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 2 — Approved share incentive plans
Part 9 — Trustees

    385

 

          (2)      The amount may be retained by the trustees and carried forward to be added

to the amount of the next cash dividend to be reinvested.

          (3)      If so retained, the trustees must hold the amount so as to be separately

identifiable for the purposes of sub-paragraphs (4) and (5).

          (4)      An amount retained under this paragraph must be paid over to the

5

participant—

              (a)             if or to the extent that it is not reinvested within the period of 3 years

beginning with the date on which the dividend was paid, or

              (b)             if during that period the participant ceases to be in relevant

employment (see paragraph 95), or

10

              (c)             if during that period a plan termination notice is issued in respect of

the plan (see paragraph 90).

          (5)      An amount required to be paid over to the participant under sub-paragraph

(4) must be paid over as soon as practicable.

          (6)      For the purposes of this paragraph an amount carried forward under this

15

paragraph derived from an earlier cash dividend is to be treated as

reinvested before an amount derived from a later cash dividend.

Cash dividends where no requirement to reinvest

  69      (1)      The plan must require any distributable cash dividends in respect of plan

shares held on behalf of a participant to be paid over to the participant as

20

soon as practicable.

          (2)      “Distributable cash dividends” means cash dividends which are not

required to be reinvested under the plan.

Part 9

Trustees

25

Requirements etc. relating to trustees: introduction

  70      (1)      A SIP must meet the plan requirements contained in—

               paragraph 71(1) and (2) (establishment of trustees), and

               paragraph 79 (meeting by trustees of PAYE obligations).

          (2)      The following provisions also relate to the trustees—

30

               paragraph 71(3) to (6) (the trust instrument and classes of trustees)

               paragraph 72 (duty to act in accordance with participant’s directions),

               paragraph 73 (duty not to dispose of plan shares),

               paragraph 74 (duty to make payments to participants),

               paragraph 75 (duty to give notice of award of shares etc.),

35

               paragraph 76 (power to borrow).

               paragraph 77 (power to raise funds to subscribe for rights issue),

               paragraph 78 (acquisition of shares from employee share ownership

trust), and

               paragraph 80 (other duties in relation to tax liabilities).

40

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 9 — Trustees

    386

 

Establishment of trustees

  71      (1)      The plan must provide for the establishment of a body of trustees consisting

of persons resident in the United Kingdom (“the trustees”).

          (2)      The plan must provide that the trustees are required—

              (a)             in the case of free or matching shares, to acquire shares and

5

appropriate them to employees in accordance with the plan,

              (b)             in the case of partnership shares, to apply partnership share money

in acquiring shares on behalf of employees in accordance with the

plan, and

              (c)             in the case of dividend shares, to apply cash dividends in acquiring

10

shares on behalf of participants in accordance with the plan.

          (3)      The functions of the trustees with respect to shares held by them must be

regulated by a trust (“the plan trust”)—

              (a)             which is constituted under the law of a part of the United Kingdom,

and

15

              (b)             the terms of which are embodied in an instrument which complies

with the requirements of this Part of this Schedule (“the trust

instrument”).

          (4)      The trust instrument must not contain any terms which are neither essential

nor reasonably incidental to complying with the requirements of this Part of

20

this Schedule.

          (5)      The trust instrument may contain terms that—

              (a)             define who is a professional trustee and who is a non-professional

trustee;

              (b)             require the trustees to include at least one person who is a

25

professional trustee and at least two who are non-professional

trustees;

              (c)             require at least half of the non-professional trustees to have been,

before being appointed as trustees, selected in accordance with a

specified process of selection;

30

              (d)             require the trustees so selected to be persons who are employees of

the company or, in the case of a group plan, of a participating

company.

          (6)      The terms mentioned in sub-paragraph (5) are to be regarded as reasonably

incidental to complying with the requirements of this Part of this Schedule

35

for the purposes of sub-paragraph (4).

Duty to act in accordance with participant’s directions

  72      (1)      The trust instrument must require the trustees—

              (a)             to dispose of a participant’s plan shares, and

              (b)             to deal with any right conferred in respect of any of a participant’s

40

plan shares to be allotted other shares, securities or rights of any

description,

                   only in accordance with a direction given by or on behalf of the participant.

          (2)      Sub-paragraph (1) is subject to—

              (a)             paragraph 73 (duty not to dispose of plan shares), and

45

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 9 — Trustees

    387

 

              (b)             any provision in the plan made in accordance with paragraph 79

(meeting by trustees of PAYE obligations).

          (3)      The plan may provide for participants to give such general directions, to

such effect and in such terms, as are specified in the plan.

Duty not to dispose of plan shares

5

  73      (1)      This paragraph applies to a participant’s plan shares that are free, matching

or dividend shares.

          (2)      The trust instrument must prohibit the trustees from disposing of any of

those shares (to the participant or otherwise) at any time during the holding

period, unless the participant has at that time ceased to be in relevant

10

employment.

          (3)      Sub-paragraph (2) is subject to—

              (a)             paragraph 37 (holding period: power to direct trustees to accept

general offers etc.),

              (b)             paragraph 77 (power of trustees to raise funds to subscribe for rights

15

issue),

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

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

participant’s consent).

