House of Lords portcullis
House of Lords
Session 2002 - 03
Internet Publications
Other Bills before Parliament

Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Schedule 1 — Abbreviations and defined expressions
Part 2 — Index of expressions defined in this Act or ICTA

    357

 
 

taxable employment under Part 2 (in the benefits

section 66(3)

 
 

code)

  
 

taxable pension income (in Part 9)

section 567(3), (4)

 
 

the taxable period (in Chapter 5 of Part 3)

section 102(2)

 
 

taxable person (in Chapter 3 of Part 6)

section 403(6)

 

5

 

taxable social security income (in Part 10)

section 658(4)-(7)

 
 

taxable specific income (in the employment income

section 10(3)

 
 

Parts)

  
 

tax year

section 721(1)

 
 

the tax year (in Part 5)

section 327(2)(b)

 

10

 

the tax year 2003-04

section 721(1)

 
 

terms (in Chapter 2 of Part 7)

section 434(1)

 
 

terms (in Chapter 3 of Part 7)

section 446(1)

 
 

total income

section 835 of ICTA

 
 

trade

section 832(1) of

 

15

  

ICTA

 
 

transport voucher (in Chapter 4 of Part 3)

section 84(3)

 
    
 

United Kingdom

section 830 of ICTA

 
 

UK approval certificate (in Chapter 6 of Part 3)

section 171(1)

 

20

 

use of credit-token by employee (in Chapter 4 of

section 91(b)

 
 

Part 3)

  
    
 

value (in relation to shares) (in Chapter 4 of Part 7)

section 470(1)

 
 

van (in Chapter 6 of Part 3)

section 115(1)

 

25

 

van (in Chapter 2 of Part 4)

section 235(3)

 
 

van is available to an employee (in Chapter 6 of

section 116(1)

 
 

Part 3)

  
 

van made available by reason of employment (in

section 117

 
 

Chapter 6 of Part 3)

  

30

    
 

workplace (in Chapter 3 of Part 4)

section 249

 
 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 1 — Introduction

    358

 
 

workplace (in Part 5)

section 339(1)

 
 

work-related training (in Chapter 4 of Part 4)

section 251(1)

 
 

Schedule 2

Section 488

 

Approved share incentive plans

Part 1

5

Introduction

Approval of share incentive plans (SIPs)

  1       (1)      This Schedule makes provision for—

              (a)             the approval of share incentive plans (“SIPs”) by the Inland Revenue,

and

10

              (b)             the administration and operation of such plans.

          (2)      Parts 2 to 9 of this Schedule contain requirements that have to be met in

order for plans to be approved under this Schedule.

          (3)      The requirements consist of general requirements (see Part 2) and

requirements as to—

15

               the eligibility of individuals (see Part 3),

               the types of shares that may be awarded (see Part 4),

               free shares (see Part 5),

               partnership shares (see Part 6),

               matching shares (see Part 7),

20

               cash dividends and dividend shares (see Part 8), and

               the trustees (see Part 9).

          (4)      Part 10 of this Schedule deals with the approval of plans and the withdrawal

of approval.

SIPs: free shares and partnership shares

25

  2       (1)      In the SIP code a “share incentive plan” (or “SIP” for short) means (in

accordance with section 488(4)) a plan established by a company

providing—

              (a)             for shares to be appropriated to employees without payment (“free

shares”), or

30

              (b)             for shares to be acquired on behalf of employees out of sums

deducted from their salary (“partnership shares”).

          (2)      In the SIP code, in relation to a SIP—

                “the company” means the company which established the plan;

               “plan requirements” means requirements applying to the plan;

35

               “the trustees” means the body of persons established under Part 9 to

exercise functions in connection with the plan.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 1 — Introduction

    359

 

Matching shares

  3       (1)      A SIP that provides for partnership shares may also provide for shares to be

appropriated without payment to employees in proportion to the

partnership shares acquired by them (“matching shares”).

          (2)      If a SIP contains provision for all, or more than one, of the following—

5

               free shares,

               partnership shares, and

               matching shares,

                   the plan may provide for the company to decide when the provisions

relating to each kind of share are to have effect.

10

Group plans

  4       (1)      A SIP established by a company that controls other companies (a “parent

company”) may extend to all or any of those other companies.

          (2)      In the SIP code a SIP established by a parent company which so extends is

referred to as a “group plan”.

15

          (3)      In relation to a group plan a “constituent company” means—

              (a)             the parent company, or

              (b)             any other company to which for the time being the plan is expressed

to extend.

          (4)      Paragraph 91 deals with jointly owned companies and companies controlled

20

by them.

Meaning of “award of shares”, “participant” etc.

