Part 9: Trustees

3155.     This Part is the last of eight that deal with the requirements that a SIP must meet before it is approved. This Part, which consists of paragraphs 70 to 80, deals with the requirements relating to the trustees. All SIPs must have trustees; but, in accordance with the general policy of placing the various Parts of Schedules 2 to 5 in an order displaying overall consistency, this Part is now the final Part that deals with the requirements to be met.

Paragraph 70: Requirements etc. relating to trustees: introduction

3156.     This paragraph is introductory. It is new, being designed to fulfil the same purpose of introducing paragraphs in Part 9 of this Schedule as is played by other corresponding early paragraphs in each of Parts 2 to 8 of this Schedule.

3157.     In Part 9 of this Schedule, there are two paragraphs that impose plan requirements that must be met, and these are listed in sub-paragraph (1). However, the majority of the paragraphs relate to the powers and duties of the trustees, and these are listed in sub-paragraph (2).

Paragraph 71: Establishment of trustees

3158.     This paragraph sets out the requirements and duties that a SIP must contain regarding the establishment and duties of the trustees. The paragraph derives from paragraph 68 of Schedule 8 to FA 2000.

3159.     Sub-paragraph (1) has been reworded to make it clear that the body of trustees should consist of persons resident in the United Kingdom.

3160.     Sub-paragraph (3) provides for the introduction of the term "the trust instrument". Schedule 8 to FA 2000 contains no formal introduction of this term, although the term is used extensively in the following paragraphs of this Part.

3161.     Sub-paragraphs (5) and (6) incorporate provisions recently enacted in the Employee Share Schemes Act 2002.

Paragraph 72: Duty to act in accordance with participant's directions

3162.     This paragraph provides that the trust instrument must require the trustees to act in accordance with a participant's directions.

3163.     The paragraph is the first of three that derive from paragraph 71 of Schedule 8 to FA 2000. That paragraph is lengthy; and its contents are divided up in the new legislation, to be more accessible. This paragraph derives from sub-paragraphs (1) and (2) of paragraph 71.

Paragraph 73: Duty not to dispose of plan shares

3164.     This paragraph provides that the trust instrument must require the trustees not to dispose of plan shares during the holding period (although this general rule is subject to certain exceptions). (The expression "the holding period" is defined in paragraph 36 of this Schedule.)

3165.     The paragraph is the second of three that derive from paragraph 71 of Schedule 8 to FA 2000. This paragraph derives from paragraph 71(3).

3166.     In sub-paragraph (2), the reference to a participant ceasing to be in relevant employment is explained further in paragraph 95.

Paragraph 74: Duty to make payments to participants

3167.     This paragraph provides that the trust instrument must require the trustees to make payments to participants in various specified circumstances.

3168.     The paragraph is the third of three that derive from paragraph 71 of Schedule 8 to FA 2000. This paragraph derives from paragraph 71(4).

3169.     Sub-paragraph (1) reorganises the material in the first sentence of paragraph 71(4). In sub-paragraph (2)(c), the expression "PAYE obligations" is defined in paragraph 99(1) of this Schedule.

Paragraph 75: Duty to give notice of award of shares etc.

3170.     This paragraph provides that the trust instrument must require the trustees to give various notices to employees. The paragraph derives from paragraph 70 of Schedule 8 to FA 2000.

3171.     Sub-paragraph (3) now has three paragraphs, as opposed to two paragraphs, one of which has two sub-paragraphs of its own. This enables sub-paragraphs (2), (3) and (4) to be brought into better alignment.

3172.     Sub-paragraph (6) reproduces the definition of "foreign cash dividend" in paragraph 129(1) of Schedule 8. Although that definition is expressed to apply for the whole of Schedule 8, it is only needed for the purposes of this paragraph; and it has, accordingly, been moved.

Paragraph 76: Power of trustees to borrow

3173.     This paragraph states that the trust instrument may provide the trustees with powers to borrow. The paragraph derives from paragraph 69 of Schedule 8 to FA 2000.

Paragraph 77: Power of trustees to raise funds to subscribe for rights issue

3174.     This paragraph gives the trustees powers to deal with rights arising under a rights issue. The paragraph derives from paragraph 72(1) of Schedule 8 to FA 2000; and it gives a separate sub-paragraph to each sentence in that earlier provision.

