
paragraph (2)(a)(i) or (ii) (as the case may be) when the
scheme is a Schedule 3 SAYE option scheme, but

(b) 10is exercised at or after the time mentioned in sub-
paragraph (2)(a)(i) or (ii) (as the case may be).

(4) For the purposes of section 519 (exemption in respect of exercise of
share option) in its application to the option, the scheme is to be
taken still to be a Schedule 3 SAYE option scheme at the time of the
15exercise of the option.

(5) The penalty under sub-paragraph (2)(b) must not exceed an
amount equal to twice HMRC’s reasonable estimate of—

(a) the total income tax for which persons who have been
granted share options under the scheme have not been
20liable, or will not be liable in the future, and

(b) the total contributions under Part 1 of SSCBA 1992 or
SSCB(NI)A 1992 for which any persons have not been
liable, or will not be liable in the future,

in consequence of the scheme having been a Schedule 3 SAYE
25option scheme at any relevant time before the time mentioned in
sub-paragraph (2)(a)(i) or (ii) (as the case may be).

(6) The liabilities covered by sub-paragraph (5) include liabilities for
income tax or contributions which a person has not had, or will not
have, in consequence of sub-paragraph (4).

(7) 30In this paragraph “relevant time” means any time before the
giving of the closure notice when requirements of Parts 2 to 7 of
this Schedule were not met in relation to the scheme.

(1) This paragraph applies if HMRC decide—

(a) that requirements of Parts 2 to 7 of this Schedule—

(i) 35are not met in relation to the scheme, or

(ii) have not been met in relation to the scheme, but

(b) that the situation is not, or was not, so serious that
paragraph 40H should apply.

(2) If this paragraph applies, the scheme organiser—

(a) 40is liable for a penalty of an amount decided by HMRC, and

(b) must, no later than 90 days after the relevant day, secure
that the requirements of Parts 2 to 7 of this Schedule are
met in relation to the scheme.

(3) The penalty under sub-paragraph (2)(a) must not exceed £5,000.

(4) 45In sub-paragraph (2)(b) “the relevant day” means—

(a) the last day of the period in which notice of an appeal
under paragraph 40K(2)(b) may be given, or

Finance (No. 2) BillPage 266

(b) if notice of such an appeal is given, the day on which the
appeal is determined or withdrawn.

(5) Sub-paragraph (2)(b) does not apply if the termination condition
was met in relation to the scheme before the closure notice was
5given or is met before the end of the 90 day period mentioned in
sub-paragraph (2)(b).

(6) If the scheme organiser fails to comply with sub-paragraph (2)(b),
HMRC may give the scheme organiser a notice stating that that is
the case (a “default notice”).

(7) 10If the scheme organiser is given a default notice—

(a) the scheme is not to be a Schedule 3 SAYE option scheme
with effect from—

(i) such relevant time as is specified in the default
notice, or

(ii) 15if no relevant time is specified, the time of the
giving of the default notice, and

(b) the scheme organiser is liable for a further penalty of an
amount decided by HMRC.

(8) Sub-paragraph (9) applies in relation to a share option granted
20under the scheme if the option—

(a) is granted at a time before that mentioned in sub-
paragraph (7)(a)(i) or (ii) (as the case may be) when the
scheme is a Schedule 3 SAYE option scheme, but

(b) is exercised at or after the time mentioned in sub-
25paragraph (7)(a)(i) or (ii) (as the case may be).

(9) For the purposes of section 519 (exemption in respect of exercise of
share option) in its application to the option, the scheme is to be
taken still to be a Schedule 3 SAYE option scheme at the time of the
exercise of the option.

(10) 30The penalty under sub-paragraph (7)(b) must not exceed an
amount equal to twice HMRC’s reasonable estimate of—

(a) the total income tax for which persons who have been
granted share options under the scheme have not been
liable, or will not be liable in the future, and

(b) 35the total contributions under Part 1 of SSCBA 1992 or
SSCB(NI)A 1992 for which any persons have not been
liable, or will not be liable in the future,

in consequence of the scheme having been a Schedule 3 SAYE
option scheme at any relevant time before the time mentioned in
40sub-paragraph (7)(a)(i) or (ii) (as the case may be).

(11) The liabilities covered by sub-paragraph (10) include liabilities for
income tax or contributions which a person has not had, or will not
have, in consequence of sub-paragraph (9).

(12) In this paragraph “relevant time” means any time before the
45giving of the default notice when requirements of Parts 2 to 7 of
this Schedule were not met in relation to the scheme.

Finance (No. 2) BillPage 267

40J Assessment of penalties

(1) This paragraph applies if the scheme organiser is liable for a
penalty under this Part.

(2) HMRC must assess the penalty and notify the scheme organiser of
5the assessment.

(3) Subject to sub-paragraphs (4) and (5), the assessment must be
made no later than 12 months after the date on which the scheme
organiser becomes liable for the penalty.

(4) In the case of a penalty under paragraph 40E(1)(b), the assessment
10must be made no later than—

(a) 12 months after the date on which HMRC become aware of
the inaccuracy, and

(b) 6 years after the date on which the scheme organiser
becomes liable for the penalty.

(5) 15In the case of a penalty under paragraph 40H(2)(b) or 40I(2)(a) or
(7)(b) where notice of appeal is given under paragraph 40K(2) or
(3), the assessment must be made no later than 12 months after the
date on which the appeal is determined or withdrawn.

