Income Tax (Earnings and Pensions) Bill

House of Commons

Session 2002 - 03
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Income Tax (Earnings and Pensions) Bill

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 11 — Supplementary provisions
    399

          (3)      For the purposes of the SIP 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.
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Index of defined expressions
  100      In the SIP code the following expressions are defined or otherwise explained
by the provisions indicated below:

accumulation period
paragraph 51

approval, approved
section 488(4) (and see

10

paragraph 83(4))

articles of association
paragraph 99(1)

associated company
paragraph 94 (and see

paragraph 29(3))

award of shares
paragraph 5(1)

15

the Board of Inland Revenue
section 720(2)

building society
section 832(1) of ICTA

ceasing to be in relevant employment (in relation to a
paragraph 95

participant)

ceasing to be subject to plan (in relation to shares)
paragraph 97

20

child
section 832(5) of ICTA

(and see section 721(6))

close company
section 832(1) of ICTA

(and see paragraph

20(4))

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company
paragraph 99(1)

the company (in relation to a SIP)
paragraph 2(2)

company reconstruction (in Part 11 of this Schedule)
paragraph 86(1)

connected person
section 718

constituent company
paragraph 4(3)

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consortium (member of)
paragraph 99(3)

control
section 719 (and see

paragraphs 29(5), 37(6)

and 94(3))

distribution
section 832(1) of ICTA

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dividend shares
paragraph 62(3)(b)

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 11 — Supplementary provisions
    400

earnings
section 62 and see

section 721(7)

eligible shares (in Part 4 of this Schedule)
paragraph 25(2)

employee, employed, employer and employment
section 4

the employment requirement
paragraph 15(3)

5

forfeiture, provision for
paragraph 99(1)

free shares
paragraph 2(1)(a)

group of companies
paragraph 99(1)

group company
paragraph 99(1)

group plan
paragraph 4(2)

10

holding period
paragraph 36 (and see

paragraph 67)

the Inland Revenue
section 720(1)

market value (of shares)
paragraph 92

matching shares
paragraph 3(1)

15

notice (except in paragraph 54 or 55)
section 832(1) of ICTA

ordinary share capital
section 832(1) of ICTA

parent company
paragraph 4(1)

participant (in relation to a SIP)
paragraph 5(4)

participant’s plan shares
paragraph 99(1) (and

20

see paragraph 87(1))

participation in an award of shares
paragraph 5(3)

partnership share agreement
paragraph 44

partnership share money
paragraph 45(2)

partnership shares
paragraph 2(1)(b)

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PAYE deduction
section 488(4)

PAYE obligations
paragraph 99(1)

PAYE regulations
section 684(8)

performance allowances
paragraph 34(4)

personal representatives
section 721(1)

30

plan requirements (in relation to a SIP)
paragraph 2(2)

plan shares (in relation to a SIP)
paragraph 99(1) (and

see paragraphs 86, 87,

88)

Income Tax (Earnings and Pensions) Bill
Schedule 3 — Approved SAYE option schemes
Part 1 — Introduction
    401

the plan trust
paragraph 71(3)

provision for forfeiture
paragraph 99(1)

qualifying corporate bond
paragraph 99(1)

qualifying employee
paragraph 8(6)

recognised stock exchange
section 841 of ICTA

5

redundancy
paragraph 99(1)

reinvestment
paragraph 62(3)(a)

relevant employment
paragraph 95(2)

rights arising under a rights issue
paragraph 99(1)

salary
paragraph 43(4)

10

share incentive plan (“SIP”)
section 488(4)

shares
paragraph 99(2) (and

in the context of a new

holding, paragraph

87(6))

15

the SIP code
section 488(3)

Special Commissioners
section 4 of TMA 1970

the specified retirement age
paragraph 98(1)

tax
section 832(3) of ICTA

tax year
section 721(1)

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the trustees
paragraphs 2(2), 71(1)

the trust instrument
paragraph 71(3)

withdrawal of shares from plan
paragraph 96(1)

Schedule 3
Section 516

Approved SAYE option schemes
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Part 1
Introduction
Approval of SAYE option schemes
  1       (1)      This Schedule makes provision for the approval of SAYE option schemes by
the Inland Revenue.
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          (2)      Parts 2 to 7 of this Schedule contain requirements that have to be met in
order for schemes to be approved under this Schedule.

Income Tax (Earnings and Pensions) Bill
Schedule 3 — Approved SAYE option schemes
Part 2 — General requirements for approval
    402

          (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 schemes can apply (see Part 4),
               the existence of a linked savings scheme (see Part 5),
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               the share options that may be granted under the scheme (see Part 6),
and
               the exchange of share options (see Part 7).
          (4)      Part 8 of this Schedule deals with the approval of schemes and the
withdrawal of approval.
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SAYE option schemes
  2       (1)      In the SAYE code an “SAYE option scheme” means (in accordance with
section 516(4)) a scheme established by a company which provides—
              (a)             for share options to be granted to employees and directors, and
              (b)             for the shares acquired by the exercise of the share options to be paid
15
for in the way mentioned in paragraph 24 (payments for shares to be
linked to approved savings schemes).
          (2)      In the SAYE code, in relation to an SAYE option scheme—
               “participant” means an individual who has been granted (but has not
yet exercised) share options under the scheme (“the options”);
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               “participate” means obtain and exercise share options under the
scheme;
               “the scheme organiser” means the company which has established the
scheme.
Group schemes
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  3       (1)      An SAYE option 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 SAYE code an SAYE option scheme established by a parent scheme
company which so extends is called a “group scheme”.
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          (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 46 deals with jointly owned companies and companies controlled
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by them.
Part 2
General requirements for approval
General requirements for approval: introduction
  4        An SAYE option scheme must meet the requirements of—
40
                    paragraph 5 (general restriction on contents of scheme),
                    paragraph 6 (all-employee nature of scheme),

