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 5 — Enterprise management incentives
Part 8 — Supplementary provisions
    462

          (2)      Where sub-paragraph (1)(b) applies, any further time limit running from the
end of the period concerned is instead to run from the time when the thing
in question was actually done.
Power to amend by Treasury order
  54      (1)      The Treasury may by order amend the EMI code—
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              (a)             to make such amendments of paragraphs 13 to 23 (the trading
activities requirement and related provisions) as they consider
expedient;
              (b)             to substitute different sums of money for those for the time being
specified in—
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                    (i)                   paragraphs 5(1) and 6(1) and (3) (maximum entitlement of
employee);
                    (ii)                  paragraph 12(1) and (2) (the gross assets requirement).
          (2)      An order under sub-paragraph (1)(b) which amends paragraphs 5(1) and
6(1) and (3) may amend section 536(1)(e) (other disqualifying events) so as
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to substitute the same sum for the one that is for the time being specified
there.
Meaning of “market value” of shares
  55      (1)      For the purposes of the EMI code the “market value” of shares has the same
meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that
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Act.
          (2)      Sub-paragraph (1) is subject to paragraph 5(7) (valuation of shares subject to
restriction or risk of forfeiture) as it applies for the purposes of any provision
of the EMI code.
Determination of market value of shares
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  56      (1)      This paragraph applies to the determination of the market value of shares
for the purposes of the EMI code.
          (2)      Unless—
              (a)             it is agreed between the employer company and the Inland Revenue,
or
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              (b)             a reference is made under sub-paragraph (4),
                   the market value of shares is to be determined by the Inland Revenue
          (3)      Where the market value of shares on any date needs to be determined for the
purposes of the EMI code, the Inland Revenue and the employer company
may agree that it is to be determined by reference to a date or dates, or to the
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average of the values on a number of dates, stated in the agreement.
          (4)      At any time before notice of the Inland Revenue’s determination has been
given to the employer company, the company may give the Inland Revenue
a notice requiring the question of the market value of the shares to be
referred to the Commissioners.
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          (5)      Any reference under sub-paragraph (4) must be made—
              (a)             to the General Commissioners, or
              (b)             if the applicant so elects (in accordance with section 46(1) of TMA
1970), to the Special Commissioners.

Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 8 — Supplementary provisions
    463

          (6)      The Commissioners to whom the reference is made must determine it in the
same way as an appeal.
Appeal against determination of market value of shares
  57      (1)      The employer company may appeal against any determination by the Inland
Revenue under paragraph 56.
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          (2)      Notice of appeal must be given to the Inland Revenue within 30 days after
the date when notice of their determination is given to the employer
company.
          (3)      An appeal under this paragraph lies—
              (a)             to the General Commissioners, or
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              (b)             if the applicant so elects (in accordance with section 46(1) of TMA
1970), to the Special Commissioners.
Minor definitions
  58       In the EMI code—
                    “arrangements” includes any scheme, agreement or understanding,
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whether it is legally enforceable or not;
                    “company” means a body corporate;
                    “group of companies” means a parent company and its 51%
subsidiaries;
                    “the group”, in relation to a parent company, means that company and
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its 51% subsidiaries;
                    “parent company” means a company that has one or more 51%
subsidiaries and “single company” means a company that does not;
                    “research and development” has the meaning given by section 837A of
ICTA;
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                    “shares” includes stock.
Index of defined expressions
  59       In the EMI code the following expressions are defined or otherwise
explained by the provisions indicated below:

the appropriate time
paragraph 1(4)

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arrangements
paragraph 58(1)

child
section 832(5) of ICTA,

(and see section 721(6)

of this Act)

close company
section 832(1) of ICTA,

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(and see paragraph

29(4)).

closure notice
paragraph 47(4)

company
paragraph 58

Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 8 — Supplementary provisions
    464

company reorganisation (in Part 6 of this Schedule)
paragraph 39(2)

connected person
section 718

control
section 719 (and see

paragraphs 10(2) and

23(6))

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disqualifying event
see sections 532 to 539

distribution
section 832(1) of ICTA

earnings
section 62 and see

section 721(7)

employee and employment
section 4

10

eligible employee
paragraph 24

the EMI code
section 527(3)

employer company
paragraph 2

excluded activities
paragraph 16

farming
section 832(1) of ICTA

15

General Commissioners
section 2 of TMA 1970

generally accepted accounting practice
section 836A of ICTA

group of companies
paragraph 58

the group
paragraph 58

the Inland Revenue
section 720(1)

