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Excluded activities: provision of facilities for another business | |
23 (1) This paragraph applies where a company (“the service provider”) provides | |
services or facilities for a business carried on by another person. | |
(2) Providing those services or facilities is an excluded activity if— | |
(a) the business consists to a substantial extent in carrying on excluded | 5 |
activities within any of sub-paragraphs (a) to (k) of paragraph 16, | |
and | |
(b) a controlling interest in the business is held by a person (other than a | |
company of which the service provider is a subsidiary) who also has | |
a controlling interest in the business carried on by the service | 10 |
provider. | |
(3) Sub-paragraphs (4) to (6) explain what is meant by a controlling interest in a | |
business for the purposes of sub-paragraph (2)(b). | |
(4) In the case of a business carried on by a company, a person (“P”) has a | |
controlling interest in the business if— | 15 |
(a) P controls the company, | |
(b) the company is a close company and P, or an associate of P’s, is a | |
director of the company and either— | |
(i) is the beneficial owner of more than 30% of the ordinary | |
share capital of the company, or | 20 |
(ii) is able (directly or through the medium of other companies or | |
by any other indirect means) to control more than 30% of that | |
share capital, or | |
(c) not less than half of the business could, in accordance with section | |
344(2) of ICTA (company reconstructions: supplemental), be | 25 |
regarded as belonging to him for the purposes of section 343 of that | |
Act (company reconstructions without a change of ownership). | |
(5) In any other case, a person has a controlling interest in a business if that | |
person is entitled to not less than half— | |
(a) of the assets used for the business, or | 30 |
(b) of the income arising from it. | |
(6) For the purposes of sub-paragraph (4)(a) the question whether a person | |
controls a company is to be determined in accordance with section 416(2) to | |
(6) of ICTA (“control” in the context of close companies). | |
(7) For the purposes of this paragraph any rights or powers of a person who is | 35 |
an associate of another person are to be attributed to that other person. | |
(8) In this paragraph— | |
“associate” has the meaning given in section 417(3) and (4) of ICTA | |
(expressions relating to close companies), except that in those | |
subsections as they apply for the purposes of this paragraph | 40 |
“relative” does not include a brother or sister; | |
“business” includes any trade, profession or vocation; | |
“director” is to be construed in accordance with section 417(5) of ICTA | |
(expressions relating to close companies). | |
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Part 4 | |
Eligible employees | |
Eligible employees: introduction | |
24 An individual is an “eligible employee” in relation to the relevant company | |
if the requirements of this Part of this Schedule as to the following are met at | 5 |
the appropriate time— | |
employment (see paragraph 25), | |
commitment of working time (see paragraphs 26 and 27), and | |
having no material interest (see paragraphs 28 to 33). | |
The employment requirement | 10 |
25 To be an eligible employee in relation to the relevant company an individual | |
must be an employee— | |
(a) of that company, or | |
(b) if that company is a parent company, of that company or a qualifying | |
subsidiary of that company. | 15 |
The requirement as to commitment of working time | |
26 (1) For an individual (“the employee”) to be an eligible employee in relation to | |
the relevant company the average amount per week of the employee’s | |
committed time must equal or exceed the statutory threshold, that is— | |
(a) 25 hours a week, or | 20 |
(b) if less, 75% of the employee’s working time (see paragraph 27). | |
(2) The employee’s “committed time” means the time that the employee is | |
required, as an employee in relevant employment, to spend— | |
(a) on the business of the relevant company, or | |
(b) if the relevant company is a parent company, on the business of the | 25 |
group. | |
(3) It includes any time which the employee would have been required to spend | |
as mentioned in sub-paragraph (2) but for— | |
(a) injury, ill-health or disability, | |
(b) pregnancy, childbirth, maternity or paternity leave or parental leave, | 30 |
(c) reasonable holiday entitlement, or | |
(d) not being required to work during a period of notice of termination | |
of employment. | |
(4) In this paragraph “relevant employment” means employment— | |
(a) by the relevant company, or | 35 |
(b) where the relevant company is a parent company, by any member of | |
the group. | |
Meaning of “working time” | |
27 (1) In paragraph 26 “working time” means— | |
(a) time spent on remunerative work as an employee or self-employed | 40 |
person, or | |
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(b) time which would have been so spent but for any of the reasons set | |
out in paragraph 26(3)(a) to (d). | |
