Finance Bill

Finance Bill - continued	House of Commons
SCHEDULE 8, EMPLOYEE SHARE OWNERSHIP PLANS - continued

back to previous text

PART XIII

SUPPLEMENTARY PROVISIONS

Company reconstructions

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

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

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

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

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

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

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

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

(3) In this paragraph-

"corresponding shares", in relation to any new shares, means the shares in respect of which the new shares are issued or which the new shares otherwise represent;

"new shares" means shares comprised in the new holding which were issued in respect of, or otherwise represent, shares comprised in the original holding;

"original holding" has the meaning given by sub-paragraph (1).

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

(5) For the purposes of this Schedule-

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

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

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

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

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

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

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

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

Treatment of shares acquired under rights issue

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

(a) identical to the shares in respect of which the rights were conferred, and

(b) appropriated to, or acquired on behalf of, the participant under the plan in the same way and at the same time as those shares.

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

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

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

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

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

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

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

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

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

Power to require information

117. - (1) The Inland Revenue may by notice require any person to provide them with such information as they reasonably require for the performance of their functions under this Schedule and as the person to whom the notice is addressed has or can reasonably obtain.

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

(a) information to enable the Inland Revenue-

(i) to decide whether to approve an employee share ownership plan or withdraw an approval already given, or

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

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

(3) The notice must require the information to be provided within a specified time, which must not be less than three months.

(4) In section 98 of the Taxes Management Act 1970 (penalties in connection with returns, etc.), in the first column of the table, after the final entry insert-

" paragraph 117 of Schedule 8 to the Finance Act 2000".

Withdrawal of approval

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

(2) The following are disqualifying events-

(a) a contravention in relation to the operation of the plan of any of the requirements of this Schedule, the plan itself or the plan trust;

(b) any alteration being made in a key feature of the plan, or in the terms of the plan trust, without the approval of the Inland Revenue;

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

(d) any alteration being made in the share capital of the company whose shares are the subject of the plan, or in the rights attaching to any shares of that company, that materially affects the value of participants' plan shares;

(e) shares of a class of which shares have been awarded to participants receiving different treatment in any respect from the other shares of that class;

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

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

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

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

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

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

(a) the dividend payable;

(b) repayment;

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

This is subject to sub-paragraph (6).

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

(a) where the difference in treatment arises from-

(i) a key feature of the plan, or

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

(b) on the ground only that shares which have been newly issued receive, in respect of dividends payable with respect to a period beginning before the date on which they were issued, treatment less favourable than that accorded to shares issued before that date.

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

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

Appeal against withdrawal of approval

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

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

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

(2) The appeal lies to the Special Commissioners.

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

Termination of plan

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

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

(a) the Inland Revenue,

(b) the trustees, and

(i) who has plan shares, or

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

Effect of plan termination notice

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

(2) No further shares may be awarded to individuals under the plan.

(3) The trustees must remove the plan shares from the plan as soon as practicable after-

(a) the end of the notice period, or

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

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

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

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

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

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

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

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

(b) disposing of the shares and accounting (or holding themselves ready to account) for the proceeds to the participant or to another person at his direction.

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

Meaning of shares being withdrawn from or ceasing to be subject to plan

122. - (1) For the purposes of this Schedule shares are withdrawn from the plan when-

(a) they are transferred by the trustees to the participant, or another person, on the direction of the participant,

(b) the participant assigns, charges or otherwise disposes of his beneficial interest in the shares, or

(c) they are disposed of by the trustees, on the direction of the participant, in circumstances where the trustees account (or hold themselves ready to account) for the proceeds to the participant or to another person.

(2) Where the participant has died, the references in sub-paragraph (1) to the participant shall be read as references to his personal representatives.

(3) For the purposes of this Schedule plan shares cease to be subject to the plan when-

(a) they are withdrawn from the plan,

(b) the participant to whom the shares were awarded ceases to be in relevant employment at a time when the shares are subject to the plan, or

(4) Where an individual participates in an award of partnership shares, if he ceases to be in relevant employment at any time during the acquisition period relating to that award, he shall be treated for the purposes of sub-paragraphs (3) and (7) as ceasing to be in such employment immediately after the shares are awarded to him.