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market value
paragraph 55 (and see

paragraph 5(7))

met (in Part 7 of this Schedule)
paragraph 44(7)

new option
paragraph 41(6)

notice
section 832(1) of ICTA

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old option
paragraph 41(6)

ordinary share capital
section 832(1) of ICTA

original option
section 529(3)

parent company
paragraph 58

personal representatives
section 721(1)

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qualifying company
paragraph 8

qualifying option
section 527(4) (and see

paragraph 41(5))

qualifying subsidiary
paragraph 11

Income Tax (Earnings and Pensions) Bill
Schedule 6 — Consequential Amendments
Part 1 — Income and Corporation Taxes Act 1988
    465

qualifying trade
paragraph 15

relevant company
paragraph 2

replacement option
section 527(4)

the requirements of this Schedule
section 527(4)

research and development
paragraph 58

5

share option
section 527(4)

shares
paragraph 58 (and see

paragraph 40(4)(a))

single company
paragraph 58

Special Commissioners
section 4 of TMA 1970

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51% subsidiary
section 838(1) of ICTA

tax
section 832(3) of ICTA

tax year
section 721(1)

trade
section 832(1) of ICTA

United Kingdom
section 830 of ICTA

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Schedule 6
Section 722

Consequential Amendments
Part 1
Income and Corporation Taxes Act 1988
  1        The Income and Corporation Taxes Act 1988 (c. 1) is amended as follows.
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  2       (1)      Amend section 1 (the charge to income tax) as follows.
          (2)      For subsection (1) substitute—
              “(1)                Income tax is charged in accordance with the Income Tax Acts on—
                    (a)                   all amounts which, under those Acts, are charged to tax
under any of Schedules A, D and F (set out in sections 15, 18
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and 20),
                    (b)                   all amounts which are charged to tax under any of the
following provisions of ITEPA 2003—
                           (i)                          Part 2 (employment income),
                           (ii)                         Part 9 (pension income), and
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                           (iii)                        Part 10 (social security income), and
                    (c)                   any other amounts which, under the Income Tax Acts, are
charged to income tax.”
          (3)      In subsection (5A) for “section 203” substitute “PAYE regulations”.

Income Tax (Earnings and Pensions) Bill
Schedule 6 — Consequential Amendments
Part 1 — Income and Corporation Taxes Act 1988
    466

  3        In section 4(1) (construction of references in Income Tax Acts to deduction of
tax) for “in pursuance of section 203” substitute “under PAYE regulations”.
  4        In section 9(3) (computation of income for corporation tax: application of
income tax principles)—
              (a)             for “the like Schedules and Cases as apply for purposes of income
5
tax” substitute—
                                                        “(a) Schedules A, D and F, and the Cases of those
Schedules, as they apply for purposes of income tax,
and
                                                        (b) the following provisions of ITEPA 2003 (which
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impose the charge to income tax)—
                                 (i)                                Part 2 (employment income),
                                 (ii)                               Part 9 (pension income), and
                                 (iii)                              Part 10 (social security income),” and
              (b)             after “those Schedules and Cases” insert “and those Parts”.
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  5       (1)      Amend section 18 (Schedule D) as follows.
          (2)      In subsection (1), in paragraph (b) of Schedule D, for “or E” substitute “or
under ITEPA 2003 as employment income, pension income or social security
income”.
          (3)      In subsection (3)—
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              (a)             in Case V for “income consisting of emoluments of any office or
employment” substitute “employment income, pension income or
social security income on which tax is charged under ITEPA 2003”;
              (b)             in Case VI for “or E” substitute “or by virtue of ITEPA 2003 as
employment income, pension income or social security income”.
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  6        Omit section 19 (Schedule E).
  7        In section 21A(2) (computation of amount chargeable)—
              (a)             for “sections 588 and 589” substitute “section 588”;
              (b)             for “sections 589A and 589B” substitute “section 589A”;
              (c)             for “1989 (deductions in respect of certain emoluments)” substitute
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“1989 (Schedule D: computation)”.
  8        Omit section 58 (foreign pensions).
  9        In section 65(2) (Cases IV and V assessments: general) omit “Subject to
section 330,”.
  10       After section 68 insert—
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       “68A             Share incentive plans: application of section 68B
              (1)             Section 68B applies for income tax purposes in connection with
shares awarded under an approved share incentive plan.
              (2)             But that section does not apply to an individual if, at the time of the
award of shares in question—
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                    (a)                   the earnings from the eligible employment are not (or would
not be if there were any) general earnings to which any of the
charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003
apply, or

Income Tax (Earnings and Pensions) Bill
Schedule 6 — Consequential Amendments
Part 1 — Income and Corporation Taxes Act 1988
    467

