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Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 5 — Supplementary provisions

    332

 

Timing of relief in case of shares subject to forfeiture

  22      (1)      Where the recipient acquires shares that are subject to forfeiture, this

paragraph applies in place of paragraph 10 or 17 (timing of relief).

          (2)      The relief is given for the accounting period in which—

              (a)             the shares cease to be subject to forfeiture, or

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              (b)             the recipient disposes of the shares, or dies, without the shares

having ceased to be subject to forfeiture.

Part 5

Supplementary provisions

Transfer of business within a group

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  23      (1)      This paragraph applies where—

              (a)             between the time when an award of shares, or the grant of an option

to acquire shares, is made and the time of the relief-triggering event

for those shares, there is a transfer of the whole, or substantially the

whole, of the business for the purposes of which the award or grant

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was made (“the relevant business”),

              (b)             the transfer, or each of them if there is more than one, is a qualifying

transfer, and

              (c)             as a result of the transfer or transfers, the whole or substantially the

whole of the relevant business is carried on at the time of the relief-

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triggering event by a different company (“the successor company”)

or by different companies (“the successor companies”) from the one

by which it was carried on at the time of the award or grant.

          (2)      For the purposes of sub-paragraph (1)—

              (a)             the “relief-triggering event” for shares is the event that, in accordance

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with paragraph 10, 17 or 22, determines the accounting period for

which relief under this Schedule is given in respect of them;

              (b)             there is a “qualifying transfer” of a business (or a part of one) where

the business (or part) is transferred from one company to another

company that is, or to two or more companies that are, members of

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the same group.

          (3)      Where this paragraph applies—

              (a)             relief under this Schedule in respect of the shares is given to the

successor company or, as the case may be, to whichever one of the

successor companies is jointly nominated by them, and

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              (b)             the reference in paragraph 1(1)(a) or (b) to “that company” shall be

read as a reference to the company by which the relevant business

was carried on at the time of the award or grant.

Relationship between relief and other deductions: priority of deductions under SIP code

  24      (1)      Deductions available under any of the following provisions of Schedule

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4AA to the Taxes Act 1988 (share incentive plans) are to be given in priority

to relief under this Schedule—

              (a)             paragraph 2 (deduction for providing free or matching shares);

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 5 — Supplementary provisions

    333

 

              (b)             paragraph 3 (deduction for expenses in providing partnership

shares);

              (c)             paragraph 9 or 10(3) (deduction for contribution to plan trust).

          (2)      No relief is available under this Schedule in respect of shares in relation to

which a deduction is allowable, or has been made, under any of those

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provisions.

Relationship between relief and other deductions: exclusion of other deductions

  25      (1)      Where relief under this Schedule is available for any accounting period, no

other deduction is allowed for any corporation tax purposes (whether for

that or any other period) in respect of the cost of providing the shares.

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                   This applies to any deduction, whether by the employing company or any

other company, in computing chargeable profits for the purposes of

corporation tax.

          (2)      For this purpose the cost of providing the shares—

              (a)             means expenses directly related to the provision of the shares, and

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              (b)             includes, in a case where the shares are acquired under an employee

share scheme, any amount paid or payable by the employing

company in respect of the participation of the employee in that

scheme.

          (3)      The following are not regarded as part of the cost of providing the shares—

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              (a)             expenses incurred in establishing the employee share scheme under

which the recipient acquires the shares;

              (b)             expenses incurred in meeting, or contributing to, the costs of

administering the scheme;

              (c)             the costs of borrowing for the purposes of the scheme;

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              (d)             fees, commission, stamp duty and similar incidental expenses of

acquiring the shares.

          (4)      In this paragraph “employee share scheme” means any scheme or

arrangement for enabling shares to be acquired by reason of employees’

employment.

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Meaning of “employment”

  26       For the purposes of this Schedule—

              (a)             references to employment by a company include holding an office

with that company, and related expressions have a corresponding

meaning, and

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              (b)             members of a company whose affairs are managed by the members

themselves are treated as holding an office with the company.

Exercise of option after death of employee or recipient

  27      (1)      Where an option to acquire shares obtained by reason of the employee’s

employment is exercised by the recipient after the employee’s death, the

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condition in paragraph 14 (income tax position of the employee) is treated as

met if it would be met were the employee still alive.

          (2)      Where an option to acquire shares obtained by reason of the employee’s

employment is exercised after the death of the recipient, paragraph 1(1)(b)

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 5 — Supplementary provisions

    334

 

and Part 3 of this Schedule, and sub-paragraph (1) above, apply as if the

recipient were still alive and the option were exercised by him.

Meaning of “group company” and “parent company”

  28       For the purposes of this Schedule—

              (a)             a company is a “group company”, in relation to another company, if

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they are members of the same group,

              (b)             two companies are members of the same group if, and only if, one is

a 51% subsidiary of the other or both are 51% subsidiaries of a third

company, and

              (c)             a company is a “parent company” in relation to another company if

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that other is its 51% subsidiary.