3175.     The expression "rights arising under a rights issue", the subject of paragraph 72(2) of Schedule 8, occurs in more than one place; and, accordingly, has now been defined for the purposes of the SIP code generally (in paragraph 99(1) of this Schedule).

Paragraph 78: Acquisition by trustees of shares from employee share ownership trust

3176.     This paragraph contains provisions that apply where the SIP acquires shares from an employee share ownership trust. The paragraph derives from paragraph 76 of Schedule 8 to FA 2000.

3177.     Sub-paragraph (2) is now organised slightly differently; and sub-paragraph (2)(a) contains additional words explaining the reference to "relevant shares", a term left unexplained in the source legislation. See Note 65(C) in Annex 2.

Paragraph 79: Meeting by trustees of PAYE obligations

3178.     This paragraph sets out the requirement that the SIP must make provision to ensure that trustees meet their PAYE obligations. The paragraph derives from paragraph 73 of Schedule 8 to FA 2000.

3179.     The title to this paragraph has been amended to include a reference to the trustees.

3180.     In sub-paragraph (1), there are now three paragraphs instead of two paragraphs, one of which has two sub-paragraphs of its own.

3181.     Sub-paragraph (4) is explanatory only; but retained in order to assist the reader.

Paragraph 80: Other duties of trustees in relation to tax liabilities

3182.     This paragraph provides that the trust instrument must set out other duties of trustees in relation to tax liabilities.

3183.     The paragraph derives from paragraph 75 of Schedule 8 to FA 2000 (in sub-paragraphs (1) to (3)) and paragraph 90 of Schedule 8 to FA 2000 (in sub-paragraph (4)).

3184.     The material in this paragraph has now been arranged rather differently and in particular the two duties placed on the trustees by the trust instrument have now been separated to become sub-paragraphs (1) and (3).

3185.     Sub-paragraphs (4) and (5) deal with administrative matters and derive from provisions in paragraphs 90, 92 and 93 of Schedule 8 to FA 2000.

Part 10: Approval of plans

3186.     It was mentioned, in the Overview to the Explanatory Notes for this Schedule, that the contents of this Schedule could be divided into three categories. Parts 2 to 9 of this Schedule deal with the first category: the requirements that must be met before a SIP may be "approved" for the purposes of the SIP code. This Part deals the second category: procedural matters relating to the obtaining of approval and the withdrawal of approval. In doing so, this Part brings together material in Parts 1 and 13 of Schedule 8.

Paragraph 81: Application for approval

3187.     This paragraph deals with the mechanics of the application for approval of a SIP. The paragraph derives from paragraph 4 of Schedule 8 to FA 2000.

3188.     This paragraph makes two changes to the law. The first change is in sub-paragraph (2), where it is provided that the application must be in writing. This requirement is not contained in Schedule 8, but there is such a requirement for the SAYE and CSOP schemes. The second change is in sub-paragraph (3), which is new. It provides that once the Inland Revenue have decided whether or not to approve the plan, they must give notice of their decision to the company. See Change 164 in Annex 1.

Paragraph 82: Appeal against refusal of approval

3189.     This paragraph provides that a company may appeal to the Special Commissioners if the Inland Revenue refuse to approve the SIP. It derives from paragraph 5 of Schedule 8 to FA 2000.

3190.     Sub-paragraphs (3) and (4) divide the material in paragraph 5(3) of Schedule 8.

Paragraph 83: Withdrawal of approval

3191.     This paragraph contains provisions relating to the withdrawal of approval of an approved SIP.

3192.     The paragraph is the first of two rewriting paragraph 118 of Schedule 8 to FA 2000. Paragraph 118 is lengthy, and has been divided for ease of comprehension. This paragraph derives from sub-paragraphs (1) and (7) of paragraph 118 and deals with the mechanics and implications of the withdrawal of approval. The withdrawal of approval depends on the occurrence of a "disqualifying event"; and paragraph 84 deals with the meaning of this expression.

3193.     Sub-paragraph (2)(b) makes it clear that the "later time" must be a time specified in the notice. Sub-paragraphs (3) and (4) rewrite paragraph 118(7) of Schedule 8, providing a separate sub-paragraph for each proposition.

