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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 4 — Types of shares that may be awarded

    371

 

              (b)             have notified all qualifying employees of the existence of the

undertaking.

Permitted restrictions: voting rights

  31       Eligible shares may be shares carrying no voting rights or limited voting

rights.

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Permitted restrictions: provision for forfeiture

  32      (1)      Free or matching shares may be subject to provision for forfeiture—

              (a)             on the participant ceasing to be in relevant employment at any time

in the forfeiture period,

              (b)             on the participant withdrawing the shares from the plan at any such

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time, or

              (c)             in the case of matching shares, on the participant withdrawing from

the plan at any such time the partnership shares in respect of which

those shares were awarded.

          (2)      Sub-paragraph (1)(a) does not, however, authorise the making of provision

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for forfeiture on the participant ceasing to be in relevant employment—

              (a)             because of injury or disability,

              (b)             on being dismissed by reason of redundancy,

              (c)             by reason of a transfer to which the Transfer of Undertakings

(Protection of Employment) Regulations 1981 (S.I. 1981/1794) apply,

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              (d)             if the relevant employment is employment by an associated

company (see paragraph 95(2)), by reason of a change of control or

other circumstances ending that company’s status as an associated

company,

              (e)             by reason of the participant’s retirement on or after reaching the

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specified retirement age (see paragraph 98), or

              (f)             on the participant’s death.

          (3)      Forfeiture may not be linked to the performance of any person or persons.

          (4)      The same provision for forfeiture must apply in relation to all free or

matching shares included in the same award under the plan.

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          (5)      In this paragraph “the forfeiture period” means the forfeiture period

specified in the plan, which must be a period of not more than 3 years

beginning with the date on which the shares were awarded to the

participant.

Permitted restrictions: pre-emption conditions

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  33      (1)      If the requirements of this paragraph are met, eligible shares may be subject

to provision requiring shares—

              (a)             that were awarded to an employee under the plan, and

              (b)             that are held by an employee or a permitted transferee,

                   to be offered for sale on the employee ceasing to be in relevant employment.

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          (2)      For the purposes of sub-paragraph (1)(b) a “permitted transferee” means a

person to whom, under the articles of association of the company, the

employee is permitted to transfer the shares.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 5 — Free shares

    372

 

          (3)      The requirements of this paragraph are that under the articles of association

of the company—

              (a)             the same provision applies to all employees of the company or, in the

case of a parent company, to all employees of that company or any

company of which that company has control,

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              (b)             the shares are required to be offered for sale at a specified

consideration, and

              (c)             anyone disposing of shares of the same class (whether or not as an

employee) is required to offer the shares for sale on no better terms.

Part 5

10

Free shares

Free shares: introduction

  34      (1)      If a SIP provides for free shares, it must meet the plan requirements

contained in—

               paragraph 35 (maximum annual award), and

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               paragraph 36 (the holding period).

          (2)      If a SIP provides for free shares and for performance allowances, the

requirements of the following paragraphs also apply—

               paragraph 38(performance allowances: general application),

               paragraph 39 (performance allowances: targets and measures),

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               paragraph 40 (performance allowances: information to be given to

employees), and

               either paragraph 41 or 42 (performance allowances: methods of

awarding shares).

          (3)      The plan must meet any plan requirements contained in those paragraphs.

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          (4)      For the purpose of the SIP code a plan provides for performance allowances

if it provides for—

              (a)             whether or not free shares will be awarded to an individual, or

              (b)             the number or value of free shares awarded,

                   to be conditional on performance targets being met.

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Maximum annual award

  35      (1)      The plan must provide that the initial market value of the free shares

awarded to a participant in a tax year is not to exceed £3,000.

          (2)      The “initial market value” of shares means their market value on the date on

which they are awarded.

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          (3)      For the purposes of this paragraph the market value of shares subject to

restrictions or risk of forfeiture is to be determined as if there were no such

restrictions or risk.

          (4)      Shares are “subject to risk of forfeiture” if the interest that may be acquired

is only conditional within the meaning of section 424 (conditional interests

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in shares).

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 5 — Free shares

    373

 

The holding period

  36      (1)      The plan must require the company in respect of each award of free shares

to specify a period (“the holding period”) during which a participant is

bound by contract with the company—

              (a)             to permit the free shares awarded to the participant to remain in the

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hands of the trustees, and

              (b)             not to assign, charge or otherwise dispose of the beneficial interest in

the shares.

          (2)      The holding period—

              (a)             must be a period of at least 3 years but not more than 5 years,

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beginning with the date on which the shares in question are awarded

to the participant, and

              (b)             must be the same for all shares in the same award.

          (3)      The plan—

              (a)             may authorise the company to specify different holding periods

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from time to time, but

              (b)             must prevent the company from increasing the holding period

specified in respect of free shares that have been awarded under the

plan.

