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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Schedule 4 — Approved CSOP schemes
Part 4 — Shares to which schemes can apply

    427

 

          (3)      trust as a result only of the individual’s having an interest in shares or

obligations of the trust.

          (4)      Chapter 11 of Part 7 of this Act (which deals with the attribution of interests

in companies to beneficiaries of employee benefit trusts) applies for the

purposes of sub-paragraph (2).

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          (5)      In this paragraph “employee benefit trust” has the same meaning as in that

Chapter (see sections 550 and 551).

Meaning of “associate”: trustees of discretionary trust

  14      (1)      This paragraph applies for the purposes of paragraph 12(1)(c) (meaning of

“associate”: trustees of settlement) where—

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              (a)             the individual (“the beneficiary”) is one of the objects of a

discretionary trust,

              (b)             the property subject to the trust has at any time consisted of, or

included, shares or obligations of the company mentioned in

paragraph 9(2),

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              (c)             the beneficiary has ceased to be eligible to benefit under the trust as

a result of—

                    (i)                   an irrevocable disclaimer or release executed by the

beneficiary, or

                    (ii)                  the irrevocable exercise by the trustees of a power to exclude

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the beneficiary from the objects of the trust,

              (d)             immediately after the beneficiary ceased to be so eligible, no

associate of the beneficiary was interested in the shares or

obligations of the company that were subject to the trust, and

              (e)             during the period of 12 months ending with the date on which the

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beneficiary ceased to be so eligible, neither the beneficiary nor any

associate of the beneficiary received any benefit under the trust.

          (2)      The beneficiary is not, as a result only of the matters referred to in sub-

paragraph (1)(a) and (b), to be regarded as having been interested in the

shares or obligations of the company at any time during that period of 12

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months.

          (3)      In sub-paragraph (1) “associate” has the meaning given by paragraph 12(1)

but with the omission of paragraph (c).

Part 4

Shares to which schemes can apply

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Requirements relating to shares that may be subject to share options: introduction

  15      (1)      A CSOP scheme must meet the requirements of—

               paragraph 16 (shares must be ordinary shares of certain companies),

               paragraph 17 (requirements as to listing),

               paragraph 18 (shares must be fully paid up and not redeemable),

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               paragraph 19 (only certain kinds of restrictions allowed), and

               paragraph 20 (requirements as to other shareholdings).

          (2)      In this Part “eligible shares” means shares which may be acquired by the

exercise of share options under the scheme.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 4 — Approved CSOP schemes
Part 4 — Shares to which schemes can apply

    428

 

Shares must be ordinary shares of certain companies

  16       Eligible shares must form part of the ordinary share capital of—

              (a)             the scheme organiser,

              (b)             a company which has control of the scheme organiser, or

              (c)             a company which either is, or has control of, a company which is a

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member of a consortium owning either the scheme organiser or a

company having control of the scheme organiser.

Requirements as to listing

  17      (1)      Eligible shares must be —

            (a)            shares of a class listed on a recognised stock exchange,

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            (b)            shares in a company which is not under the control of another

company, or

            (c)            shares in a company which is under the control of a listed company.

          (2)      A “listed company” is a company whose shares are listed on a recognised

stock exchange, other than—

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              (a)             a close company, or

              (b)             a company that would be a close company if resident in the United

Kingdom.

Shares must be fully paid up and not redeemable

  18       Eligible shares must be—

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              (a)             fully paid up, and

              (b)             not redeemable.

Only certain kinds of restriction allowed

  19      (1)      Eligible shares must not be subject to any restrictions (see sub-paragraph (4))

other than—

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              (a)             those attaching to all shares of the same class, or

              (b)             those permitted by sub-paragraph (2).

          (2)      If the conditions of sub-paragraph (3) are met, eligible shares may be subject

to a restriction imposed by the company’s articles of association—

              (a)             requiring all shares held by directors or employees—

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                    (i)                   of the company, or

                    (ii)                  of any other company of which it has control,

                              to be disposed of, or offered for sale, on ceasing to be so held, and

              (b)             requiring all shares acquired, as a result of rights or interests

obtained by such directors or employees, by persons who—

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                    (i)                   are not such directors or employees, or

                    (ii)                  have ceased to be such directors or employees,

                              to be disposed of, or offered for sale, when they are acquired.

          (3)      The conditions of this sub-paragraph are—

              (a)             that a disposal required by the restriction will be by way of sale for a

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consideration in money on terms specified in the articles of

association, and

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 4 — Approved CSOP schemes
Part 4 — Shares to which schemes can apply

    429

 

              (b)             that under general conditions contained in the articles of association

anyone disposing of shares of the same class (whether or not held or

acquired as mentioned in sub-paragraph (2)) may be required to sell

them on terms which are the same as those mentioned in paragraph

(a).