Paragraph 84: Disqualifying events for purposes of paragraph 83

3194.     This paragraph specifies what is meant by a "disqualifying event".

3195.     The paragraph is the second of two rewriting paragraph 118 of Schedule 8 to FA 2000. It derives from sub-paragraphs (2) to (6) of that paragraph.

3196.     Sub-paragraph (1)(f) and (g) constitute a splitting of the material to be found in paragraph 118(2)(f) of Schedule 8.

3197.     Sub-paragraph (6) extends the scope of the expression "key feature". In paragraph 118 there is a definition of this expression (in sub-paragraph (3)(a)). This definition, however, applies only for the purposes of sub-paragraph (2)(b), but the expression is used again, without explanation, in sub-paragraph (6)(a)(i). The scope of this definition has been expanded so that it now applies to the whole of this paragraph. See Note 65(D) in Annex 2.

Paragraph 85: Appeal against withdrawal of approval

3198.     This paragraph provides that a company may appeal to the Special Commissioners if the Inland Revenue withdraw approval of a SIP.

3199.     The paragraph derives from paragraph 119 of Schedule 8 to FA 2000. Sub-paragraphs (1) and (2) reorganise the material from that paragraph to a certain extent.

Part 11: Supplementary provisions

3200.     It was mentioned, in the Overview to the Explanatory Notes for this Schedule, that the contents of this Schedule could be divided into three categories. Parts 2 to 9 of this Schedule deal with the first category (the requirements that must be met before a SIP may be "approved" for the purposes of the SIP code) and Part 10 with the second category (procedural matters). This is the eleventh and final Part of this Schedule, and deals with the third category (supplementary provisions). This Part of this Schedule is derived from material in Part 13 of Schedule 8 to FA 2000.

Paragraph 86: Company reconstructions

3201.     This paragraph deals with company reconstructions, and is the first of two that derive from paragraph 115 of Schedule 8 to FA 2000. This paragraph derives from sub-paragraphs (1) and (2) of paragraph 115, and deals with the meaning of the expression "company reconstruction". The consequences of company reconstructions are dealt with in paragraph 87 of this Schedule.

3202.     Sub-paragraph (3)(a) is new; and specifies the consequences of the making of what is now termed an "excluded issue of shares". This material is not contained in the source legislation; but the new material is merely declaratory of the law in order to make those consequences explicit. See Note 67 in Annex 2.

3203.     In sub-paragraph (4), the label "excluded issue of shares" is new.

Paragraph 87: Consequences of company reconstructions

3204.     This paragraph deals with the consequences of company reconstructions, and is the second of two that derive from paragraph 115 of Schedule 8 to FA 2000. This paragraph derives from sub-paragraphs (3) to (8) of paragraph 115.

3205.     This paragraph presents the legislation in a somewhat different order; and, in particular, the sub-paragraph containing definitions (sub-paragraph (7)) has been placed at the end. As a result of the rewriting of the legislation contained in the SIP code, sub-paragraph (2)(d) has wording that differs from that to be found in the source legislation.

3206.     In this paragraph, the label "corresponding shares" has been replaced by the more descriptive label "corresponding old shares".

Paragraph 88: Treatment of shares acquired under rights issue

3207.     This paragraph contains provisions that apply where the trustees exercise rights arising under a rights issue. The paragraph derives from paragraph 116 of Schedule 8 to FA 2000.

3208.     The order in which the material is presented has been changed substantially. Sub-paragraph (1) now specifies the circumstances in which this paragraph applies; and sub-paragraph (2) now deals with the "basic" case (where the rights are exercised), leaving later sub-paragraphs to deal with other cases.

3209.     In paragraph 116 of Schedule 8 to FA 2000, paragraph 116(5) is concerned with the meaning of the expression "rights arising under a rights issue", and provides a cross-reference to another provision in Schedule 8 to FA 2000. This expression is now defined in paragraph 99(1) of this Schedule for the purposes of the SIP code generally.

Paragraph 89: Termination of plan

3210.     This paragraph contains provisions relating to the termination of a plan; and this may be done if the company issues a plan termination notice. The paragraph derives from paragraph 120 of Schedule 8 to FA 2000.

3211.     Sub-paragraph (2) now has four paragraphs, instead of three paragraphs, one of which has two sub-paragraphs. In paragraph (d) the word "into" has been added after the word "entered".