Duty to make payments to participants

20

  74      (1)      The trust instrument must require the trustees to pay over to a participant as

soon as practicable—

              (a)             any money received by them in respect of, or by reference to, any of

the participant’s shares, or

              (b)             any money’s worth so received unless it consists of new shares

25

within the meaning of paragraph 87 (company reconstructions).

          (2)      Sub-paragraph (1) is subject to—

              (a)             paragraphs 62 to 69 (cash dividends and dividend shares),

              (b)             the trustees’ obligations under sections 510 to 514 (PAYE: shares

ceasing to be subject to plan; capital receipts), and

30

              (c)             the trustees’ PAYE obligations.

Duty to give notice of award of shares etc.

  75      (1)      The trust instrument must make the following provision regarding notices.

          (2)      It must provide that, as soon as practicable after any free or matching shares

have been awarded to an employee, the trustees must give the employee

35

notice of the award—

              (a)             specifying the number and description of those shares,

              (b)             stating their market value on the date on which they were awarded

to the employee, and

              (c)             stating the holding period applicable to them.

40

          (3)      It must provide that, as soon as practicable after any partnership shares have

been awarded to an employee, the trustees must give the employee notice of

the award—

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 9 — Trustees

    388

 

              (a)             specifying the number and description of those shares,

              (b)             stating the amount of partnership share money applied by the

trustees in acquiring the shares on behalf of the employee, and

              (c)             stating their market value on the acquisition date (as defined by

paragraph 50(4) or, if there is an accumulation period, by paragraph

5

52(5)).

          (4)      It must provide that, as soon as practicable after any dividend shares have

been acquired on behalf of a participant, the trustees must give the

participant notice of the acquisition—

              (a)             specifying the number and description of those shares,

10

              (b)             stating their market value on the acquisition date (as defined by

paragraph 66(4)),

              (c)             stating the holding period applicable to them, and

              (d)             informing the participant of any amount carried forward under

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

15

          (5)      It must provide that, where any foreign cash dividend is received in respect

of plan shares held on behalf of a participant, the trustees must give the

participant notice of the amount of any foreign tax deducted from the

dividend before it was paid.

          (6)      In sub-paragraph (5) “foreign cash dividend” means a cash dividend paid in

20

respect of plan shares in a company not resident in the United Kingdom.

Power of trustees to borrow

  76       The trust instrument may provide that the trustees have power to borrow—

              (a)             to acquire shares for the purposes of the plan, and

              (b)             for such other purposes as may be specified in the trust instrument.

25

Power of trustees to raise funds to subscribe for rights issue

  77      (1)      The trustees may dispose of some of the rights arising under a rights issue in

order to be able to obtain sufficient funds to exercise other such rights.

          (2)      The power conferred by sub-paragraph (1) is subject to paragraph 72 (duty

to act in accordance with participant’s directions).

30

Acquisition by trustees of shares from employee share ownership trust

  78      (1)      The trust instrument must provide that, where there is a qualifying transfer

of shares to the trustees, the shares—

              (a)             must not be awarded to participants under the plan as partnership

shares, and

35

              (b)             must be included in any award of free or matching shares made after

the date of the transfer in priority to other shares available for

inclusion in that award.

          (2)      For the purposes of this paragraph there is a qualifying transfer of shares to

the trustees if—

40

              (a)             relevant shares (as defined by section 69(3AC) of FA 1989) are

transferred to them by the trustees of an employee share ownership

trust, and

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 9 — Trustees

    389

 

              (b)             the transfer is a qualifying transfer within section 69(3AA) of that Act

(transfer of shares in, or shares purchased from money in, an

employee share ownership trust immediately before 21st March

2000).

Meeting by trustees of PAYE obligations

5

  79      (1)      The plan must make provision to ensure that, where a PAYE obligation is

imposed on the trustees as a result of any of a participant’s plan shares

ceasing to be subject to the plan, the trustees are able to meet that

obligation—

              (a)             by disposing of any of those shares, or

10

              (b)             if there are any remaining plan shares of the participant, by

disposing of any of those shares, or

              (c)             by the participant paying to the trustees a sum equal to the amount

required to discharge the obligation.

          (2)      A “PAYE obligation” includes an obligation under any of sections 510 to 512

15

(PAYE: shares ceasing to be subject to the plan).

          (3)      For the purposes of sub-paragraph (1) any reference to the trustees

disposing of shares includes a reference to their acquiring the shares as

trustees for the purposes of the trust.

          (4)      A disposal of any of the participant’s plan shares in accordance with

20

provision made under sub-paragraph (1)(b) may give rise to a charge to tax

under—

               section 505 (charge on free or matching shares ceasing to be subject to

plan),

               section 506 (charge on partnership shares ceasing to be subject to

25

plan), or

               section 68B(2) or 251C(1) of ICTA (charge under Case V of Schedule D

or Schedule F on dividend shares ceasing to be subject to plan).