          (4)      The participant’s obligations with respect to the holding period are subject

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to—

              (a)             paragraph 37 (power to authorise trustees to accept general offers

etc),

              (b)             paragraph 79 (meeting by trustees of PAYE obligations), and

              (c)             paragraph 90(5) (termination of plan: early removal of shares with

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participant’s consent).

          (5)      If at any time in the holding period the participant ceases to be in relevant

employment, the participant’s obligations with respect to that period come

to an end.

Holding period: power of participant to direct trustees to accept general offers etc.

30

  37      (1)      A participant may direct the trustees to do any of the following during the

holding period.

          (2)      The participant may direct the trustees to accept an offer for any of the

participant’s free shares (“the original shares”) if the acceptance or

agreement will result in a new holding being equated with the original

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shares for the purposes of capital gains tax.

          (3)      The participant may direct the trustees to agree to a transaction affecting the

participant’s free shares, or such of them as are of a particular class, if the

transaction would be entered into as a result of a compromise, arrangement

or scheme applicable to or affecting—

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              (a)             all the ordinary share capital of the company or, as the case may be,

all the shares of the class in question, or

              (b)             all the shares, or all the shares of the class in question, which are held

by a class of shareholders identified otherwise than by reference to

their employment or their participation in an approved SIP.

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Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 5 — Free shares

    374

 

          (4)      The participant may direct the trustees to accept an offer for the participant’s

free shares of—

              (a)             cash, with or without other assets, or

              (b)             a qualifying corporate bond (whether alone or with other assets or

cash or both),

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                   if the offer forms part of a general offer falling within sub-paragraph (5).

          (5)      A general offer falls within this sub-paragraph if—

              (a)             it is made to holders of shares of the same class as the participant’s

or to holders of shares in the same company, and

              (b)             it is made in the first instance on a condition such that if it is satisfied

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the person making the offer will have control of that company.

          (6)      In sub-paragraph (5) “control” has the meaning given by section 416 of

ICTA.

Performance allowances: general application

  38       A plan that provides for performance allowances in relation to an award

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must make provision for such allowances for all qualifying employees in

relation to that award.

Performance allowances: targets and measures

  39      (1)      A plan that provides for performance allowances must comply with the

following requirements with respect to performance targets and

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performance measures.

          (2)      The performance targets must be set for performance units comprising one

or more employees.

          (3)      The performance measures used must—

              (a)             be based on business results or other objective criteria, and

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              (b)             be fair and objective measures of the performance of the units to

which they are or may be applied.

          (4)      For the purposes of an award of free shares under the plan an employee

must not be a member of more than one performance unit.

Performance allowances: information to be given to employees

30

  40      (1)      A plan that provides for performance allowances in relation to an award of

shares must require the company—

              (a)             to notify each qualifying employee who has accepted an invitation to

participate in the award of the performance targets and measures

which, under the plan, will be used to determine the number or value

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of free shares awarded to the employee, and

              (b)             to notify all qualifying employees—

                    (i)                   of the company, or

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

                              in general terms, of the performance measures to be used to

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determine the number or value of free shares to be awarded to each

employee participating in the award.

          (2)      The notices must be given as soon as reasonably practicable.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 5 — Free shares

    375

 

          (3)      The company may exclude from the notice mentioned in sub-paragraph

(1)(b) any information whose disclosure the company reasonably considers

would prejudice commercial confidentiality.

Performance allowances: method one

  41      (1)      The requirements of this paragraph are those contained in sub-paragraph

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(2).

          (2)      In the case of an award in relation to which the plan provides for

performance allowances—

              (a)             at least 20% of the shares in the award must be awarded without

reference to performance in accordance with the requirement of

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paragraph 9 (participation on same terms),

              (b)             the remaining shares must be awarded by reference to performance,

and

              (c)             the highest number of shares within paragraph (b) awarded to an

individual must not be more than four times the highest number of

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shares within paragraph (a) awarded to an individual.

          (3)      In determining for the purposes of sub-paragraph (2)(a) whether the

requirement of paragraph 9 is met, the shares to which sub-paragraph (2)(a)

applies are to be treated as a separate award of free shares.

          (4)      If the plan meets the requirements of this paragraph, the requirement of

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paragraph 9 does not apply to any provision of the plan relating to the

awarding of shares within sub-paragraph (2)(b).

          (5)      If free shares of different classes are awarded, the requirements of this

paragraph apply separately in relation to each class.

Performance allowances: method two

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  42      (1)      The requirements of this paragraph are those contained in sub-paragraphs

(2) and (3).

          (2)      In the case of an award in relation to which the plan provides for

performance allowances—

              (a)             some or all of the shares in the award must be awarded by reference

30

to performance, and

              (b)             the awarding of the shares to qualifying employees who are

members of the same performance unit must meet the requirement

of paragraph 9 (participation on same terms).