Paragraph 90: Effect of plan termination notice

3212.     This paragraph deals with the effect of a plan termination notice. The paragraph derives from paragraph 121 of Schedule 8 to FA 2000.

3213.     The first sentence of paragraph 121(3) has been rewritten as sub-paragraph (3). The second sentence of paragraph 121(3) has, however, been omitted, on the basis that it is unnecessary.

3214.     Sub-paragraph (7) has been rewritten, to bring the subject, verb and direct object of this sentence closer together.

3215.     In sub-paragraph (8) the words "doing the following in the case of each participant" have been added.

3216.     Sub-paragraph (9) has been amended to provide that where a participant has died, the references to a participant in the entirety of this paragraph (as opposed to sub-paragraph (8)) are to the participant's personal representatives. See Change 165 in Annex 1.

Paragraph 91: Jointly owned companies

3217.     This paragraph contains provisions that apply in the case of a jointly owned company, an expression defined in sub-paragraph (5). The paragraph derives from paragraph 127 of Schedule 8 to FA 2000, a paragraph that has been amended by section 39(5) of FA 2002.

Paragraph 92: Determination of market value

3218.     This paragraph explains how market value is determined for the purposes of the SIP code. The paragraph derives from paragraph 125 of Schedule 8 to FA 2000.

3219.     Each proposition in this paragraph appears in its own sub-paragraph.

3220.     In sub-paragraph (3), the constituent parts of the sentence have been rearranged; and this sub-paragraph concludes with a reference to agreed matters "stated" in the agreement.

Paragraph 93: Power to require information

3221.     This paragraph is concerned with information powers. It derives from paragraph 117 of Schedule 8 to FA 2000.

3222.     Sub-paragraph (1) reorganises the material in paragraph 117(1). The reorganisation includes the addition of paragraphing.

3223.     Sub-paragraph (3) has been redrafted, with a view to clarifying the period within which information must be provided.

3224.     Paragraph 117(4) of Schedule 8 to FA 2000 has not been rewritten in this Schedule. The matter dealt with in that sub-paragraph, the addition of an entry in the table in section 98 of TMA 1970, is dealt with by means of consequential amendment to that section in Schedule 6 to this Bill.

Paragraph 94: Meaning of "associated company"

3225.     This paragraph explains the meaning of the expression "associated company" for the purposes of the SIP code. The paragraph derives from paragraph 126 of Schedule 8 to FA 2000. The words "at a given time" have been added in sub-paragraph (1).

Paragraph 95: Meaning of participant ceasing to be in relevant employment

3226.     This paragraph explains the meaning of a participant ceasing to be in relevant employment for the purposes of the SIP code. The paragraph derives from paragraph 123 of Schedule 8 to FA 2000.

3227.     The words "for the purposes of the SIP code" have been added in sub-paragraphs (1) and (2); and the word order has been changed in sub-paragraph (3).

Paragraph 96: Meaning of shares being withdrawn from plan

3228.     This paragraph explains when shares are withdrawn from a plan for the purposes of the SIP code.

3229.     This paragraph is the first of two that derive from paragraph 122 of Schedule 8 to FA 2000. That paragraph is lengthy, and its contents are divided for the purposes of this Bill, to make the provision more accessible. This paragraph derives from sub-paragraphs (1) and (2) of paragraph 122.

Paragraph 97: Meaning of shares ceasing to be subject to plan

3230.     This paragraph explains when shares cease to be subject to a plan for the purposes of the SIP code.

3231.     This paragraph is the second of two that derive from paragraph 122 of Schedule 8 to FA 2000, deriving in this case from sub-paragraphs (3) to (5) and (7) of that paragraph. (Paragraph 122(6) of Schedule 8 to FA 2000 is the origin for clause 508.)

3232.     Sub-paragraph (2) derives from paragraph 122(4) of Schedule 8. This material has been reorganised, and paragraphs have been added.

Paragraph 98: Meaning of "the specified retirement age"

3233.     This paragraph provides for a new definition (that of "the specified retirement age") to apply for the purposes of the SIP code. This new provision derives from paragraph 87(4) of Schedule 8 to FA 2000.

Paragraph 99: Minor definitions

3234.     This paragraph contains minor definitions. It derives from paragraph 129 of Schedule 8 to FA 2000.

3235.     In sub-paragraph (1), amendments have been made to the detail of the wording of the definition of "plan shares".

