Income Tax (Earnings and Pensions) Bill

House of Commons

Session 2002 - 03
Internet Publications
Other Bills before Parliament

Income Tax (Earnings and Pensions) Bill

Income Tax (Earnings and Pensions) Bill
Schedule 1 — Abbreviations and defined expressions
Part 2 — Index of defined expressions
    357

taxable employment under Part 2 (in the benefits
section 66(3)

code)

taxable pension income (in Part 9)
section 567(3), (4)

the taxable period (in Chapter 5 of Part 3)
section 102(2)

taxable person (in Chapter 3 of Part 6)
section 403(6)

5

taxable social security income (in Part 10)
section 658(4)-(7)

taxable specific income (in the employment income
section 10(3)

Parts)

tax year
section 721(1)

the tax year (in Part 5)
section 327(2)(b)

10

the tax year 2003-04
section 721(1)

terms (in Chapter 2 of Part 7)
section 434(1)

terms (in Chapter 3 of Part 7)
section 446(1)

total income
section 835 of ICTA

trade
section 832(1) of

15

ICTA

transport voucher (in Chapter 4 of Part 3)
section 84(3)

United Kingdom
section 830 of ICTA

UK approval certificate (in Chapter 6 of Part 3)
section 171(1)

20

use of credit-token by employee (in Chapter 4 of
section 91(b)

Part 3)

value (in relation to shares) (in Chapter 4 of Part 7)
section 470(1)

van (in Chapter 6 of Part 3)
section 115(1)

25

van (in Chapter 2 of Part 4)
section 235(3)

van is available to an employee (in Chapter 6 of
section 116(1)

Part 3)

van made available by reason of employment (in
section 117

Chapter 6 of Part 3)

30

workplace (in Chapter 3 of Part 4)
section 249

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 1 — Introduction
    358

workplace (in Part 5)
section 339(1)

work-related training (in Chapter 4 of Part 4)
section 251(1)

Schedule 2
Section 488

Approved share incentive plans
Part 1
5
Introduction
Approval of share incentive plans (SIPs)
  1       (1)      This Schedule makes provision for—
              (a)             the approval of share incentive plans (“SIPs”) by the Inland Revenue,
and
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              (b)             the administration and operation of such plans.
          (2)      Parts 2 to 9 of this Schedule contain requirements that have to be met in
order for plans to be approved under this Schedule.
          (3)      The requirements consist of general requirements (see Part 2) and
requirements as to—
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               the eligibility of individuals (see Part 3),
               the types of shares that may be awarded (see Part 4),
               free shares (see Part 5),
               partnership shares (see Part 6),
               matching shares (see Part 7),
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               cash dividends and dividend shares (see Part 8), and
               the trustees (see Part 9).
          (4)      Part 10 of this Schedule deals with the approval of plans and the withdrawal
of approval.
SIPs: free shares and partnership shares
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  2       (1)      In the SIP code a “share incentive plan” (or “SIP” for short) means (in
accordance with section 488(4)) a plan established by a company
providing—
              (a)             for shares to be appropriated to employees without payment (“free
shares”), or
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              (b)             for shares to be acquired on behalf of employees out of sums
deducted from their salary (“partnership shares”).
          (2)      In the SIP code, in relation to a SIP—
                “the company” means the company which established the plan;
               “plan requirements” means requirements applying to the plan;
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               “the trustees” means the body of persons established under Part 9 to
exercise functions in connection with the plan.

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 1 — Introduction
    359

Matching shares
  3       (1)      A SIP that provides for partnership shares may also provide for shares to be
appropriated without payment to employees in proportion to the
partnership shares acquired by them (“matching shares”).
          (2)      If a SIP contains provision for all, or more than one, of the following—
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               free shares,
               partnership shares, and
               matching shares,
                   the plan may provide for the company to decide when the provisions
relating to each kind of share are to have effect.
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Group plans
  4       (1)      A SIP established by a company that controls other companies (a “parent
company”) may extend to all or any of those other companies.
          (2)      In the SIP code a SIP established by a parent company which so extends is
referred to as a “group plan”.
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          (3)      In relation to a group plan a “constituent company” means—
              (a)             the parent company, or
              (b)             any other company to which for the time being the plan is expressed
to extend.
          (4)      Paragraph 91 deals with jointly owned companies and companies controlled
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by them.
Meaning of “award of shares”, “participant” etc.
  5       (1)      For the purposes of the SIP code an “award of shares” is made under a SIP
on each occasion when in accordance with the plan—
              (a)             free or matching shares are appropriated to employees, or
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              (b)             partnership shares are acquired on behalf of employees.
          (2)      Accordingly, references to shares awarded to an individual under a SIP are
to—
              (a)             free or matching shares appropriated to the individual, or
              (b)             partnership shares acquired on the individual’s behalf,
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                   under the plan.
          (3)      For the purposes of the SIP code an individual participates in an award of
free, matching or partnership shares under a SIP if shares included in that
award are—
              (a)             in the case of an award of free or matching shares, appropriated to
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the individual, or
              (b)             in the case of an award of partnership shares, acquired on the
individual’s behalf.
          (4)      In the SIP code, in relation to a SIP, “participant” means an individual to
whom shares have been awarded under the plan.
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Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 2 — General requirements
    360