          (3)      The performance targets set in connection with such an award must be

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consistent targets (see sub-paragraph (6)).

          (4)      In determining for the purposes of sub-paragraph (2)(b) whether the

requirement of paragraph 9 is met, the free shares awarded in respect of each

performance unit are to be treated as a separate award of free shares.

          (5)      If this method is used, nothing in paragraph 9 requires the awarding of

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shares to members of different performance units to be on the same terms.

          (6)      In sub-paragraph (3) “consistent targets” means targets which, at the time

when they are set in accordance with the plan, can reasonably be viewed as

being comparable in terms of the likelihood of their being met by the

performance units to which they apply.

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Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 6 — Partnership shares

    376

 

Part 6

Partnership shares

Partnership shares: introduction

  43      (1)      If a SIP provides for partnership shares, the following paragraphs apply—

               paragraph 44 (partnership share agreements),

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               paragraph 45 (deductions from salary),

               paragraph 46 (maximum amount of deductions),

               paragraph 47 (minimum amount of deductions),

               paragraph 48 (notice of possible effect of deductions on benefit

entitlement),

10

               paragraph 49 (partnership share money held for employee),

               paragraph 50 (application of money deducted where no accumulation

periods),

               paragraph 51 (accumulation periods),

               paragraph 52 (application of money deducted in accumulation

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period),

               paragraph 53 (restriction on number of shares awarded),

               paragraph 54 (stopping and re-starting deductions),

               paragraph 55 (withdrawal from partnership share agreement),

               paragraph 56 (repayment of partnership share money on withdrawal

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of approval or termination), and

               paragraph 57 (access to partnership shares).

          (2)      The plan must meet any plan requirements contained in those paragraphs.

          (3)      References in the SIP code to the trustees acquiring partnership shares on

behalf of an employee include their appropriating to an employee shares

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already held by them.

          (4)      In the SIP code references to an employee’s “salary” are to be read as

follows—

              (a)             in the case of an individual within the scope of the charge to tax

under Part 2 of this Act, they are to be read as references to such of

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the earnings of the eligible employment—

                    (i)                   as are liable to be paid under deduction of tax under PAYE

regulations, after deducting any amounts included by virtue

of the benefits code, or

                    (ii)                  as would be liable to be so paid apart from the SIP code;

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              (b)             in the case of an individual not within the scope of the charge to tax

under Part 2 of this Act, they are to be read as references to such of

the earnings of the eligible employment as would have fallen within

sub-paragraph (i) or (ii) of paragraph (a) if the individual had been

within the scope of that charge to tax.

40

          (5)      In sub-paragraph (4) “the eligible employment” means the employment by

reference to which the employee is eligible to participate in the plan.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 6 — Partnership shares

    377

 

Partnership share agreements

  44      (1)      The plan must provide for qualifying employees to enter into agreements

with the company (“company A”) under which—

              (a)             the employee authorises the employer company to deduct part of the

employee’s salary for the purchase of partnership shares, and

5

              (b)             company A undertakes to arrange for partnership shares to be

awarded to the employee in accordance with the plan.

          (2)      Such agreements are referred to in the SIP code as “partnership share

agreements”.

          (3)      In sub-paragraph (1) “the employer company” means the company by

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reference to which the employee meets the employment requirement in

relation to the plan.

Deductions from salary

  45      (1)      The plan must provide for a partnership share agreement to be given effect

by deductions from the employee’s salary.

15

          (2)      Amounts so deducted are referred to in the SIP code as “partnership share

money”.

          (3)      The partnership share agreement must specify—

              (a)             what amounts are to be deducted, and

              (b)             at what intervals;

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                   but this does not prevent the employee and the company agreeing to vary

those amounts or intervals.

          (4)      For the purposes of sub-paragraph (3)(a) the agreement may specify a

percentage of the employee’s salary.

          (5)      The plan must require the employer company to calculate the amounts and

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intervals having regard to paragraph 46 (maximum amount of deductions

from salary).

          (6)      In sub-paragraph (5) “the employer company” means the company by

reference to which the employee meets the employment requirement in

relation to the plan.

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Maximum amount of deductions

  46      (1)      The amount of partnership share money deducted from an employee’s

salary must not exceed—

              (a)             £125 in any month, or

              (b)             where the salary is not paid at monthly intervals, such amount as

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bears to £125 the same proportion as the pay interval in question

bears to one month.

          (2)      The amount of partnership share money deducted from an employee’s

salary must not exceed 10% of the employee’s salary.

                   “10% of the employee’s salary” means—

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            (a)            if the plan does not provide for an accumulation period, 10% of the

salary payment from which the deduction is made;

 

 

 
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