3236.     The definition of "provision for forfeiture" is now in sub-paragraph (1), having been moved from paragraph 65(6) of Schedule 8 to FA 2000.

3237.     The definition of "redundancy" is in sub-paragraph (1), having been moved from paragraph 87(3) of Schedule 8 to FA 2000.

3238.     There is also a new definition of "rights arising under a rights issue" in sub-paragraph (1). This definition brings together the partial definitions that may be found in different places in Schedule 8 to FA 2000.

3239.     The definition of "foreign cash dividend", which may be found in paragraph 129(1) of Schedule 8 to FA 2000, has been removed. That definition is used only once (see paragraph 75 of this Schedule), and is dealt with there.

Paragraph 100: Index of defined expressions

3240.     This paragraph consists of an index of expressions defined or explained for the purposes of the SIP code. It is in the same form as the index in paragraph 130 of Schedule 8 to FA 2000.

SCHEDULE 3: APPROVED SAYE OPTION SCHEMES

Overview

3241.     This Schedule, which is introduced in Chapter 7 of Part 7, deals with the rules relating to approved SAYE option schemes. The legislation relating to SAYE option schemes, which is contained in Chapter 7 of Part 7 and in this Schedule, is called "the SAYE code", a term introduced in clause 516. Chapter 7 of Part 7 deals with the tax exemptions available for participants in an approved SAYE option scheme.

3242.     The legislation relating to these schemes derives from Schedule 9 to ICTA: many of the definitions are supplied by section 187 of ICTA.

3243.     This Schedule contains further provisions relating to SAYE option schemes. After the introductory Part (Part 1) it deals with the following matters:

• it specifies the requirements that a SAYE option scheme must meet in order to be "approved" for the purposes of the SAYE code (in Parts 2 to 7);

• it deals with the procedural aspects of the approval of schemes and the withdrawal of approval (in Part 8); and

• it deals with supplementary matters (in Part 9).

3244.     The majority of the provisions in this Schedule are therefore concerned with the various requirements that SAYE option schemes must meet before they may be "approved". On this topic the general policy has been to place the various Parts in an order consistent with that to be found in the legislation relating to other share schemes. The various requirements have been placed in a different order from that found in Schedule 9 to ICTA. Part 2 of this Schedule accordingly deals with the general requirements that apply in all cases; Part 3 with the requirements relating to the eligibility of individual employees; and Part 4 with the types of shares to which schemes can apply. The following Parts then deal with requirements relating to linked savings schemes (Part 5), share options (Part 6) and the exchange of options (Part 7).

3245.     Where it seems helpful the opportunity has been taken to list the requirements relevant for a Part. This procedure is the same as that adopted in Schedule 2 for the SIP code and Schedule 5 for the EMI codes, where the procedure represents a development of layout in Schedule 8 and Schedule 14 to FA 2000.

3246.     Share options are described as being granted rather than obtained in most contexts. This ties in with the terminology in EMI.

3247.     Where appropriate references have been changed from "person" to "individual".

Part 1: Introduction

Paragraph 1: Approval of SAYE option schemes

3248.     This paragraph indicates the contents of this Schedule (in sub-paragraph (1)) and the sub-paragraphs into which it is divided (in sub-paragraphs (2) to (4)). It mirrors the opening paragraphs of Schedules 2, 4 and 5. The paragraph has no counterpart in the present legislation. The intention is to help users to understand the subject matter of the Schedule and to locate relevant material.

Paragraph 2: SAYE option schemes

3249.     This paragraph contains definitions that apply generally for the purposes of the SAYE code. It derives from section 185(2) of ICTA and also from various paragraphs of Schedule 9 to ICTA, including paragraph 8, and continues the introductory theme.

3250.     Sub-paragraph (1) contains the central definition of "SAYE option scheme", set out earlier in subsection (4) of clause 516.

3251.     Sub-paragraph (2) contains the definition of the word "participate", and derives from paragraph 26 of Schedule 9 to ICTA. This sub-paragraph also introduces the term "scheme organiser". It is preferable to the term "grantor" (the term used in ICTA) as the company that sets up the scheme does not have to be the person who actually grants the option. There is also a definition of "participant".