Income Tax (Earnings and Pensions) Bill
Schedule 3 — Approved SAYE option schemes
Part 2 — General requirements for approval
    403

                    paragraph 7 (participation on similar terms), and
                    paragraph 8 (no preferential treatment for directors and senior
employees).
General restriction on contents of scheme
  5        The scheme must not contain features which are neither essential nor
5
reasonably incidental to the purpose of providing benefits for employees
and directors in the nature of share options.
All-employee nature of scheme
  6       (1)      The scheme must provide that every person who meets the conditions in
sub-paragraph (2) is eligible to participate in the scheme.
10
          (2)      A person (“E”) meets the conditions in this sub-paragraph if—
              (a)             E is an employee or a full-time director of the scheme organiser or (in
the case of a group scheme) of a constituent company,
              (b)             E has been such an employee or director at all times during a
qualifying period of not more than 5 years,
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              (c)             E’s earnings from the office or employment within paragraph (a) 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), and
              (d)             E is not ineligible under paragraph 11 (the “no material interest”
20
requirement).
          (3)      The scheme must not contain any feature which has or is likely to have the
effect of discouraging any description of persons who—
              (a)             meet the conditions in sub-paragraph (2), or
              (b)             met those conditions before ceasing to be persons within sub-
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paragraph (2)(a),
                   from actually participating in the scheme.
          (4)      Sub-paragraph (3) does not apply to any provision required or authorised by
a provision of this Schedule.
Participation on similar terms
30
  7       (1)      The requirements of this paragraph are—
              (a)             that every person who meets the conditions in paragraph 6(2) (all-
employee nature of scheme) must be eligible to participate in the
scheme on similar terms, and
              (b)             that every person who participates in the scheme must actually do so
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on similar terms.
          (2)      The requirements of this paragraph are not infringed by the fact that the
rights of those participating in the scheme to obtain and exercise share
options vary according to—
              (a)             the levels of their remuneration,
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              (b)             the length of their service, or
              (c)             any similar factors.

Income Tax (Earnings and Pensions) Bill
Schedule 3 — Approved SAYE option schemes
Part 3 — Eligibility of individuals to participate in scheme
    404

No preferential treatment for directors and senior employees
  8       (1)      The requirement of this paragraph is that, if the scheme organiser is a
member of a group of companies, the scheme does not and is not likely to
have the effect of conferring benefits wholly or mainly—
              (a)             on directors of companies in the group, or
5
              (b)             on employees of companies in the group who receive the higher or
highest levels of remuneration.
          (2)      “A group of companies” means a company and any other companies of
which it has control.
Part 3
10
Eligibility of individuals to participate in scheme
Requirements relating to the eligibility of individuals: introduction
  9        An SAYE option scheme must meet the requirements of—
                    paragraph 10 (the employment requirement), and
                    paragraph 11 (the “no material interest” requirement).
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The employment requirement
  10      (1)       The scheme must ensure that an individual is not eligible to participate in
the scheme at a particular time unless the individual is then a director or
employee of—
              (a)             the scheme organiser, or
20
              (b)             in the case of a group scheme, a constituent company.
          (2)      The requirement of this paragraph is not infringed by a provision of the
scheme required or authorised by a provision of this Schedule.
The “no material interest” requirement
  11      (1)      The scheme must ensure that an individual is not eligible to participate in
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the scheme on any date if the individual has on that date, or has had within
the 12 months ending with 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
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              (b)             which has control of a company whose shares may be acquired as a
result of exercising share options granted under the scheme, or
              (c)             which is a member of a consortium which owns a company within
paragraph (b).
          (2)      For the purposes of this paragraph an individual is to be regarded as having
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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
              (c)             any such associate, with or without any other such associates,
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                   has a material interest in the company.

Income Tax (Earnings and Pensions) Bill
Schedule 3 — Approved SAYE option schemes
Part 3 — Eligibility of individuals to participate in scheme
    405

          (3)      This paragraph is supplemented—
              (a)             as regards the meaning of “material interest”, by paragraphs 12 and
13, and
              (b)             as regards the meaning of “associate”, by paragraph 14 (read with
paragraphs 15 and 16).
5
          (4)      In this paragraph and paragraph 12 “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).
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Meaning of “material interest”
  12      (1)      In paragraph 11 (the “no material interest” requirement) references to a
“material interest” in a company are to—
              (a)             a material interest in the share capital of the company, or
              (b)             a material interest in its assets.
15
          (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 25% of the ordinary share capital of the company.
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          (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 25% of the
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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 13 (material interest: options
etc).
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Material interest: options and interests in SIPs
  13      (1)      For the purposes of paragraph 12 (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 12 in a case
where—
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              (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
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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 25% of the
ordinary share capital of the company, that ordinary share capital is to be
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© Parliamentary copyright 2002	Revised 4 December 2002