  5       (1)      For the purposes of the SIP code an “award of shares” is made under a SIP

on each occasion when in accordance with the plan—

              (a)             free or matching shares are appropriated to employees, or

25

              (b)             partnership shares are acquired on behalf of employees.

          (2)      Accordingly, references to shares awarded to an individual under a SIP are

to—

              (a)             free or matching shares appropriated to the individual, or

              (b)             partnership shares acquired on the individual’s behalf,

30

                   under the plan.

          (3)      For the purposes of the SIP code an individual participates in an award of

free, matching or partnership shares under a SIP if shares included in that

award are—

              (a)             in the case of an award of free or matching shares, appropriated to

35

the individual, or

              (b)             in the case of an award of partnership shares, acquired on the

individual’s behalf.

          (4)      In the SIP code, in relation to a SIP, “participant” means an individual to

whom shares have been awarded under the plan.

40

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 2 — General requirements

    360

 

Part 2

General requirements

General requirements for approval: introduction

  6        A SIP must meet the plan requirements contained in—

                    paragraph 7 (the purpose of the plan),

5

                    paragraph 8 (all-employee nature of plan),

                    paragraph 9 (participation on same terms),

                    paragraph 10 (no preferential treatment for directors and senior

employees),

                    paragraph 11 (no further conditions), and

10

                    paragraph 12 (no loan arrangements).

The purpose of the plan

  7       (1)      The purpose of the plan must be to provide benefits to employees in the

nature of shares in a company which give them a continuing stake in that

company.

15

          (2)      The plan must not contain, and the operation of the plan must not involve,

features which are neither essential nor reasonably incidental to that

purpose.

All-employee nature of plan

  8       (1)      The plan must provide that every employee who—

20

              (a)             meets the requirements of Part 3 of this Schedule (eligibility of

individuals) in relation to an award of shares under the plan, and

              (b)             is a UK resident taxpayer,

                   is eligible to participate in the award, and is invited to do so.

          (2)      An employee is a UK resident taxpayer if the employee’s earnings from the

25

employment by reference to which the employee meets the employment

requirement are (or would be if there were any) general earnings to which

section 15 or 21 applies (earnings for year when employee resident and

ordinarily resident in the UK).

          (3)      The plan must not contain any feature which has or is likely to have the effect

30

of discouraging any description of employees within sub-paragraph (1)

from participating in an award of shares under the plan.

          (4)      Sub-paragraph (3) does not apply to any provision required or authorised by

this Schedule.

          (5)      The plan may provide that an employee who—

35

              (a)             meets the requirements of Part 3 of this Schedule (eligibility of

individuals) in relation to an award of shares under the plan, but

              (b)             is not a UK resident taxpayer (see sub-paragraph (2)),

                   is eligible to participate in the award, and may be invited to do so.

          (6)      For the purposes of the SIP code an individual is a “qualifying employee”, in

40

relation to an award of shares, if the individual—

              (a)             is eligible to participate in it under sub-paragraph (1), or

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 2 — General requirements

    361

 

              (b)             is eligible to participate in it under sub-paragraph (5) and has been

invited to do so.

Participation on same terms

  9       (1)      The requirement of this paragraph is that—

              (a)             every employee who is invited to participate in an award must be

5

invited to participate on the same terms, and

              (b)             those who do participate must actually do so on the same terms.

          (2)      The requirement of this paragraph is infringed by the awarding of free

shares by reference to factors other than those mentioned in sub-paragraph

(3).

10

          (3)      The requirement of this paragraph is not infringed by the awarding of free

shares by reference to—

              (a)             an employee’s remuneration,

              (b)             an employee’s length of service, or

              (c)             hours worked by an employee;

15

                   but this is subject to sub-paragraph (4).

          (4)      If the awarding of free shares is by reference to more than one of the factors

mentioned in sub-paragraph (3), the requirement of this paragraph is

infringed unless—

              (a)             each factor gives rise to a separate entitlement related to the level of

20

remuneration, length of service or (as the case may be) hours

worked, and

              (b)             the total entitlement is the sum of those separate entitlements.

          (5)      In the case of an award of free shares which provides for performance

allowances, this paragraph has effect as provided in—

25

              (a)             paragraph 41 (performance allowances: method one), or

              (b)             paragraph 42 (performance allowances: method two).

          (6)      In sub-paragraph (5) “performance allowances” has the meaning given in

paragraph 34(4).

          (7)      In the case of an award of partnership shares, the requirement of this

30

paragraph is not infringed by the operation of any percentage limit specified

in or under paragraph 46(2) or (3) (maximum amount of deductions) so far

as the application of that limit to employees with different levels of

remuneration results in deductions of different amounts or in the award of

different numbers of shares.

