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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Schedule 4 — Approved CSOP schemes
Part 8 — Supplementary provisions

    434

 

Withdrawal of approval

  30      (1)      If any disqualifying event occurs in connection with an approved CSOP

scheme, the Inland Revenue may by a notice given to the scheme organiser

withdraw the approval with effect from—

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

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

          (2)      A “disqualifying event” occurs in connection with a scheme if—

              (a)             any of the requirements of Parts 2 to 6 of this Schedule ceases to be

met; or

              (b)             the scheme organiser fails to provide information requested by the

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Inland Revenue under paragraph 33.

Approval ineffective after unapproved alteration

  31      (1)      If—

            (a)            an alteration is made in a CSOP scheme that has been approved, and

            (b)            the alteration has not been approved by the Inland Revenue,

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                   the approval of the scheme is ineffective after the date of the alteration.

          (2)      Where the Inland Revenue—

              (a)             have been requested to approve any alteration in such a scheme, and

              (b)             have decided whether or not to approve the alteration,

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

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Appeal against withdrawal of approval etc

  32      (1)      This paragraph applies if an CSOP scheme has been approved by the Inland

Revenue and they—

              (a)             decide to withdraw approval of the scheme under paragraph 30, or

              (b)             decide not to approve an alteration in the scheme under paragraph

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31.

          (2)      The scheme organiser may appeal against the decision to the Special

Commissioners.

          (3)      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

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organiser.

Part 8

Supplementary provisions

Power to require information

  33      (1)      The Inland Revenue may by notice require any person to provide them with

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any information—

              (a)             which they reasonably require for the performance of their functions

under the CSOP code, and

              (b)             which the person to whom the notice is addressed has or can

reasonably obtain.

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Income Tax (Earnings and Pensions) Bill
Schedule 4 — Approved CSOP schemes
Part 8 — Supplementary provisions

    435

 

          (2)      The power conferred by this paragraph extends, in particular, to—

              (a)             information to enable the Inland Revenue—

                    (i)                   to decide whether to approve a CSOP scheme or to withdraw

an approval already given, or

                    (ii)                  to determine the liability to tax, including capital gains tax, of

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any person who has participated in a scheme, and

              (b)             information about the administration of a scheme and any alteration

of the terms of a scheme.

          (3)      The notice must require the information to be provided within a specified

time, which must not end earlier than 3 months after the date when the

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notice is given.

Jointly owned companies

  34      (1)      This paragraph applies for the purposes of the provisions of the CSOP code

relating to group schemes.

          (2)      Each joint owner of a jointly owned company is to be treated as controlling

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every company within sub-paragraph (3).

          (3)      The companies within this sub-paragraph are—

              (a)             the jointly owned company, and

              (b)             any company controlled by that company.

          (4)      However, no company within sub-paragraph (3) may be—

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              (a)             a constituent company in more than one group scheme, or

              (b)             a constituent company in a particular group scheme if another

company within that sub-paragraph is a constituent company in a

different group scheme.

          (5)      In this paragraph a “jointly owned company” means a company which

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(apart from sub-paragraph (2)) is not controlled by any one person and—

              (a)             of which 50% of the issued share capital is owned by one person and

50% by another, or

              (b)             which is otherwise controlled by two persons taken together.

          (6)      In this paragraph “joint owner” means one of the persons mentioned in sub-

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paragraph (5)(a) or (b).

Meaning of “associated company”

  35      (1)      For the purposes of the CSOP code one company is an “associated company”

of another company at a given time if, at that time or at any other time within

one year previously—

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              (a)             one has control of the other, or

              (b)             both are under the control of the same person or persons.

          (2)      For the purposes of sub-paragraph (1) the question whether a person

controls a company is to be determined in accordance with section 416(2) to

(6) of ICTA.

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Minor definitions

  36      (1)      In the CSOP code—

               “company” means a body corporate;

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 4 — Approved CSOP schemes
Part 8 — Supplementary provisions

    436

 

               “market value” has the same meaning as it has for the purposes of

TCGA 1992 by virtue of Part 8 of that Act.

          (2)      For the purposes of the CSOP code a company is a member of a consortium

owning another company if it is one of a number of companies—

              (a)             which between them beneficially own not less than 75% of the other

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company’s ordinary share capital, and

              (b)             each of which beneficially owns not less than 5% of that capital.

Index of defined expressions

  37       In the CSOP code the following expressions are defined or otherwise

explained by the provisions indicated below:

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approved

section 521(4)

 
 

associated company

paragraph 35(1)

 
 

child

section 832(5) of ICTA,

 
  

(and see section 721(6)

 
  

of this Act)

 

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close company

section 832(1) of ICTA,

 
  

(and see paragraph

 
  

9(4))

 
 

company

paragraph 36(1)

 
 

connected person

section 718

 

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CSOP scheme

section 521(4)

 
 

constituent company

paragraph 3(3)

 
 

control

section 719 (and see

 
  

paragraph 35(2))

 
 

the CSOP code

section 521(3)

 

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distribution

section 832(1) of ICTA

 
 

employee and employment

section 4

 
 

eligible shares (in Part 4 of this Schedule)

paragraph 15(2)

 
 

group scheme

paragraph 3(2) (and

 
  

see paragraph 34)

 

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the Inland Revenue

section 720(1)

 
 

market value

paragraph 36(1)

 
 

member of a consortium

paragraph 36(2)

 
 

notice

section 832(1) of ICTA

 
 

the options (in relation to a participant)

paragraph 2(2)

 

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ordinary share capital

section 832(1) of ICTA

 
 

 

Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 1 — Introduction

    437

 
 

participant

paragraph 2(2)

 
 

participate

paragraph 2(2)

 
 

personal representatives

section 721(1)

 
 

recognised stock exchange

section 841 of ICTA

 
 

the scheme organiser

paragraph 2(2)

 

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share option

section 521(4)

 
 

shares

section 521(4)

 
 

Special Commissioners

section 4 of TMA 1970

 
 

United Kingdom

section 830 of ICTA

 
 

Schedule 5

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Section 527.

