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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 10 — Priority share allocations

    266

 

Other income tax consequences

 541   Effects on other income tax charges

     (1)    Nothing in the EMI code affects—

           (a)           any liability to income tax arising by virtue of section 199 (charge on

disposal of employment-related shares for more than market value) in

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respect of shares acquired under a qualifying option;

           (b)           any liability to income tax arising by virtue of section 476 (charge on

exercise etc of option by employee) in respect of the release of rights

conferred by a qualifying option;

           (c)           any liability to income tax arising by virtue of section 449, 453 or 457

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(charge on post-acquisition benefits relating to shares) in respect of

shares acquired under a qualifying option; or

           (d)           subject to subsection (2), any liability to income tax arising by virtue

of—

                  (i)                 section 427 (charge on interest in shares ceasing to be only

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conditional), or

                  (ii)                section 438 (charge on conversion of shares),

                         in respect of shares acquired under a qualifying option.

     (2)    If section 427 or 438 applies in respect of shares acquired under a qualifying

option, the amount of relief on the exercise of the option is to be regarded as a

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deductible amount for the purposes of section 428(1) or 439(1) (amount of

charge), as appropriate.

     (3)    “The amount of relief on the exercise of the option” means the difference

between—

           (a)           the amount that would have counted as employment income by virtue

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of section 476 in respect of the exercise of the option apart from the EMI

code, and

           (b)           the amount (if any) that in fact counts as such income in accordance

with the EMI code.

Chapter 10

30

Priority share allocations

Exemption where offer made to both public and employees

 542   Exemption: offer made to public and employees

     (1)    This section applies if—

           (a)           there is a genuine offer to the public of shares in a company at a fixed

35

price or by tender,

           (b)           a director or employee of the company, or of another company or

person, is entitled by reason of the office or employment to an

allocation of the shares in priority to members of the public, and

           (c)           conditions A to C are met.

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     (2)    No liability to income tax in respect of earnings arises by virtue of any benefit

derived by the director or employee from the entitlement.

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 10 — Priority share allocations

    267

 

     (3)    Condition A is that the aggregate number of shares subject to the offer that may

be allocated as mentioned in subsection (1)(b) (“priority shares”) does not

exceed—

           (a)           if the offer is part of arrangements which include one or more other

offers to the public of shares of the same class, either of the limits in

5

subsection (4), or

           (b)           in any other case, 10% of the shares subject to the offer (including the

priority shares).

     (4)    The limits referred to in subsection (3)(a) are—

           (a)           40% of the shares subject to the offer (including the priority shares), and

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           (b)           10% of all the shares of the class in question that are subject to any of

the offers forming part of the arrangements (including the priority

shares).

     (5)    Condition B is that all the persons entitled to an allocation of priority shares are

entitled to it on similar terms (see section 546).

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     (6)    Condition C is that those persons are not restricted wholly or mainly to

directors or to those whose remuneration exceeds a particular level.

     (7)    This section has effect subject to section 543 (discount not covered by

exemption in this section).

 543   Discount not covered by exemption in section 542

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     (1)    This section applies if the total of—

           (a)           the price payable by the director or employee for the shares of the

company allocated to the director or employee under the offer, and

           (b)           the amount or value of any registrant discount made to the director or

employee in respect of the shares,

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            is less than the fixed price or the lowest price successfully tendered.

     (2)    Section 542(2) (exemption: offer made to public and employees) does not apply

to the benefit (if any) represented by the difference.

Exemption where different offers made to public and employees

 544   Exemption: different offers made to public and employees

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     (1)    This section applies if—

           (a)           there is a genuine offer to the public of a combination of shares in two

or more companies at a fixed price or by tender (“the public offer”),

           (b)           there is at the same time an offer (“the employee offer”) of shares, or of

a combination of shares, in one or more, but not all, of those

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companies—

                  (i)                 to directors or employees of any of those companies, or of any

other company or person, or

                  (ii)                to those directors or employees and to other persons,

           (c)           any of those directors or employees is entitled by reason of the office or

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employment to an allocation of shares under the employee offer in

priority to any allocation to members of the public under the public

offer, and

           (d)           conditions A to C are met.

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 10 — Priority share allocations

    268

 

     (2)    No liability to income tax in respect of earnings arises by virtue of any benefit

derived by the director or employee from the entitlement.

     (3)    Condition A is that for each company whose shares are subject to the employee

offer, the aggregate number of shares subject to that offer that may be allocated

as mentioned in subsection (1)(c) (“priority shares”) does not exceed—

5

           (a)           if the public offer and the employee offer are part of arrangements

which include one or more other offers to the public of shares in the

company of the same class, either of the limits in subsection (4), or

           (b)           in any other case, 10% of the shares in the company that are subject to

the public offer or the employee offer (including the priority shares).

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     (4)    The limits referred to in subsection (3)(a) are—

           (a)           40% of the shares in the company that are subject to the public offer or

the employee offer (including the priority shares), and

           (b)           10% of all the shares in the company of the class in question that are

subject to any of the offers forming part of the arrangements (including

15

the priority shares).