Meaning of “consortium” and “commercial association of companies”

  29      (1)      For the purposes of this Schedule a company is a member of a consortium

owning another company if it is one of five or fewer companies—

              (a)             that between them beneficially own not less than 75% of the other

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company’s ordinary share capital, and

              (b)             each of which beneficially owns not less than 10% of that capital.

                   For this purpose the shareholdings of members of a group of companies

shall be treated as held by a single company.

          (2)      In this Schedule a “commercial association of companies” means a company

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together with such of its associated companies as carry on businesses that

are of such a nature that the businesses of the company and the associated

companies, taken together, may be reasonably considered to make up a

single composite undertaking.

                   “Associated company” here has the meaning given by section 416 of the

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Taxes Act 1988.

Minor definitions

  30       In this Schedule—

                    “the Contributions and Benefits Act” means—

                    (a)                   the Social Security Contributions and Benefits Act 1992 (c. 4),

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or

                    (b)                   the Social Security Contributions and Benefits (Northern

Ireland) Act 1992 (c. 7);

                    “control” has the meaning given by section 840 of the Taxes Act 1988;

                    “insurance company” and “life assurance business” have the meanings

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given by section 431(2) of that Act;

                    “investment company” has the meaning given by section 130 of that

Act;

                    “market value” has the same meaning as in the Taxation of Chargeable

Gains Act 1992 (c. 12) (see sections 272 and 273 of that Act);

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                    “option” includes any right to acquire shares;

                    “ordinary shares”, in relation to a company, means shares forming part

of the company’s ordinary share capital;

                    “shares” includes—

                    (a)                   an interest in shares, and

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Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 6 — Commencement and transitional provisions

    335

 

                    (b)                   stock or an interest in stock.

Index of defined expressions

  31       In this Schedule the following expressions are defined or otherwise

explained by the provisions indicated:

 

commercial association of companies

paragraph 29(2)

 

5

 

consortium

paragraph 29(1)

 
 

Contributions and Benefits Act

paragraph 30

 
 

control

paragraph 30

 
 

employment and related expressions

paragraph 26

 
 

the employee

paragraph 1(3)

 

10

 

employing company

paragraph 1(3)

 
 

group

paragraph 28(b)

 
 

group company

paragraph 28(a)

 
 

insurance company

paragraph 30

 
 

investment company

paragraph 30

 

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life assurance business

paragraph 30

 
 

market value

paragraph 30

 
 

option

paragraph 30

 
 

ordinary shares

paragraph 30

 
 

parent company

paragraph 28(c)

 

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the recipient

paragraph 1(3)

 
 

shares

paragraph 30

 
 

subject to forfeiture

paragraph 19

 
 

within the charge to corporation tax (of a

paragraph 3(2)

 
 

business)

  

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Part 6

Commencement and transitional provisions

Commencement

  32       This Schedule applies to accounting periods of the employing company

beginning on or after 1st January 2003.

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Finance Bill
Schedule 24 — Restriction of deductions for employee benefit contributions

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Transitional provisions

  33      (1)      Relief is not available under this Schedule in respect of shares to the extent

that a deduction is available or has been made in respect of relevant

expenses in computing the chargeable profits of the employing company or

any other company for the purposes of corporation tax for an accounting

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period beginning before 1st January 2003.

          (2)      In sub-paragraph (1) “relevant expenses” means any expenses referable,

directly or indirectly, to the provision of the shares in question.

          (3)      In relation to any time before the coming into force of the Income Tax

(Earnings and Pensions) Act 2003 (c. 1) (“ITEPA”), this Schedule has effect as

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if—

              (a)             the references to a charge to income tax under ITEPA were to a

charge to income tax under section 19 of the Taxes Act 1988;

              (b)             the reference in paragraph 14(1)(a)(ii) to section 476 or 477 of ITEPA

were to section 135 of the Taxes Act 1988;

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              (c)             the reference in paragraph 14(2)(a) to section 519, 520, 524 or 525 of

ITEPA were to section 185(3)(a) of the Taxes Act 1988;

              (d)             the reference in paragraph 14(2)(b) to section 530 of ITEPA were to

paragraph 44 of Schedule 14 to the Finance Act 2000 (c. 17);

              (e)             the reference in paragraph 20(2)(a) to section 427 of ITEPA were to

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section 140A of the Taxes Act 1988;

              (f)             the references in paragraph 24(1) to paragraphs 2, 3, 9 and 10(3) of

Schedule 4AA to the Taxes Act 1988 were to paragraphs 106, 107,

112A and 112B(3) respectively of Schedule 8 to the Finance Act 2000.

Schedule 24

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Section 142

 

Restriction of deductions for employee benefit contributions

Restriction of deductions

  1       (1)      This Schedule applies where—

              (a)             a calculation is required to be made for tax purposes of a person’s

profits for any period, and

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              (b)             a deduction would (but for this Schedule) be allowed for that period

in respect of employee benefit contributions made, or to be made, by

that person (“the employer”).

                   But it does not apply to a deduction of a kind mentioned in paragraph 8.

          (2)      For the purposes of this Schedule an employer makes an “employee benefit

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contribution” if—

              (a)             he pays money or transfers an asset to another person (“the third

party”), and

              (b)             the third party is entitled or required, under the terms of an

employee benefit scheme, to hold or use the money or asset for or in

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connection with the provision of benefits to employees of the

employer.