(2) In sub-paragraph (1)(a) “remunerative work”, in the context of work | |
undertaken as an employee, means work the earnings from which— | |
(a) are general earnings to which section 15 or 21 applies (earnings for | 5 |
year when employee resident or ordinarily resident in the United | |
Kingdom), or | |
(b) would be general earnings within paragraph (a) if the employee | |
were resident and ordinarily resident in the United Kingdom. | |
(3) In sub-paragraph (1)(a) “remunerative work”, in the context of work | 10 |
undertaken as a self-employed person, means work which is undertaken | |
with a view to profit and the profits (if any) from which— | |
(a) are (or would be) chargeable to tax under Case I or II of Schedule D, | |
or | |
(b) would be so chargeable if the employee were resident and ordinarily | 15 |
resident in the United Kingdom. | |
The “no material interest” requirement | |
28 (1) An individual is not an eligible employee in relation to the relevant company | |
if the individual has a material interest— | |
(a) in that company, or | 20 |
(b) if that company is a parent company, in any member of the group. | |
(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, | |
(b) the individual together with one or more of the individual’s | 25 |
associates, or | |
(c) any such associate, with or without any other such associates, | |
has a material interest in the company. | |
(3) This paragraph is supplemented— | |
(a) as regards the meaning of “material interest”, by paragraphs 29 and | 30 |
30; and | |
(b) as regards the meaning of “associate” by paragraph 31 (read with | |
paragraphs 32 and 33). | |
Meaning of “material interest” | |
29 (1) In paragraph 28 (the “no material interest” requirement) references to a | 35 |
“material interest” in a company are to— | |
(a) a material interest in the share capital of the company, or | |
(b) where it is a close company, a material interest in its assets. | |
(2) A material interest in the share capital of a company means— | |
(a) beneficial ownership of, or | 40 |
(b) the ability to control (directly or through the medium of other | |
companies or by any other indirect means), | |
more than 30% of the ordinary share capital of the company. | |
(3) A material interest in the assets of a close company means— | |
(a) possession of, or | 45 |
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(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 30% of the | |
assets that would then be available for distribution among the participators. | |
(4) In this paragraph— | 5 |
“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 | 10 |
companies); | |
“participator” has the meaning given by section 417(1) of ICTA | |
(expressions relating to close companies). | |
(5) This paragraph is supplemented by paragraph 30 (options and interests in | |
SIPs). | 15 |
Material interest: options and interests in SIPs | |
30 (1) This paragraph applies for the purposes of paragraph 29 (meaning of | |
“material interest”). | |
(2) A right to acquire shares (however arising) is to be treated as a right to | |
control them. | 20 |
(3) However, shares that an individual may acquire under a qualifying option | |
are to be left out of account until such time as they are actually acquired. | |
(4) Sub-paragraph (5) applies 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, | 25 |
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. | 30 |
(5) In determining at any time prior to the exercise of the right whether the | |
number of shares to be attributed to the individual exceeds 30% 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 (4)(b). | 35 |
(6) The references in sub-paragraphs (4) and (5) to the shares to be attributed to | |
an individual are to the shares which— | |
(a) for the purposes of paragraph 29(2) (material interest in share | |
capital), and | |
(b) in accordance with paragraph 28(2) (material interest can consist of | 40 |
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 30% of the company’s ordinary | |
share capital. | |
(7) In applying paragraph 29 the following are to be disregarded— | 45 |
(a) the interest of the trustees of any share incentive plan approved | |
under Schedule 2 (SIPs) in any shares which are held by them in | |
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(a) 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” | |
31 (1) In paragraph 28(2) (the “no material interest” requirement) “associate”, in | 5 |
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 that individual’s relatives (living or dead), is or | |
was a settlor, and | 10 |
(c) where that individual is interested in any shares or obligations of the | |
company mentioned in paragraph 28(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, | 15 |
as the case may be. | |
(2) Sub-paragraph (1)(c) needs to be read with paragraphs 32 and 33 (which | |
relate to employee benefit trusts and discretionary trusts). | |
(3) In this paragraph— | |
“relative” means— | 20 |
(a) spouse, or | |
(b) parent, child or remoter relation in the direct line; | |
“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 | 25 |