     (5)    Condition B is that all the persons entitled to an allocation of priority shares are

entitled to it on similar terms (see section 546).

     (6)    Condition C is that those persons are not restricted wholly or mainly to

directors or to those whose remuneration exceeds a particular level.

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     (7)    This section has effect subject to section 545 (discount not covered by

exemption in this section).

 545   Discount not covered by exemption in section 544

     (1)    This section applies if the total of—

           (a)           the price payable by the director or employee for the shares of a

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company allocated to the director or employee under the employee

offer, and

           (b)           the amount or value of any registrant discount made to the director or

employee in respect of the shares,

            is not the same as, or as near as reasonably practicable to, the appropriate

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notional price for the shares of the company.

     (2)    Section 544(2) (exemption: different offers made to public and employees) does

not apply to the benefit (if any) represented by the amount by which the

appropriate notional price exceeds the total referred to in subsection (1).

     (3)    The “appropriate notional price” for the shares of a company is—

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           (a)           if subsection (4) applies, the amount given by the formula in subsection

(6), and

           (b)           in any other case, the notional price.

     (4)    This subsection applies if shares of the company are subject to the public offer

and there is a difference between CP and AFP—

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           (a)           CP being the price for the combination of shares subject to the public

offer determined by aggregating the notional prices for each one of the

shares comprised in the combination, and

           (b)           AFP being the actual fixed price or (as the case may be) the lowest

successfully tendered price for that combination of shares.

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Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 10 — Priority share allocations

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     (5)    The “notional price” for the shares of a company is the price that might

reasonably have been expected to be the fixed price for the shares of the

company under a separate offer of those shares if—

           (a)           the shares of the company, and of each of the other companies had,

instead of being subject to the public offer and the employee offer, been

5

subject to separate offers to the public in respect of each company at

fixed prices, and

           (b)           those separate offers had been made at the time at which the public

offer was in fact made.

     (6)    The formula referred to in subsection (3)(a) is—equation: times[char[N],cross[char[P],over[times[char[A],char[F],char[P]],times[char[C],char[

P]]]]]

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            where—

                    NP is the notional price for the shares of the company, and

                    AFP and CP have the same meanings as in subsection (4).

Supplementary provisions

 546   Meaning of being entitled “on similar terms”

15

     (1)    This section applies for the purposes of sections 542(5) and 544(5) (condition

that entitlements to allocation of priority shares must be on similar terms).

     (2)    The fact that different provision is made for persons according to—

           (a)           the levels of their remuneration,

           (b)           the length of their service, or

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           (c)           similar factors,

            does not mean that they are not entitled to an allocation on similar terms.

     (3)    The fact that the allocations of shares in a company to which non-company

employees are entitled are smaller than those to which company employees are

entitled does not mean that they are not entitled on similar terms, if conditions

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A and B are met.

     (4)    Condition A is that each non-company employee is also entitled by reason of

the office or employment and in priority to members of the public, to an

allocation of shares in another company or companies which are offered to the

public at a fixed price or by tender at the same time as the shares in the

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company.

     (5)    Condition B is that in the case of each non-company employee the aggregate

value of all the shares included in the allocations to which the non-company

employee is entitled is the same, or as nearly the same as is reasonably

practicable, as that of the shares in the company included in the entitlement of

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a comparable company employee.

     (6)    For the purposes of subsection (5), the value of shares is to be measured by

reference to the fixed price or the lowest price successfully tendered.

     (7)    In this section—

                    “company employee”, in relation to a company, means a director or

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employee of the company, and

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 10 — Priority share allocations

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                    “non-company employee”, in relation to a company, means a director or

employee of another company or person.

 547   Meaning and amount or value of “registrant discount”

     (1)    For the purposes of this Chapter there is a “registrant discount” in respect of

the shares of a company if conditions A to C are met.

5

     (2)    Condition A is that members of the public who comply with such requirements

as may be imposed in connection with the offer or, if section 544 applies, the

public offer are, or may become, entitled to a discount in respect of the whole

or part of the shares of the company allocated to them.

     (3)    Condition B is that at least 40% of the shares of the company allocated to

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members of the public are allocated to individuals who are or become entitled

to—

           (a)           the discount, or

           (b)           some other benefit of similar value for which they may elect as an

alternative to the discount.

15

     (4)    Directors and employees who are entitled by reason of their office or

employment to an allocation of the shares in priority to members of the public

are not to be treated as members of the public for the purposes of subsection

(3).

     (5)    Condition C is that subscribing employees are, or may become, entitled to the

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same discount in respect of the shares of the company as any other members of

the public to whom shares of the company are allocated under the offer.

     (6)    In subsection (5) a “subscribing employee” means a director or employee

who—

           (a)           subscribes for shares—

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                  (i)                 if section 542 (offer made to public and employees) applies,

under the offer as a member of the public, or

                  (ii)                if section 544 (different offers made to public and employees)

applies, under the public offer as a member of the public or

under the employee offer as a director or employee, and

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           (b)           complies (or, in the case of a requirement to register, is taken under the

terms of the offer to comply) with the requirements mentioned in

subsection (2).