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          (4)      For the purposes of this paragraph shares are subject to a restriction if there

is any contract, agreement, arrangement or condition—

              (a)             by which a person’s freedom to dispose of the shares or of any

interest in them or of the proceeds of their sale, or to exercise any

right conferred by them, is restricted, or

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              (b)             by which such a disposal or exercise may result in any disadvantage

to the person or to a person connected with the person.

           This is subject to sub-paragraphs (5) to (7).

          (5)      Sub-paragraph (4) does not extend to so much of any contract, agreement,

arrangement or condition as contains provisions similar in purpose and

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effect to any of the provisions of the Model Code as (for the time being) set

out in the listing rules issued by the competent authority for listing in the

United Kingdom under section 74(4) of the Financial Services and Markets

Act 2000 (c. 8).

          (6)      Sub-paragraph (4) also does not apply to any terms of a loan making

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provision about how it is to be repaid or the security to be given for it.

          (7)      Any discretion of the directors under the articles of association of the

company to refuse to accept the transfer of shares is to be disregarded for the

purposes of this paragraph if the directors—

              (a)             have undertaken to the Inland Revenue not to exercise it in such a

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way as to discriminate against persons participating in the scheme;

and

              (b)             have notified all those who are eligible to do so of the existence of the

undertaking.

          (8)      In this paragraph “articles of association” includes, in the case of a company

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incorporated under the law of a country outside the United Kingdom, any

equivalent document relating to the company.

Requirements as to other shareholdings

  20      (1)      The majority of the issued shares of the same class as the eligible shares must

be—

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              (a)             employee-control shares, or

              (b)             open market shares,

                   unless the eligible shares are shares in a company whose ordinary share

capital consists of shares of one class only.

          (2)      Shares in a company are “employee-control shares” if—

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              (a)             the persons holding the shares are, by virtue of their holding,

together able to control the company, and

              (b)             those persons are or have been employees or directors of the

company or of another company which is under the control of the

company.

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          (3)      Shares in a company are “open market shares” if the persons holding the

shares are not —

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 4 — Approved CSOP schemes
Part 5 — Requirements etc. relating to share options

    430

 

              (a)             persons who acquired their shares as a result of a right conferred on

them or an opportunity afforded to them as a director or employee

of the scheme organiser or any other company, and not as a result of

an offer to the public, or

              (b)             trustees holding shares on behalf of persons who acquired their

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beneficial interests in the shares as mentioned in paragraph (a), or

              (c)             in the case of shares which—

                    (i)                   are not of a class listed on a recognised stock exchange, and

                    (ii)                  are in a company which is under the control of a listed

company (as defined by paragraph 17(2)),

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                              companies which have control of the company whose shares are in

question or of which that company is an associated company.

Part 5

Requirements etc. relating to share options

Requirements etc. relating to share options: introduction

15

  21      (1)      A CSOP scheme must meet the requirements of—

               paragraph 22 (requirements as to price for acquisition of shares), and

               paragraph 23 (share options may not be transferred).

          (2)      A CSOP scheme may make any provision authorised by—

               paragraph 24 (exercise of options: ceasing to be director or employee),

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or

               paragraph 25 (exercise of options: death).

Requirements as to price for acquisition of shares

  22      (1)      The price at which shares may be acquired by the exercise of a share option

granted under the scheme—

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              (a)             must be stated at the time when the option is granted, and

              (b)             must not be manifestly less than the market value of shares of the

same class at that time.

           This is subject to sub-paragraphs (2) and (3).

          (2)      The Inland Revenue and the scheme organiser may agree in writing that

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sub-paragraph (1)(b) is to apply as if the reference to the time when the

option is granted were to an earlier time or times stated in the agreement.

          (3)      The scheme may provide for one or more of the following—

              (a)             the price at which shares may be acquired by the exercise of a share

option granted under the scheme,

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              (b)             the number of shares which may be so acquired, or

              (c)             the description of shares which may be so acquired,

                   to be varied so far as necessary to take account of a variation in the share

capital of which the shares form part.

          (4)      But the scheme must provide that no such variation is to be made without

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the prior approval of the Inland Revenue.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 4 — Approved CSOP schemes
Part 6 — Exchange of share options

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Share options must not be transferable

  23      (1)      The scheme must ensure that share options granted to a participant are not

capable of being transferred by the participant.

          (2)      Paragraph 25 provides for the exercise of the options where the participant

has died.

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Exercise of options: ceasing to be director or employee

  24      (1)      The scheme may provide that an individual may exercise share options

under it after ceasing to be a full-time director or qualifying employee.

          (2)      “Qualifying employee” has the same meaning as in paragraph 8 (the

employment requirement).

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Exercise of options: death

  25       The scheme may provide that, if a participant dies before exercising the

options, they may be exercised on or after the date of death but not later than

12 months after that date.

