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Income Tax (Earnings and Pensions) Bill


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

    378

 

            (b)            if the plan provides for an accumulation period, 10% of the total of the

employee’s salary payments over that period.

          (3)      The plan may authorise the company to specify lower limits than those

specified in sub-paragraphs (1) and (2).

          (4)      If it does so, different limits may be specified in relation to different awards

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of shares.

          (5)      Any amount deducted in excess of that allowed by sub-paragraph (1) or (2),

or any lower limit in the plan, must be paid over to the employee as soon as

practicable.

Minimum amount of deductions

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  47      (1)      The plan may provide that the amount to be deducted under a partnership

share agreement in any month must not be less than a minimum amount

specified in the plan.

          (2)      The specified minimum amount must not be greater than £10.

          (3)      Sub-paragraphs (1) and (2) apply whatever the intervals at which the

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employee is paid may be.

Notice of possible effect of deductions on benefit entitlement

  48      (1)      The plan must provide that the company may not enter into a partnership

share agreement with an employee unless the agreement contains a notice

under this paragraph.

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          (2)      A notice under this paragraph is a notice in a prescribed form containing

prescribed information as to the possible effect of deductions on an

employee’s entitlement to social security benefits, statutory sick pay and

statutory maternity pay.

          (3)      In this paragraph “prescribed” means prescribed by regulations made by the

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Board of Inland Revenue.

Partnership share money held for employee

  49      (1)      The plan must provide that partnership share money deducted under a

partnership share agreement is—

              (a)             paid to the trustees as soon as practicable, and

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              (b)             held by them on behalf of the employee until such time as it is

applied by them in acquiring partnership shares on the employee’s

behalf.

          (2)      Sub-paragraph (1) is subject to paragraphs 50(5)(b) and 52(6)(b) and (7)

(obligations to pay money to the employee).

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          (3)      The plan must provide for the trustees to keep any money required to be

held by them under this paragraph in an account (interest bearing or

otherwise) with—

              (a)             a person falling within section 840A(1)(b) of ICTA (certain

institutions permitted to accept deposits),

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              (b)             a building society, or

              (c)             a firm falling within section 840A(1)(c) of ICTA (EEA firms

permitted to accept deposits).

 

 

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

    379

 

          (4)      The plan must provide for the trustees to account to an employee for the

interest if the partnership share money held on behalf of the employee is

held in an interest bearing account.

Application of money deducted where no accumulation periods

  50      (1)      If the plan does not provide for an accumulation period, it must provide for

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partnership share money to be applied by the trustees in acquiring

partnership shares on behalf of the employee on the acquisition date.

          (2)      The number of shares awarded to each employee must be determined in

accordance with the market value of the shares on the acquisition date.

          (3)      Sub-paragraphs (1) and (2) are subject to paragraph 53 (restriction on

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number of shares awarded).

          (4)      In those sub-paragraphs “the acquisition date” means the date set by the

trustees in relation to the award of partnership shares, which must be not

later than 30 days after the last date on which the partnership share money

to be applied in acquiring the shares was deducted.

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          (5)      Any surplus partnership share money remaining after the acquisition of

shares by the trustees—

              (a)             may with the agreement of the employee be carried forward and

added to the amount of the next deduction, and

              (b)             in any other case must be paid over to the employee as soon as

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practicable.

Accumulation periods

  51      (1)      The plan may provide for accumulation periods not exceeding 12 months.

          (2)      If the plan does so, the following provisions apply.

          (3)      The partnership share agreements—

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              (a)             must specify when each accumulation period begins and ends;

              (b)             may specify that an accumulation period comes to an end on the

occurrence of a specified event.

          (4)      However—

              (a)             the beginning of the first accumulation period must not be later than

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the date on which the first deduction of partnership share money is

made; and

              (b)             the accumulation period which applies in relation to each award of

partnership shares must be the same for all individuals entering into

the partnership share agreements.

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          (5)      The plan may also provide that if—

              (a)             during an accumulation period, a transaction occurs in relation to

any of the shares (“the original holding”) to be acquired under a

partnership share agreement which results in a new holding of

shares being equated with the original holding for the purposes of

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capital gains tax, and

              (b)             the employee consents,

                   the partnership share agreement is to have effect after the time of the

transaction as if it were an agreement for the purchase of the shares

comprised in the new holding.

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

    380

 

Application of money deducted in accumulation period

  52      (1)      This paragraph applies if the plan provides for one or more accumulation

periods.

          (2)      The plan must provide for the partnership share money deducted in each

accumulation period under a partnership share agreement to be applied by

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the trustees in acquiring partnership shares on behalf of the employee on the

acquisition date.

          (3)      The number of shares awarded to each employee must be determined in

accordance with the lower of—

              (a)             the market value of the shares at the beginning of the accumulation

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period, and

              (b)             the market value of the shares on the acquisition date.