Part 2
General requirements
General requirements for approval: introduction
  6        A SIP must meet the plan requirements contained in—
                    paragraph 7 (the purpose of the plan),
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                    paragraph 8 (all-employee nature of plan),
                    paragraph 9 (participation on same terms),
                    paragraph 10 (no preferential treatment for directors and senior
employees),
                    paragraph 11 (no further conditions), and
10
                    paragraph 12 (no loan arrangements).
The purpose of the plan
  7       (1)      The purpose of the plan must be to provide benefits to employees in the
nature of shares in a company which give them a continuing stake in that
company.
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          (2)      The plan must not contain, and the operation of the plan must not involve,
features which are neither essential nor reasonably incidental to that
purpose.
All-employee nature of plan
  8       (1)      The plan must provide that every employee who—
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              (a)             meets the requirements of Part 3 of this Schedule (eligibility of
individuals) in relation to an award of shares under the plan, and
              (b)             is a UK resident taxpayer,
                   is eligible to participate in the award, and is invited to do so.
          (2)      An employee is a UK resident taxpayer if the employee’s earnings from the
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employment by reference to which the employee meets the employment
requirement are (or would be if there were any) general earnings to which
section 15 or 21 applies (earnings for year when employee resident and
ordinarily resident in the UK).
          (3)      The plan must not contain any feature which has or is likely to have the effect
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of discouraging any description of employees within sub-paragraph (1)
from participating in an award of shares under the plan.
          (4)      Sub-paragraph (3) does not apply to any provision required or authorised by
this Schedule.
          (5)      The plan may provide that an employee who—
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              (a)             meets the requirements of Part 3 of this Schedule (eligibility of
individuals) in relation to an award of shares under the plan, but
              (b)             is not a UK resident taxpayer (see sub-paragraph (2)),
                   is eligible to participate in the award, and may be invited to do so.
          (6)      For the purposes of the SIP code an individual is a “qualifying employee”, in
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relation to an award of shares, if the individual—
              (a)             is eligible to participate in it under sub-paragraph (1), or

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 2 — General requirements
    361

              (b)             is eligible to participate in it under sub-paragraph (5) and has been
invited to do so.
Participation on same terms
  9       (1)      The requirement of this paragraph is that—
              (a)             every employee who is invited to participate in an award must be
5
invited to participate on the same terms, and
              (b)             those who do participate must actually do so on the same terms.
          (2)      The requirement of this paragraph is infringed by the awarding of free
shares by reference to factors other than those mentioned in sub-paragraph
(3).
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          (3)      The requirement of this paragraph is not infringed by the awarding of free
shares by reference to—
              (a)             an employee’s remuneration,
              (b)             an employee’s length of service, or
              (c)             hours worked by an employee;
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                   but this is subject to sub-paragraph (4).
          (4)      If the awarding of free shares is by reference to more than one of the factors
mentioned in sub-paragraph (3), the requirement of this paragraph is
infringed unless—
              (a)             each factor gives rise to a separate entitlement related to the level of
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remuneration, length of service or (as the case may be) hours
worked, and
              (b)             the total entitlement is the sum of those separate entitlements.
          (5)      In the case of an award of free shares which provides for performance
allowances, this paragraph has effect as provided in—
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              (a)             paragraph 41 (performance allowances: method one), or
              (b)             paragraph 42 (performance allowances: method two).
          (6)      In sub-paragraph (5) “performance allowances” has the meaning given in
paragraph 34(4).
          (7)      In the case of an award of partnership shares, the requirement of this
30
paragraph is not infringed by the operation of any percentage limit specified
in or under paragraph 46(2) or (3) (maximum amount of deductions) so far
as the application of that limit to employees with different levels of
remuneration results in deductions of different amounts or in the award of
different numbers of shares.
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No preferential treatment for directors and senior employees
  10      (1)      The first requirement of this paragraph is that no feature of the plan has or
is likely to have the effect of conferring benefits wholly or mainly—
              (a)             on directors, or
              (b)             on employees receiving the higher or highest levels of remuneration.
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          (2)      The second requirement of this paragraph applies only if the plan is
established by a company that is a member of a group.
          (3)      The requirement is that the identity of the company (or, if it is a group plan,
the constituent companies) must not be such that the plan has or is likely to
have the effect of conferring benefits wholly or mainly—
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Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 3 — Eligibility of individuals
    362