Part 6

15

Exchange of share options

Exchange of options on company reorganisation

  26      (1)      A CSOP scheme may provide that if—

              (a)             there is a company reorganisation affecting a scheme company (that

is, a company whose shares may be acquired by the exercise of share

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options obtained under the scheme: see paragraph 16), and

              (b)             a participant has obtained share options under the scheme which are

to acquire shares of the scheme company (“the old options”),

           the participant may agree with the acquiring company to release the old

options in consideration of the participant being granted new share options.

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          (2)      For the purposes of this paragraph there is a company reorganisation

affecting a scheme company if another company (“the acquiring

company”)—

              (a)             obtains control of the scheme company—

                    (i)                   as a result of making a general offer to acquire the whole of

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the issued ordinary share capital of the scheme company

which is made on a condition such that, if it is met, the person

making the offer will have control of that company, or

                    (ii)                  as a result of making a general offer to acquire all the shares

in the scheme company which are of the same class as those

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subject to the old options;

              (b)             obtains control of the scheme company as a result of a compromise

or arrangement sanctioned by the court under—

                    (i)                   section 425 of the Companies Act 1985 (c. 6) (power to

compromise with creditors and members), or

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Income Tax (Earnings and Pensions) Bill
Schedule 4 — Approved CSOP schemes
Part 6 — Exchange of share options

    432

 

                    (ii)                  Article 418 of the Companies (Northern Ireland) Order 1986

(S.I. 1986/1032 (N.I.6)) (corresponding provision for

Northern Ireland); or

              (c)             becomes bound or entitled to acquire shares in the scheme company

under—

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                    (i)                   sections 428 to 430 of that Act (power to acquire shares of

shareholders dissenting from schemes or contract approved

by majority), or

                    (ii)                  Articles 421 to 423 of that Order (corresponding provision for

Northern Ireland).

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          (3)      A scheme that makes provision under sub-paragraph (1) must require the

agreement referred to in that sub-paragraph to be made—

              (a)             where control is obtained in the way set out in sub-paragraph

(2)(a)(i) or (ii), within the period of 6 months beginning with the time

when the acquiring company obtains control and any condition

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subject to which the offer is made is met,

              (b)             where control is obtained in the way set out in sub-paragraph (2)(b),

within the period of 6 months beginning with the time when the

court sanctions the compromise or arrangement, and

              (c)             where sub-paragraph (2)(c) applies, within the period during which

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the acquiring company remains bound or entitled as mentioned in

that provision.

Requirements about share options granted in exchange

  27      (1)      This paragraph applies to a scheme that makes provision under paragraph

26 (exchange of options on company reorganisation).

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          (2)      The scheme must require the new share options to relate to shares in a

company which—

              (a)             is different from the company whose shares are subject to the old

options, and

              (b)             is either the acquiring company itself or some other company within

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sub-paragraph (b) or (c) of paragraph 16 (shares must be ordinary

shares of certain companies), namely—

                    (i)                   a company which has control of the scheme organiser, or

                    (ii)                  a company which is, or has control of a company which is, a

member of a consortium owning either the scheme organiser

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or a company having control of the scheme organiser.

                              For this purpose the control in question may be through the medium

of the acquiring company.

          (3)      The scheme must also require the new share options to be equivalent to the

old options.

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          (4)      For the new options to be regarded as equivalent to the old options—

              (a)             the shares to which they relate must meet the conditions in

paragraphs 16 to 20 (types of share that may be used),

              (b)             they must be exercisable in the same manner as the old options and

subject to the provisions of the scheme as it had effect immediately

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before the release of the old options,

              (c)             the total market value of the shares subject to the old options

immediately before the release of those options by the participant

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 4 — Approved CSOP schemes
Part 7 — Approval of schemes

    433

 

              (c)             must equal the total market value, immediately after the grant of the

new options to the participant, of the shares subject to those options,

and

              (d)             the total amount payable by the participant for the acquisition of

shares under the new options must be equal to the total amount that

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would have been so payable under the old options.

          (5)      For the purposes of the CSOP code, new share options granted under the

terms of a provision included in a scheme under paragraph 26 are to be

treated as having been granted at the time when the corresponding old

options were granted.

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          (6)      This also applies for the purposes of the provisions of the scheme in their

operation, after the grant of the new options, by virtue of a condition

complying with sub-paragraph (4)(b).

Part 7

Approval of schemes

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Application for approval

  28      (1)      Where—

              (a)             a CSOP scheme has been established, and

              (b)             the scheme organiser makes an application to the Inland Revenue for

approval of the scheme,

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                   the Inland Revenue must approve the scheme if they are satisfied that it

meets the requirements of Parts 2 to 6 of this Schedule.

          (2)      An application for approval —

              (a)             must be in writing, and

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

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the Inland Revenue may require.

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

scheme, they must give notice of their decision to the scheme organiser.

Appeal against refusal of approval

  29      (1)      If the Inland Revenue refuse to approve the scheme, the scheme organiser

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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 was given to the scheme

organiser.

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

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Revenue to approve the scheme 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.

 

 

 
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