(5) In sub-paragraph (4) "the acquisition period" in relation to an award means-

(a) where there was no accumulation period, the period beginning with the deduction of the partnership share money and ending with the acquisition date (within the meaning of paragraph 40(2)); and

(b) where there was an accumulation period, the period beginning with the end of that period and ending immediately before the acquisition date (within the meaning of paragraph 42(3)).

(6) For the purposes of determining the charge to income tax (if any) arising on any of the participant's shares ceasing to be subject to the plan-

(a) shares shall be taken to cease to be subject to the plan in the order in which they were awarded to the participant under the plan,

(b) where shares are awarded to the participant on the same day, the shares shall be treated as ceasing to be subject to the plan in the order which gives rise to the lowest charge to income tax on the participant.

(7) Where a participant ceases to be in relevant employment his plan shares shall be treated as ceasing to be subject to the plan on the date of leaving.

Meaning of participant ceasing to be in relevant employment

123. - (1) This paragraph explains what is meant by a participant ceasing to be in relevant employment.

(2) Relevant employment means employment by the company or any associated company.

(3) A participant does not cease to be in relevant employment if he remains in the employment of the company or any associated company.

Exercise of functions conferred on "the Inland Revenue"

124. References in this Schedule to "the Inland Revenue" are to any officer of the Board.

Determination of market value

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

This is subject to paragraph 24(3) (determination of value of shares subject to restriction or risk of forfeiture).

(2) Where for the purposes of this Schedule the market value of shares on any date falls to be determined, the Inland Revenue and the trustees 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.

Meaning of "associated company"

126. - (1) For the purposes of this Schedule one company is an "associated company" of another company if-

(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 this paragraph the question of whether a person controls a company shall be determined in accordance with section 416(2) to (6) of the Taxes Act 1988.

(3) This paragraph is subject to paragraph 67(3).

Jointly owned companies

127. - (1) For the purposes of the provisions of this Schedule relating to group plans, each joint owner of a jointly owned company is treated as controlling-

(a) the jointly owned company, and

(b) any company controlled by that company.

This paragraph does not apply for the purposes of paragraph 61(b) (requirement that plan shares are in a company not under another company's control).

(2) A "jointly owned company" means a company-

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

(b) which is not controlled by any one person.

(3) A jointly owned company may not be a participating company in more than one group plan.

Meaning of "workers' co-operative"

128. - (1) In this Schedule "workers' co-operative" means a registered industrial and provident society which is a cooperative society and the rules of which include provisions which secure-

(a) that the only persons who may be members of it are those who are employed by, or by a subsidiary of, the society and those who are the trustees of its employee share ownership plan, and

(b) that, subject to any provision about qualifications for membership which is from time to time made by the members of the society by reference to age, length of service or other factors of any description, all such persons may be members of the society.

(2) In sub-paragraph (1)-

"registered industrial and provident society" means a society registered or deemed to be registered under the Industrial and Provident Societies Act 1965 or the Industrial and Provident Societies Act (Northern Ireland) 1969; and

"co-operative society" has the same meaning as in section 1 of the 1965 Act or, as the case may be, the 1969 Act.

Meaning of "readily convertible asset"

129. - (1) For the purposes of this Schedule "readily convertible asset" has the same meaning as in section 203F of the Taxes Act 1988 (PAYE: tradeable assets).

This is subject to sub-paragraph (2).

(2) In determining for the purposes of this Schedule whether shares are readily convertible assets any market for the shares that-

(a) is created by virtue of the trustees acquiring shares for the purposes of the plan, and

(b) exists solely for the purposes of the plan,

shall be disregarded.