          (3)      The deduction in respect of employee benefit contributions mentioned in

sub-paragraph (1) is allowed only to the extent that—

 

 

Finance Bill
Schedule 24 — Restriction of deductions for employee benefit contributions

    337

 

              (a)             during the period in question or within nine months from the end of

it—

                    (i)                   qualifying benefits are provided out of the contributions, or

                    (ii)                  qualifying expenses are paid out of the contributions,

                              or

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              (b)             where the making of the contributions is itself the provision of

qualifying benefits, the contributions are made during that period or

within those nine months.

          (4)      An amount disallowed under sub-paragraph (3) is allowed as a deduction

for a subsequent period to the extent that—

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              (a)             qualifying benefits are provided out of the employee benefit

contributions in question before the end of that subsequent period,

or

              (b)             where the making of the contributions is itself the provision of

qualifying benefits, the contributions are made before the end of that

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subsequent period.

“Provision of qualifying benefits”

  2       (1)      For the purposes of this Schedule qualifying benefits are provided where

there is a payment of money or transfer of assets, otherwise than by way of

loan, that—

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              (a)             gives rise both to an employment income tax charge and to an NIC

charge, or would do if the conditions in sub-paragraph (3) were met,

or

              (b)             is made in connection with the termination of the recipient’s

employment with the employer.

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          (2)      In sub-paragraph (1)(a)—

               “employment income tax charge” means a charge to tax under the

Income Tax (Earnings and Pensions) Act 2003 (c. 1) (whether on the

recipient or on someone else);

               “NIC charge” means a liability to pay national insurance contributions

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under section 6 (Class 1 contributions), 10 (Class 1A contributions)

or 10A (Class 1B contributions) of the Contributions and Benefits

Act.

          (3)      The conditions mentioned in sub-paragraph (1)(a) are—

              (a)             that the duties of the employment in respect of which the payment

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or transfer was made were performed in the United Kingdom, and

              (b)             that the person in respect of whose employment the payment or

transfer was made fulfilled at all relevant times the conditions as to

residence or presence in Great Britain or Northern Ireland prescribed

under section 1(6)(a) of the Contributions and Benefits Act.

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          (4)      In this paragraph “the Contributions and Benefits Act” means—

              (a)             the Social Security Contributions and Benefits Act 1992 (c. 4), or

              (b)             the Social Security Contributions and Benefits (Northern Ireland)

Act 1992 (c. 7).

          (5)      Where the provision of a qualifying benefit takes the form of the payment of

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money, the benefit is treated for the purposes of this Schedule as provided

at the time when the money is treated as received for the purposes of

 

 

Finance Bill
Schedule 24 — Restriction of deductions for employee benefit contributions

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Chapter 4 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003,

applying the rules in section 18 of that Act (receipt of money earnings).

“Qualifying expenses”

  3        In this Schedule “qualifying expenses”—

              (a)             does not include expenses that, if incurred by the employer, would

5

not be deductible in calculating for tax purposes the employer’s

profits for any period, but

              (b)             subject to that, includes any expenses of the third party (other than

the provision of benefits to employees of the employer) in operating

the employee benefit scheme in question.

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Payment “out of” employee benefit contributions

  4       (1)      For the purposes of paragraph 1(3)(a) any qualifying benefits provided or

qualifying expenses paid by the third party after the receipt by him of

employee benefit contributions are regarded as being provided or paid out

of those contributions, up to the total amount of the contributions as reduced

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by the amount of any benefits or expenses previously provided or paid as

mentioned in paragraph 1(3)(a).

          (2)      For the purposes of paragraph 1(4)(a) any qualifying benefits provided by

the third party after the receipt by him of employee benefit contributions are

regarded as being provided out of those contributions, up to the total

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amount of the contributions as reduced by the amount of any benefits or

expenses previously provided or paid as mentioned in paragraph 1(3)(a) or

(4)(a).

          (3)      In applying sub-paragraphs (1) and (2) above no account shall be taken of

any other amount received or paid by the third party.

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Transfer of asset to employee

  5       (1)      This paragraph applies where the provision of a qualifying benefit takes the

form of the transfer of an asset.

          (2)      The amount provided shall be taken for the purposes of this Schedule to be

the total of—

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              (a)             the amount (if any) expended on the asset by the third party, and

              (b)             in a case where the asset was transferred to the third party by the

employer, the amount of the deduction that would be allowed as

mentioned in paragraph 1(1) in respect of the transfer.

          (3)      But where the amount given by sub-paragraph (2) above is more than the

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amount that is charged to tax under the Income Tax (Earnings and Pensions)

Act 2003 (c. 1) in respect of the transfer, or would be so charged if the

condition in paragraph 2(3)(a) were met, the deduction allowable under

paragraph 1(3) or (4) is limited to that lower amount.

Provisional calculation of profits

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  6        Where the calculation referred to in paragraph 1(1) is made before the end

of the nine-month period mentioned in paragraph 1(3)—

 

 

 
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