32 (1) This paragraph applies for the purposes of paragraph 31(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 28(2). | |
(2) The trustees of the employee benefit trust are not to be regarded as associates | 30 |
of the beneficiary by reason 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 | 35 |
(c) any such associate, with or without any other such associates, | |
has at any time after 13th March 1989 been the beneficial owner of, or able | |
(directly or through the medium of other companies or by any other indirect | |
means) to control, more than 30% of the ordinary share capital of the | |
company. | 40 |
(3) In sub-paragraph (2)(b) and (c) “associate” has the meaning given by | |
paragraph 31(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. | |
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(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). | 5 |
Meaning of “associate”: trustees of discretionary trust | |
33 (1) This paragraph applies for the purposes of paragraph 31(1)(c) (meaning of | |
“associate”: trustees of settlement) where— | |
(a) the individual (“the beneficiary”) is one of the objects of a | |
discretionary trust, | 10 |
(b) the property subject to the trust has at any time consisted of or | |
included shares or obligations of the company mentioned in | |
paragraph 28(2), | |
(c) the beneficiary has ceased to be eligible to benefit under the trust as | |
a result of— | 15 |
(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 | 20 |
associate of the beneficiary was interested in the shares or | |
obligations of the company which 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. | 25 |
(2) The beneficiary is not, as a result only of the matters mentioned 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 31, but | 30 |
with the omission of sub-paragraph (1)(c) of that paragraph (trusts and | |
estates). | |
Part 5 | |
Requirements relating to options | |
Requirements relating to options: introduction | 35 |
34 A share option is not a qualifying option unless the requirements of this Part | |
of this Schedule as to the following are met at the appropriate time— | |
the type of shares that may be acquired (see paragraph 35), | |
when the option is capable of being exercised (see paragraph 36), | |
the terms being agreed in writing (see paragraph 37), and | 40 |
the non-assignability of rights (see paragraph 38). | |
Type of shares that may be acquired | |
35 (1) The option must confer a right to acquire shares that— | |
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(a) form part of the ordinary share capital of the relevant company, | |
(b) are fully paid up, and | |
(c) are not redeemable. | |
(2) Shares are not fully paid up for the purposes of sub-paragraph (1)(b) if there | |
is any undertaking to pay cash to the relevant company at a future date. | 5 |
(3) For the purposes of sub-paragraph (1)(c) “redeemable” shares include shares | |
that may become redeemable at a future date. | |
Option to be capable of exercise within 10 years | |
36 (1) The option must be capable of being exercised within the period of 10 years | |
beginning with the date on which it is granted. | 10 |
(2) Where the exercise of the option is dependent on the fulfilment of | |
conditions, the option is to be taken to be capable of being exercised within | |
the period mentioned in sub-paragraph (1) if the conditions may be fulfilled | |
within that period. | |
Terms of option to be agreed in writing | 15 |
37 (1) The option must take the form of a written agreement between the person | |
granting the option and the employee which meets the following | |
requirements. | |
(2) The agreement must state— | |
(a) the date on which the option is granted; | 20 |
(b) that it is granted under the provisions of this Schedule; | |
(c) the number, or maximum number, of shares that may be acquired; | |
(d) the price (if any) payable by the employee to acquire them, or the | |
method by which that price is to be determined; and | |
(e) when and how the option may be exercised. | 25 |
(3) The agreement must set out any conditions, such as performance conditions, | |
affecting the terms or extent of the employee’s entitlement. | |
(4) The agreement must contain details of any restrictions attaching to the | |
shares. | |
(5) Where the shares that may be acquired by the employee are subject to risk of | 30 |
forfeiture, the agreement must contain details of the conditions. | |
(6) For the purposes of sub-paragraph (5) shares are “subject to risk of | |
forfeiture” if the interest that may be acquired is only conditional within the | |
meaning of section 424 (conditional interests in shares). | |
Non-assignability of rights | 35 |
38 The terms on which the option is granted— | |
(a) must prohibit the person to whom it is granted from transferring any | |
of that person’s rights under it, and | |
(b) if they permit it to be exercised after that person’s death, must not | |
permit it to be exercised more than one year after the date of the | 40 |
death. | |
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