(6) A penalty payable under this Part must be paid—

(a) 20no later than 30 days after the date on which the notice
under sub-paragraph (2) is given to the scheme organiser,
or

(b) if notice of appeal is given against the penalty under
paragraph 40K(1) or (4), no later than 30 days after the date
25on which the appeal is determined or withdrawn.

(7) The penalty may be enforced as if it were corporation tax or, if the
scheme organiser is not within the charge to corporation tax,
income tax charged in an assessment and due and payable.

(8) Sections 100 to 103 of TMA 1970 do not apply to a penalty under
30this Part.

40K Appeals

(1) The scheme organiser may appeal against a decision of HMRC
that the scheme organiser is liable for a penalty under paragraph
40C or 40E.

(2) 35The scheme organiser may appeal against—

(a) a decision of HMRC mentioned in paragraph 40H(1) or a
decision of HMRC to specify, or not to specify, a relevant
time in the closure notice;

(b) a decision of HMRC mentioned in paragraph 40I(1).

(3) 40The scheme organiser may appeal against a decision of HMRC

(a) to give the scheme organiser a default notice under
paragraph 40I;

(b) to specify, or not to specify, a relevant time in the default
notice.

Finance (No. 2) BillPage 268

(4) The scheme organiser may appeal against a decision of HMRC as
to the amount of a penalty payable by the scheme organiser under
this Part.

(5) Notice of appeal must be given to HMRC no later than 30 days
5after the date on which—

(a) in the case of an appeal under sub-paragraph (1) or (4), the
notice under paragraph 40J(2) is given to the scheme
organiser;

(b) in the case of an appeal under sub-paragraph (2), the
10closure notice is given;

(c) in the case of an appeal under sub-paragraph (3), the
default notice is given.

(6) On an appeal under sub-paragraph (1) or (3)(a) which is notified
to the tribunal, the tribunal may affirm or cancel the decision.

(7) 15On an appeal under sub-paragraph (2) or (3)(b) which is notified
to the tribunal, the tribunal may—

(a) affirm or cancel the decision, or

(b) substitute for the decision another decision which HMRC
had power to make.

(8) 20On an appeal under sub-paragraph (4) which is notified to the
tribunal, the tribunal may—

(a) affirm the amount of the penalty decided, or

(b) substitute another amount for that amount.

(9) Subject to this paragraph and paragraph 40J, the provisions of Part
255 of TMA 1970 relating to appeals have effect in relation to an
appeal under this paragraph as they have effect in relation to an
appeal against an assessment to corporation tax or, if the scheme
organiser is not within the charge to corporation tax, income tax.

118 (1) Paragraph 45 (power to require information) is amended as follows.

(2) 30For sub-paragraph (1) substitute—

(1) An officer of Revenue and Customs may by notice require a
person to provide the officer with any information—

(a) which the officer reasonably requires for the performance
of any functions of Her Majesty’s Revenue and Customs or
35an officer of Revenue and Customs under the SAYE code,
and

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

(3) In sub-paragraph (2)(a)—

(a) 40for sub-paragraph (i) substitute—

(i) to check anything contained in a notice
under paragraph 40A or a return under
paragraph 40B or to check any information
accompanying such a notice or return, or”,
45and

(b) in sub-paragraph (ii) after “scheme” insert “or any other person
whose liability to tax the operation of a scheme is relevant to”.

Finance (No. 2) BillPage 269

119 After paragraph 47 insert—

Non-UK company reorganisation arrangements

47A (1) For the purposes of the SAYE code a “non-UK company
reorganisation arrangement” is an arrangement made in relation
5to a company under the law of a territory outside the United
Kingdom—

(a) which gives effect to a reorganisation of the company’s
share capital by the consolidation of shares of different
classes, or by the division of shares into shares of different
10classes, or by both of those methods, and

(b) which is approved by a resolution of members of the
company.

(2) A resolution does not count for the purposes of sub-paragraph
(1)(b) unless the members who vote in favour of approving the
15arrangement represent more than 50% of the total voting rights of
all the members having the right to vote on the issue.

120 In paragraph 49 (index of defined expressions)—

(a) omit the entry for “approved”, and

(b) at the appropriate places insert—

20non-UK company
reorganisation
arrangement
paragraph 47A”
“Schedule 3 SAYE
25option scheme
paragraph 1 and Part 8 of this
Schedule.

Other amendments: TCGA 1992

121 TCGA 1992 is amended as follows.

122 (1) 30Section 105A (shares acquired on same day: election for alternative
treatment) is amended as follows.

(2) For “approved-scheme” (in all places) substitute “tax-advantaged-scheme”.

(3) In subsection (1)(b)(ii) omit “approved”.

123 In section 105B (provision supplementary to section 105A) in subsections (7)
35and (8) for “approved-scheme” substitute “tax-advantaged-scheme”.

124 In section 238A (share schemes and share incentives) in subsection (2)(b) for
“approved” substitute “Schedule 3”.

125 Part 2 of Schedule 7D (SAYE option schemes) is amended as follows.

126 In the title for “Approved” substitute “Schedule 3”.

127 40In paragraph 9 (introduction) in sub-paragraphs (1) and (2) omit
“approved”.

128 (1) Paragraph 10 (market value rule not to apply) is amended as follows.

(2) In sub-paragraph (1)—

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