Other duties of trustees in relation to tax liabilities

  80      (1)      The trust instrument must require the trustees to maintain such records as

30

may be necessary for the purposes of—

              (a)             their own PAYE obligations, or

              (b)             the PAYE obligations of the employer company so far as they relate

to the plan.

          (2)      In sub-paragraph (1)—

35

               “PAYE obligations”, in relation to the trustees, includes obligations

under sections 510 to 514 (PAYE: shares ceasing to be subject to plan

and capital receipts);

               “the employer company” has the same meaning as in section 513.

          (3)      The trust instrument must require the trustees, where the participant

40

becomes liable to income tax under—

              (a)             this Act, or

              (b)             Case V of Schedule D or Schedule F,

                   by reason of the occurrence of any event, to inform the participant of any

facts relevant to determining that liability.

45

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 10 — Approval of plans

    390

 

          (4)      Section 234A(4) to (11) of ICTA (information relating to distributions to be

provided by nominee) applies in relation to—

              (a)             the balance of any cash dividend paid over to the participant under

paragraph 64(3),

              (b)             any amount paid over to a participant under paragraph 68(4)

5

(dividend retained for reinvestment and later paid out), or

              (c)             any relevant dividend (see sub-paragraph (5)),

                   as if it were a payment to which section 234A(4)(b) applied (and, in the case

of an amount within paragraph (b) above, as if the cash dividend had been

paid at the time of the payment to the participant under paragraph 68(4)).

10

          (5)      In a case where dividend shares cease to be subject to the plan before the end

of the period of 3 years beginning with the date on which they were acquired

on a participant’s behalf, the cash dividend applied to acquire dividend

shares on the participant’s behalf is a “relevant dividend” for the purposes

of sub-paragraph (4)(c).

15

Part 10

Approval of plans

Application for approval

  81      (1)      Where—

              (a)             a SIP has been established, and

20

              (b)             the company makes an application to the Inland Revenue for

approval of the plan,

                   the Inland Revenue must approve the plan if they are satisfied that it meets

the requirements of Parts 2 to 9 of this Schedule.

          (2)      An application for approval must—

25

              (a)             be in writing, and

              (b)             contain such particulars, and be supported by such evidence, as the

Inland Revenue may require.

          (3)      Once the Inland Revenue have decided whether or not to approve the plan,

they must give notice of their decision to the company.

30

Appeal against refusal of approval

  82      (1)      If the Inland Revenue refuse to approve the plan, the company may appeal

to the Special Commissioners.

          (2)      The notice of appeal must be given to the Inland Revenue within 30 days

after the date on which notice of their decision is given to the company.

35

          (3)      If the Special Commissioners allow the appeal, they may direct the Inland

Revenue to approve the plan with effect from a date specified by the

Commissioners.

          (4)      The date so specified must not be earlier than that of the application for

approval.

40

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 2 — Approved share incentive plans
Part 10 — Approval of plans

    391

 

Withdrawal of approval

  83      (1)      This paragraph applies if a disqualifying event (see paragraph 84) occurs in

relation to an approved SIP.

          (2)      The Inland Revenue may by a notice given to the company withdraw the

approval with effect from—

5

              (a)             the time at which the disqualifying event occurred, or

              (b)             a later time specified by the Inland Revenue in the notice.

          (3)      The withdrawal of approval of a SIP does not affect the operation of the SIP

code in relation to shares awarded to participants in the plan before the time

with effect from which approval was withdrawn.

10

          (4)      References in the SIP code to an approved SIP in relation to such shares are

to a plan that was approved at the time when the shares were awarded.

Disqualifying events for purposes of paragraph 83

  84      (1)      The following are disqualifying events for the purposes of paragraph 83—

              (a)             a contravention in relation to the operation of the plan of any of the

15

requirements of this Schedule, the plan itself or the plan trust;

              (b)             an alteration being made in a key feature of the plan, or in the terms

of the plan trust, without the approval of the Inland Revenue;

              (c)             if the plan provides for performance allowances in accordance with

paragraph 42 (method two), the setting of performance targets in

20

respect of an award of shares which are not consistent targets (within

the meaning given by paragraph 42(6));

              (d)             an alteration being made in the share capital of the company whose

shares are the subject of the plan, or in the rights attaching to any

shares of that company, that materially affects the value of

25

participants’ plan shares;

              (e)             shares of a class of which shares have been awarded to participants

receiving different treatment in any respect from the other shares of

that class;

              (f)             the trustees failing to furnish any information which they are

30

required to furnish under paragraph 93 (power to require

information);

              (g)             the company, or (in the case of a group plan) a company which is or

has been a constituent company, failing to furnish any information

which it is required to furnish under that paragraph.

35

          (2)      For the purposes of sub-paragraph (1)(b) the Inland Revenue may not

withhold their approval unless it appears to them at the time in question that

the plan as proposed to be altered would not then be approved on an

application under paragraph 81.

          (3)      Sub-paragraph (1)(e) applies, in particular, to different treatment in respect

40

of—

              (a)             the dividend payable,

              (b)             repayment,

              (c)             the restrictions attaching to the shares, or

              (d)             any offer of substituted or additional shares, securities or rights of

45

any description in respect of the shares.

 

 

 
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