              (a)             on employees of companies that are members of the group who
receive the higher or highest levels of remuneration, or
              (b)             on directors of such companies.
          (4)      The requirements of this paragraph are not infringed by the awarding of free
shares in circumstances where (as a result of paragraph 9(3) and (4)) that
5
would not constitute an infringement of the requirements of paragraph 9.
No further conditions
  11       No conditions apart from those required or authorised by this Schedule may
be imposed on an employee’s participation in an award of shares under the
plan.
10
No loan arrangements
  12      (1)      The arrangements for the plan must not make any provision, or be
associated in any way with any provision made, for loans to some or all of
the employees of—
              (a)             the company, or
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              (b)             in the case of a group plan, of any constituent company.
          (2)      The operation of the plan must not be associated in any way with such loans.
          (3)      In sub-paragraph (1) “arrangements” includes any scheme, agreement,
undertaking or understanding, whether or not legally enforceable.
Part 3
20
Eligibility of individuals
Eligibility of individuals: introduction
  13       A SIP must meet the plan requirements contained in—
                    paragraph 14 (time of eligibility to participate),
                    paragraph 15 (the employment requirement),
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                    paragraph 18 (requirement not to participate in other SIPs), and
                    paragraph 19 (the “no material interest” requirement).
Time of eligibility to participate
  14      (1)      The plan must provide that an individual may only participate in an award
of shares if the individual is eligible to participate in the award at the
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appropriate time mentioned below.
          (2)      In the case of an award of free shares, the appropriate time is the time when
the award is made.
          (3)      In the case of an award of partnership shares where the plan does not
provide for an accumulation period, the appropriate time is the time of the
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deduction of the partnership share money relating to the award.
          (4)      In the case of an award of partnership shares where the plan does provide
for an accumulation period, the appropriate time is the time of the first
deduction of partnership share money relating to the award.

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 3 — Eligibility of individuals
    363

          (5)      In the case of an award of matching shares where the plan does not provide
for an accumulation period, the appropriate time is the time of the deduction
of the partnership share money relating to the award of partnership shares
to which the matching shares relate.
          (6)      In the case of an award of matching shares where the plan does provide for
5
an accumulation period, the appropriate time is the time of the first
deduction of partnership share money relating to the award of partnership
shares to which the matching shares relate.
          (7)      For the purposes of this paragraph an individual is eligible to participate in
an award of shares under the plan if and only if the requirements of the plan
10
are met as to—
              (a)             employment (see paragraph 15),
              (b)             not participating in other SIPs (see paragraph 18), and
              (c)             not having a material interest (see paragraph 19).
          (8)      In the case of an individual within paragraph 8(5) (all-employee nature of
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plan: non-UK resident taxpayer), the individual is not eligible to participate
in an award of shares under the plan unless (in addition to the requirements
mentioned in sub-paragraph (7)) any further eligibility requirements of the
plan are met.
The employment requirement
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  15      (1)      The plan must provide that an individual is not eligible to participate in an
award of shares unless the individual meets the requirement in sub-
paragraph (2).
          (2)      The requirement is that the individual—
              (a)             is an employee of—
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                    (i)                   the company, or
                    (ii)                  in the case of a group plan, a constituent company, and
              (b)             if the plan provides for a qualifying period, has at all times during
that period been an employee of a qualifying company.
          (3)      In the SIP code “the employment requirement” means the requirement in
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sub-paragraph (2).
          (4)      This paragraph is supplemented—
              (a)             as regards qualifying periods, by paragraph 16, and
              (b)             as regards the meaning of “qualifying company”, by paragraph 17.
Qualifying periods
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  16      (1)      This paragraph applies if the plan provides for a qualifying period in
relation to an award.
          (2)      In the case of an award of free shares, the qualifying period must be a period
of not more than 18 months ending with the date on which the award is
made.
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          (3)      In the case of an award of partnership shares where the plan does not
provide for an accumulation period, the qualifying period must be a period
of not more than 18 months ending with the deduction of partnership share
money relating to the award.



© Parliamentary copyright 2002	Revised 4 December 2002