          (4)      Sub-paragraphs (2) and (3) are subject to sub-paragraphs (7) and (8) and to

paragraph 53 (restriction on number of shares awarded).

          (5)      In sub-paragraphs (2) and (3) “the acquisition date” means the date set by the

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trustees in relation to the award of partnership shares, which must be not

later than 30 days after the end of the accumulation period which applies in

relation to the award.

          (6)      Any surplus partnership share money remaining after the acquisition of

shares by the trustees—

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              (a)             may with the agreement of the employee be carried forward to the

next accumulation period, and

              (b)             in any other case must be paid over to the employee as soon as

practicable.

          (7)      The plan must provide that where the employee ceases to be in relevant

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employment during an accumulation period, any partnership share money

deducted in the period is to be paid over to the individual as soon as

practicable.

          (8)      The partnership share agreement may provide that, where an accumulation

period comes to an end on the occurrence of a specified event, the

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partnership share money deducted in that period must be paid over to the

individual as soon as practicable instead of being applied in acquiring

shares.

Restriction on number of shares awarded

  53      (1)      The plan may authorise the company to specify the maximum number of

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shares (“the award maximum”) to be included in an award of partnership

shares.

          (2)      If the plan does so—

              (a)             a different number may be specified by the company in relation to

different awards, and

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              (b)             the following provisions apply to the plan.

          (3)      The plan must require partnership share agreements to contain an

undertaking by the company to notify the employee of any restriction on the

number of shares to be included in an award.

          (4)      The plan must require the notice to be given—

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

    381

 

              (a)             if there is no accumulation period, before the deduction of the

partnership share money relating to the award, and

              (b)             if there is an accumulation period, before the beginning of the

accumulation period relating to the award.

          (5)      The plan must provide that, where the award maximum in respect of an

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award of partnership shares is smaller than the number of shares which

would otherwise be included in the award, the number of partnership

shares acquired on behalf of each employee under paragraph 50(1) or 52(2)

must be reduced proportionately.

Stopping and re-starting deductions

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  54      (1)      The plan must provide that an employee may at any time give notice to the

company to stop deductions under a partnership share agreement.

          (2)      The plan must provide that, unless a later date is specified in the notice, the

company must, on receiving a notice within sub-paragraph (1), ensure

within 30 days after receipt of the notice that no further deductions are made

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by it under the partnership share agreement.

          (3)      The plan must also provide that an employee who has stopped deductions—

              (a)             may subsequently give notice to the company to re-start deductions

under the agreement, but

              (b)             may not make up deductions that have been missed.

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          (4)      If the plan makes provision for one or more accumulation periods, it may

prevent an employee re-starting deductions more than once in any

accumulation period.

          (5)      The plan must provide that, unless a later date is specified in the notice, the

company must, on receiving a notice within sub-paragraph (3), re-start

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deductions under the partnership share agreement not later than the re-start

date.

          (6)      “The re-start date” means the date of the first deduction due under the

partnership share agreement more than 30 days after receipt of the notice

under sub-paragraph (3).

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          (7)      In this paragraph “notice” means notice in writing.

Withdrawal from partnership share agreement

  55      (1)      The plan must provide that an employee may at any time give notice to the

company of the employee’s withdrawal from a partnership share

agreement.

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          (2)      The plan must provide that, unless a later date is specified in the notice, a

notice of withdrawal takes effect 30 days after it is received by the company.

          (3)      The plan must provide that, where an employee withdraws from a

partnership share agreement, any partnership share money held on behalf

of the employee is to be paid over to the employee as soon as practicable.

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          (4)      In this paragraph “notice” means notice in writing.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 7 — Matching shares

    382

 

Repayment of partnership share money on withdrawal of approval or termination

  56      (1)      The plan must provide that, where the approval of the plan is withdrawn

(see paragraph 83), any partnership share money held on behalf of an

employee is to be paid over to the employee.

          (2)      The plan must require the payment to be made as soon as practicable after

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notice of the withdrawal of approval is given to the company.

          (3)      The plan must provide that, where a plan termination notice is issued in

respect of the plan (see paragraph 90), any partnership share money held on

behalf of an employee is to be paid over to the employee.

          (4)      The plan must require the payment to be made as soon as practicable after

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the plan termination notice is notified to the trustees under paragraph 89(2).

Access to partnership shares

  57      (1)      The plan must provide that when partnership shares have been awarded to

an employee, the employee may at any time withdraw any or all of the

partnership shares from the plan.

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          (2)      If the employee does so, there may be a charge to tax by virtue of section 506

(charge on partnership shares ceasing to be subject to plan).

Part 7

Matching shares

Matching shares: introduction

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  58       If a SIP provides for matching shares it must meet the plan requirements

contained in—

                    paragraph 59 (general requirements for matching shares),

                    paragraph 60 (ratio of matching shares to partnership shares), and

                    paragraph 61 (holding period for matching shares).