35

No preferential treatment for directors and senior employees

  10      (1)      The first requirement of this paragraph is that no feature of the plan has or

is likely to have the effect of conferring benefits wholly or mainly—

              (a)             on directors, or

              (b)             on employees receiving the higher or highest levels of remuneration.

40

          (2)      The second requirement of this paragraph applies only if the plan is

established by a company that is a member of a group.

          (3)      The requirement is that the identity of the company (or, if it is a group plan,

the constituent companies) must not be such that the plan has or is likely to

have the effect of conferring benefits wholly or mainly—

45

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 3 — Eligibility of individuals

    362

 

              (a)             on employees of companies that are members of the group who

receive the higher or highest levels of remuneration, or

              (b)             on directors of such companies.

          (4)      The requirements of this paragraph are not infringed by the awarding of free

shares in circumstances where (as a result of paragraph 9(3) and (4)) that

5

would not constitute an infringement of the requirements of paragraph 9.

No further conditions

  11       No conditions apart from those required or authorised by this Schedule may

be imposed on an employee’s participation in an award of shares under the

plan.

10

No loan arrangements

  12      (1)      The arrangements for the plan must not make any provision, or be

associated in any way with any provision made, for loans to some or all of

the employees of—

              (a)             the company, or

15

              (b)             in the case of a group plan, of any constituent company.

          (2)      The operation of the plan must not be associated in any way with such loans.

          (3)      In sub-paragraph (1) “arrangements” includes any scheme, agreement,

undertaking or understanding, whether or not legally enforceable.

Part 3

20

Eligibility of individuals

Eligibility of individuals: introduction

  13       A SIP must meet the plan requirements contained in—

                    paragraph 14 (time of eligibility to participate),

                    paragraph 15 (the employment requirement),

25

                    paragraph 18 (requirement not to participate in other SIPs), and

                    paragraph 19 (the “no material interest” requirement).

Time of eligibility to participate

  14      (1)      The plan must provide that an individual may only participate in an award

of shares if the individual is eligible to participate in the award at the

30

appropriate time mentioned below.

          (2)      In the case of an award of free shares, the appropriate time is the time when

the award is made.

          (3)      In the case of an award of partnership shares where the plan does not

provide for an accumulation period, the appropriate time is the time of the

35

deduction of the partnership share money relating to the award.

          (4)      In the case of an award of partnership shares where the plan does provide

for an accumulation period, the appropriate time is the time of the first

deduction of partnership share money relating to the award.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 3 — Eligibility of individuals

    363

 

          (5)      In the case of an award of matching shares where the plan does not provide

for an accumulation period, the appropriate time is the time of the deduction

of the partnership share money relating to the award of partnership shares

to which the matching shares relate.

          (6)      In the case of an award of matching shares where the plan does provide for

5

an accumulation period, the appropriate time is the time of the first

deduction of partnership share money relating to the award of partnership

shares to which the matching shares relate.

          (7)      For the purposes of this paragraph an individual is eligible to participate in

an award of shares under the plan if and only if the requirements of the plan

10

are met as to—

              (a)             employment (see paragraph 15),

              (b)             not participating in other SIPs (see paragraph 18), and

              (c)             not having a material interest (see paragraph 19).

          (8)      In the case of an individual within paragraph 8(5) (all-employee nature of

15

plan: non-UK resident taxpayer), the individual is not eligible to participate

in an award of shares under the plan unless (in addition to the requirements

mentioned in sub-paragraph (7)) any further eligibility requirements of the

plan are met.

The employment requirement

20

  15      (1)      The plan must provide that an individual is not eligible to participate in an

award of shares unless the individual meets the requirement in sub-

paragraph (2).

          (2)      The requirement is that the individual—

              (a)             is an employee of—

25

                    (i)                   the company, or

                    (ii)                  in the case of a group plan, a constituent company, and

              (b)             if the plan provides for a qualifying period, has at all times during

that period been an employee of a qualifying company.

          (3)      In the SIP code “the employment requirement” means the requirement in

30

sub-paragraph (2).

          (4)      This paragraph is supplemented—

              (a)             as regards qualifying periods, by paragraph 16, and

              (b)             as regards the meaning of “qualifying company”, by paragraph 17.

Qualifying periods

35

  16      (1)      This paragraph applies if the plan provides for a qualifying period in

relation to an award.

          (2)      In the case of an award of free shares, the qualifying period must be a period

of not more than 18 months ending with the date on which the award is

made.

40

          (3)      In the case of an award of partnership shares where the plan does not

provide for an accumulation period, the qualifying period must be a period

of not more than 18 months ending with the deduction of partnership share

money relating to the award.

 

 

 
previous section contents continue
 
House of Lords home page Houses of Parliament home page House of Commons home page search page enquiries

© Parliamentary copyright 2003
Revised 17 February 2003