Minor definitions

130. - (1) In this Schedule-

"approved employee share ownership plan" means an employee share ownership plan approved under this Schedule;

"approved profit sharing scheme" means a profit sharing scheme approved under Schedule 9 to the Taxes Act 1988;

"articles of association", in relation to a company, includes any other written agreement between the shareholders of the company;

"company" means a body corporate;

"control", unless otherwise indicated, has the same meaning as in section 840 of the Taxes Act 1988;

"foreign cash dividend" means a cash dividend paid in respect of plan shares in a company not resident in the United Kingdom;

"group of companies" means a company and any other companies of which it has control, and "group company" has a corresponding meaning;

"ordinary share capital" has the meaning given in section 832(1) of the Taxes Act 1988;

"participant's plan shares", in relation to an employee share ownership plan, means plan shares that have been awarded to an individual participant;

"PAYE obligations" means obligations of any person under-

(a) sections 203 to 203L of the Taxes Act 1988, or

(b) regulations under section 203 of that Act;

"plan shares", in relation to a plan, means-

(a) free, partnership or matching shares that have been awarded to participants under the plan,

(b) dividend shares that have been acquired on behalf of participants under the plan, and

that remain subject to the plan;

"qualifying corporate bond" has the meaning given by section 117 of the Taxation of Chargeable Gains Act 1992;

"tax year" means a year of assessment.

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

(3) For the purposes of this Schedule references to "shares" include fractions of shares forming part of the share capital of a company registered in a foreign country the law of which recognises such fractions.

(4) For the purposes of this Schedule 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 three-quarters of the other company's ordinary share capital, and

(b) each of which beneficially owns not less than one-twentieth of that capital.

Index of defined expressions

131. In this Schedule the following expressions are defined or otherwise explained by the provisions indicated-

approved employee share ownership plan	paragraph 130(1) (and see paragraph 118(7))
approved profit sharing scheme	paragraph 130(1)
articles of association	paragraph 130(1)
associated company	paragraph 126 (and see paragraph 67(3))
award of shares	paragraph 3(1)
ceasing to be in relevant employment (in relation to a participant)	paragraph 123
ceasing to be subject to plan (in relation to shares)	paragraph 122
company	paragraph 130(1)
the company (in relation to an employee share ownership plan)	paragraph 1(4)
connected person	paragraph 130(2)
consortium (member of)	paragraph 130(4)
control	paragraph 130(1) (and see paragraph 127)
deduction (in Part XII)	paragraph 105
dividend shares	paragraph 53(1)
eligible shares (in Part VIII)	paragraph 59
employee share ownership plan	paragraph 1(1)
foreign cash dividend	paragraph 130(1)
forfeiture (provision for)	paragraph 65(6)
free shares	paragraph 1(1)(a)
group of companies	paragraph 130(1)
group plan	paragraph 2(1)
holding period	paragraph 31
the Inland Revenue	paragraph 124
market value (of shares)	paragraph 125
matching shares	paragraph 1(2)
ordinary share capital	paragraph 130(1)
parent company	paragraph 2(1)
participant (in relation to an employee share ownership plan)	paragraph 3(3)
participant's plan shares	paragraph 130(1) (and see paragraph 115(4))
participating company (in relation to a group plan)	paragraph 2(2)
participation in an award of shares	paragraph 3(2)
partnership share agreement	paragraph 34
partnership shares	paragraph 1(1)(b)
PAYE obligations	paragraph 130(1)
performance allowance	paragraph 25
plan shares	paragraph 130(1) (and see paragraphs 115 and 116)
the plan trust	paragraph 68(2)
qualifying corporate bond	paragraph 130(1)
qualifying employee	paragraph 8(4)
readily convertible asset	paragraph 129
reinvestment (in Part VII)	paragraph 53(1)
relevant employment	paragraph 123(2)
salary (in Part V)	paragraph 48
shares	paragraph 130(3) (and in the context of a new holding paragraph 115(8))
tax year	paragraph 130(1)
the trustees	paragraph 68(1)
withdrawal of shares from plan	paragraph 122(1)
workers' co-operative	paragraph 128

Prepared 6 April 2000