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General requirements for matching shares

  59      (1)      The plan must provide for the matching shares to be—

              (a)             shares of the same class and carrying the same rights as the

partnership shares to which they relate;

              (b)             awarded on the same day as the partnership shares to which they

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relate are awarded; and

              (c)             awarded to all employees who participate in the award on exactly

the same basis.

          (2)      Sub-paragraph (1) is subject to paragraph 32 (permitted restrictions:

provision for forfeiture).

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Ratio of matching shares to partnership shares

  60      (1)      The partnership share agreement must specify—

              (a)             the ratio of matching shares to partnership shares for the time being

offered by the company, and

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 8 — Cash dividends and dividend shares

    383

 

              (b)             the circumstances and manner in which the ratio may be changed by

the company.

          (2)      The ratio must not exceed 2:1 and must be applied by reference to the

number of shares.

          (3)      A partnership share agreement must provide for the employee to be

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informed by the company if the ratio offered by the company changes before

partnership shares are awarded to the employee under the agreement.

Holding period for matching shares

  61       Paragraphs 36 and 37 (the holding period and related matters) apply in

relation to matching shares as they apply in relation to free shares.

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Part 8

Cash dividends and dividend shares

Reinvestment of cash dividends

  62      (1)      A SIP may provide that, where the company so directs, the trustees must

apply all cash dividends in respect of plan shares held on behalf of—

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              (a)             all participants, or

              (b)             all participants who elect to reinvest their dividends,

                   in acquiring further shares on their behalf.

          (2)      Sub-paragraph (1) is subject to paragraph 63 (requirements to be met as

regards cash dividends).

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          (3)      In the SIP code—

              (a)             the application of cash dividends as mentioned in sub-paragraph (1)

is referred to as “reinvestment”; and

              (b)             the further plan shares acquired are referred to as “dividend shares”.

          (4)      The company may revoke a direction requiring the reinvestment of cash

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dividends.

          (5)      References in the SIP code to the trustees acquiring dividend shares on

behalf of a participant include their appropriating to a participant shares

already held by them.

Requirements to be met as regards cash dividends

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  63      (1)      If a SIP makes the provision authorised by paragraph 62(1) (reinvestment of

cash dividends), the following paragraphs apply—

               paragraph 64 (limit on amount reinvested),

               paragraph 65 (general requirements as to dividend shares),

               paragraph 66 (acquisition of dividend shares),

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               paragraph 67 (holding period for dividend shares), and

               paragraph 68 (reinvestment: amounts to be carried forward).

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

          (3)      A SIP must in any event meet the plan requirement contained in paragraph

69 (cash dividends not required to be reinvested).

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Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 8 — Cash dividends and dividend shares

    384

 

Limit on amount reinvested

  64      (1)      The plan must provide that the total dividend reinvestment in respect of a

participant must not exceed £1,500 in a tax year.

          (2)      For this purpose “the total dividend reinvestment” in respect of a participant

is the sum of—

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              (a)             the amount applied by the trustees in acquiring dividend shares on

behalf of the participant under the plan, and

              (b)             the amount applied in acquiring dividend shares on behalf of the

participant by the trustees of other approved SIPs that are

established by the company or an associated company.

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          (3)      If the amounts received by the trustees exceed the limit in sub-paragraph (1),

the plan must provide for the balance to be paid over to the participant as

soon as practicable.

General requirements as to dividend shares

  65       The plan must provide that dividend shares are to be shares—

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              (a)             which are in the same company and of the same class, and carry the

same rights, as the shares in respect of which the dividend is paid,

and

              (b)             which are not subject to any provision for forfeiture.

Acquisition of dividend shares

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  66      (1)      The plan must provide that the trustees must treat participants fairly and

equally in exercising their powers in relation to the acquisition of dividend

shares.

          (2)      The plan must provide for the trustees to acquire dividend shares on behalf

of participants on the acquisition date.

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          (3)      The number of dividend shares acquired on behalf of each participant must

be determined in accordance with the market value of the shares on the

acquisition date.

          (4)      In this paragraph “the acquisition date” means the date set by the trustees

for the acquisition of dividend shares and falling not later than 30 days after

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the dividend is received by them.

Holding period for dividend shares

  67       Paragraphs 36 and 37 (the holding period and related matters) apply in

relation to dividend shares as they apply in relation to free shares, except

that the holding period must be 3 years.

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Reinvestment: amounts to be carried forward

  68      (1)      This paragraph applies where an amount is not reinvested—

              (a)             because the amount of the cash dividend to which the participant is

entitled is not sufficient to acquire a share, or

              (b)             because there is an amount remaining after acquiring one or more

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dividend shares on the participant’s behalf.

 

 

 
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Revised 17 February 2003