                    (b)                   in the case of an award made before 6th April 2003, he was
not chargeable to tax under Schedule E in respect of the
employment by reference to which he met the requirement of
paragraph 14 of Schedule 8 to the Finance Act 2000
(employee share ownership plans: the employment
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requirement) in relation to the plan.
              (3)             For the purposes of subsection (2)(a)—
                    (a)                   “the eligible employment” means the employment which
results in the individual meeting the employment
requirement in relation to the plan, and
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                    (b)                   the reference to any of the charging provisions of Chapter 4
or 5 of Part 2 of ITEPA 2003 has the same meaning as it has in
the employment income Parts of that Act (see sections 14(3)
and 20(3) of that Act).
       68B            Share incentive plans: cash dividends and dividend shares
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              (1)             Where a cash dividend is paid over to a participant under paragraph
68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not
reinvested), the participant is chargeable to tax on the amount paid
over, to the extent that it represents a foreign cash dividend, under
Case V of Schedule D for the year of assessment in which the
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dividend is paid over to the participant.
              (2)             If dividend shares cease to be subject to the plan before the end of the
period of three years beginning with the date on which the shares
were acquired on the participant’s behalf, the participant is
chargeable to tax on the amount of the relevant dividend, to the
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extent that it represents a foreign cash dividend, under Case V of
Schedule D for the year of assessment in which the shares cease to be
subject to the plan.
                              For this purpose “the relevant dividend” is the cash dividend
applied to acquire those shares on the participant’s behalf.
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              (3)             Where the participant is charged to tax under subsection (2) the tax
due shall be reduced by the amount or aggregate amount of any tax
paid on any capital receipts under section 501 of ITEPA 2003 in
respect of those shares.
              (4)             Subsection (2) has effect subject to section 498 of that Act (no charge
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on shares ceasing to be subject to plan in certain circumstances).
       68C            Share incentive plans: interpretation
              (1)             Sections 68A and 68B and this section form part of the SIP code (see
section 488 of ITEPA 2003 (approved share incentive plans)).
              (2)             Accordingly, expressions used in those sections and contained in the
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index at the end of Schedule 2 to that Act (approved share incentive
plans) have the meaning indicated by that index.
              (3)             In section 68B, “foreign cash dividend” means a cash dividend paid
in respect of plan shares in a company not resident in the United
Kingdom.”
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Income Tax (Earnings and Pensions) Bill
Schedule 6 — Consequential Amendments
Part 1 — Income and Corporation Taxes Act 1988
    468

  11      (1)      Amend section 84A (costs of establishing share option or profit sharing
schemes: relief from corporation tax) as follows.
          (2)      After subsection (3) insert—
              “(3A)                In this section, “share option scheme” means—
                    (a)                   an SAYE option scheme within the meaning of the SAYE
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code (see section 516(4) of ITEPA 2003 (approved SAYE
option schemes)), or
                    (b)                   a CSOP scheme within the meaning of the CSOP code (see
section 521(4) of that Act (approved CSOP schemes)).”
          (3)      In subsection (4), at the end add “to this Act or under Schedule 3 or 4 to
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ITEPA 2003 (approved SAYE option schemes and approved CSOP
schemes)”.
  12       After section 85A insert—
       “85B Approved share incentive plans
Schedule 4AA (which provides for deductions relating to approved
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share incentive plans) shall have effect.”
  13      (1)      Amend section 86A (charitable donations: contributions to agent’s
expenses) as follows.
          (2)      In subsection (1)(a) for “by virtue of section 203 and regulations under that
section” substitute “under PAYE regulations”.
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          (3)      In subsection (1)(b) for the words from “a scheme” to the end of the
paragraph substitute “an approved scheme and pays the sums to an
approved agent”.
          (4)      After subsection (1) insert—
              “(1A)                In subsection (1)(b) approved scheme and approved agent have the
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same meaning as in section 714 of ITEPA 2003.”
  14       Omit sections 131 to 134 (miscellaneous provisions relating to the Schedule
E charge).
  15       Omit sections 135 to 137 (provisions relating to gains by directors and
employees from share options).
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  16      (1)      Amend section 138 (share acquisitions by directors and employees) as
follows.
          (2)      In subsection (1)(b) for “Schedule E” substitute “the employment income
Parts of ITEPA 2003”.
          (3)      In subsection (4)(b) for “Case I of Schedule E” substitute “section 15 or 21 of
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ITEPA 2003 (earnings of employee resident and ordinarily resident in the
UK)”.
  17       Omit section 140 (further interpretation of sections 135 to 139).
  18       Omit sections 140A to 140H (further provisions relating to share acquisitions
by directors and employees).
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  19       Omit sections 141 to 144 (vouchers and credit tokens).
  20       Omit section 144A (payments received free of tax).



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