     (7)    For the purposes of this Chapter, the “amount or value” of any registrant

discount made to a director or employee means—

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           (a)           the amount of any such discount made to the director or employee as is

mentioned in subsection (5), or

           (b)           the value of any such other benefit as is mentioned in subsection (3)(b)

which is conferred on the director or employee as an alternative to the

discount.

40

 548   Minor definitions

     (1)    In this Chapter—

                    “director” means—

                  (a)                 in relation to a company whose affairs are managed by a board

of directors or similar body, a member of that body,

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Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 11 — Supplementary provisions about employee benefit trusts

    271

 

                  (b)                 in relation to a company whose affairs are managed by a single

director or similar person, that director or person, and

                  (c)                 in relation to a company whose affairs are managed by the

members themselves, a member of the company, and

                         includes any person in accordance with whose directions or

5

instructions the directors of the company (as defined in paragraphs (a)

to (c)) are accustomed to act and a person who is to be, or has ceased to

be, a director (as so defined);

                    “employee” includes a person who is to be or has been an employee;

                    “shares” includes stock;

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                    “the employee offer” and “the public offer” have the meanings given by

section 544(1).

     (2)    For the purposes of subsection (1) a person is not to be regarded as a person in

accordance with whose directions or instructions the directors of the company

are accustomed to act merely because the directors act on advice given by that

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person in a professional capacity.

     (3)    References in this Chapter—

           (a)           to the employment, in relation to an employee, are to the employment

of that employee, and

           (b)           to the office, in relation to a director, are to the office of that director.

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Chapter 11

Supplementary provisions about employee benefit trusts

Introduction

 549   Application of this Chapter

     (1)    This Chapter applies for the purposes of any listed provision in circumstances

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where—

           (a)           an individual (“B”) is interested as a beneficiary of an employee benefit

trust in shares or obligations of a particular company (“the company”),

and

           (b)           the question arises under that provision whether the trustees of the

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trust are, as a result of B’s being so interested, to be regarded as

associates of B’s for the relevant purposes.

            The relevant purposes are those of the operation, in relation to the company, of

the “no material interest” requirement contained in the Schedule to this Act in

which the listed provision appears.

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     (2)    In this Chapter “listed provision” means any of the following provisions

(under which trustees of an employee benefit trust are not to be regarded as

associates if specified limits relating to share ownership are not exceeded)—

           (a)           paragraph 23(2) of Schedule 2 (approved SIPs),

           (b)           paragraph 15(2) of Schedule 3 (approved SAYE option schemes),

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           (c)           paragraph 13(2) of Schedule 4 (approved CSOP schemes), or

           (d)           paragraph 32(2) of Schedule 5 (enterprise management incentives).

     (3)    The general effect of this Chapter is that if the provisions of—

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 11 — Supplementary provisions about employee benefit trusts

    272

 

           (a)           sections 552 and 553 (attribution of interest in company to beneficiary

or associate), or

           (b)           section 554 (attribution of further interest),

            apply in relation to B or an associate of B’s, B or the associate is to be treated for

the purposes of the listed provision as having been the beneficial owner of a

5

particular percentage of the company’s ordinary share capital on a particular

date.

     (4)    In this Chapter, in relation to an individual, “associate”—

           (a)            has the same meaning as in section 417(3) and (4) of ICTA (expressions

relating to close companies), but

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           (b)           does not include the trustees of an employee benefit trust as a result

only of the individual’s having (as mentioned in subsection (1)(a)) an

interest in shares or obligations of the company which are subject to the

trust.

     (5)    In this Chapter “employee” means the holder of a taxable employment under

15

Part 2 (as defined in section 66(3)), and accordingly includes an office-holder

whose office is within the scope of that definition as a result of section 5(1).

Employee benefit trusts

 550   Meaning of “employee benefit trust”

     (1)    In this Chapter “employee benefit trust”, in relation to a company, means a

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trust where conditions A and B are met.

     (2)    Condition A is that all or most of the employees of the company are eligible to

benefit under the trust.

     (3)    Condition B is that after 13th March 1989 either—

           (a)           there has been no disposal of any of the property subject to the trust, or

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           (b)           any disposal of any of that property was a disposal within subsection

(4).

     (4)    The disposals within this subsection are—

           (a)           disposals in the ordinary management of the trust, or

           (b)           qualifying disposals (within the meaning given by section 551).

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     (5)    In this section and section 551 “disposal” means disposal by sale, loan or

otherwise.

 551   “Qualifying disposals” for purposes of section 550

     (1)    For the purposes of section 550 (meaning of “employee benefit trust”) a

“qualifying disposal” is a disposal of property consisting of—

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           (a)           any of the ordinary share capital of the company, or

           (b)           money paid outright,

            where any of conditions 1, 2 and 3 is met.

     (2)    Condition 1 is that the property has been applied for the benefit of—

           (a)           individual employees or former employees of the company,

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           (b)           spouses, former spouses, widows or widowers of employees or former

employees of the company,

 

 

 
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