 

Enterprise management incentives

Part 1

Introduction

Enterprise management incentives: qualifying options

  1       (1)      This Schedule makes provision for establishing what is a qualifying option

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for the purposes of the EMI code.

          (2)      In the EMI code a “qualifying option” means (in accordance with section

527(4)) a share option—

              (a)             in relation to which the requirements of this Schedule are met at the

time when the option is granted, and

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              (b)             which is notified to the Inland Revenue in accordance with Part 7.

          (3)      The requirements of this Schedule are—

              (a)             the general requirements in Part 2,

              (b)             that the company whose shares are the subject of the option (“the

relevant company”) is a qualifying company (see Part 3),

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              (c)             that the individual to whom it is granted is an eligible employee in

relation to that company (see Part 4),

              (d)             that the option is granted to the employee by reason of the

employee’s employment—

                    (i)                   with that company, or

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                    (ii)                  if that company is a parent company, with that company or

another member of the group, and

              (e)             the requirements of Part 5 as to the terms of the option, the types of

shares that may be subject to it, and other matters.

          (4)      In the EMI code, as it applies to a share option, “the appropriate time” means

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the time when the option is granted.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 2 — General requirements

    438

 

Meaning of “the relevant company” and “the employer company”

  2        In the EMI code, in relation to a share option—

                    “the relevant company” means (in accordance with paragraph 1(3)(b))

the company whose shares are subject to the option;

                    “the employer company” means the company by reference to which the

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requirement in paragraph 1(3)(d) (the employment requirement) is

met.

Part 2

General requirements

General requirements: introduction

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  3        A share option is not a qualifying option unless the requirements of this Part

of this Schedule as to the following are met at the appropriate time—

                    the purpose for which the option is granted (see paragraph 4),

                    the maximum entitlement of an employee (see paragraphs 5 and 6),

                    the maximum value of the relevant company’s shares in respect of

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which unexercised options can exist (see paragraph 7).

Purpose of granting the option

  4        To be a qualifying option a share option must be granted for commercial

reasons in order to recruit or retain an employee in a company, and not as

part of a scheme or arrangement the main purpose (or one of the main

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purposes) of which is the avoidance of tax.

Maximum entitlement of employee: financial limit on unexercised options

  5       (1)      An employee may not hold unexercised qualifying options which—

              (a)             are in respect of shares with a total value of more than £100,000, and

              (b)             were granted by reason of the employee’s employment—

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                    (i)                   with one company, or

                    (ii)                  with two or more companies which are members of the same

group of companies.

          (2)      A share option cannot be a qualifying option if the limit in sub-paragraph (1)

is already exceeded at the time when it is granted.

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          (3)      If the grant of a share option causes that limit to be exceeded, the option

cannot be a qualifying option so far as it relates to the excess.

          (4)      Where, at the time when a share option is granted to an employee (“E”), E

holds unexercised CSOP options granted by reason of E’s employment—

              (a)             with the employer company, or

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              (b)             if it is a member of a group of companies, with any member of that

group,

                   those options are to be treated for the purposes of this paragraph as if they

were unexercised qualifying options.

          (5)      A “CSOP option” is an option to acquire shares under a scheme approved

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under Schedule 4 (CSOP schemes).

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 2 — General requirements

    439

 

          (6)      For the purposes of this paragraph—

              (a)             “the value” of shares in respect of which a particular share option is

or has been granted means the market value, at the time when the

option is or was granted, of issued shares of the same class as those

that may be acquired by exercise of the option; and

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              (b)             a share option is to be treated as granted in respect of the maximum

number of shares that may be acquired under it.

          (7)      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

restriction or risk.

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          (8)               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

in shares).

Maximum entitlement of employee: further limit of 3 years

  6       (1)      Sub-paragraph (2) applies if an employee (“E”) has already been granted, by

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reason of E’s employment with one company, qualifying options in respect

of shares with a total value of £100,000.

          (2)      Any further option granted by reason of E’s employment—

              (a)             with that company, or

              (b)             if it is a member of a group of companies, with any member of that

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group,

                   within the 3-year restriction period cannot be a qualifying option.

          (3)      Sub-paragraph (4) applies if an employee (“E”) has already been granted, by

reason of E’s employment with two or more companies which are members

of the same group of companies, qualifying options in respect of shares with

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a total value of £100,000.

          (4)      Any further option granted, by reason of E’s employment with any member

of that group, within the 3-year restriction period cannot be a qualifying

option.

          (5)      Sub-paragraph (2) or (4) applies whether or not the qualifying options

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already granted have been exercised or released.

          (6)      In those sub-paragraphs “the 3-year restriction period” means the period of

three years after the date of the grant of the last qualifying option.

          (7)      Paragraph 5(6) to (8) (determination of value of shares) apply for the

purposes of this paragraph as they apply for the purposes of paragraph 5.

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Maximum value of options in respect of relevant company’s shares

  7       (1)      The total value of shares in the relevant company in respect of which

unexercised qualifying options exist must not exceed £3 million.

          (2)      A share option cannot be a qualifying option if the limit in sub-paragraph (1)

is already exceeded at the time when it is granted.

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          (3)      If the grant of a share option causes that limit to be exceeded, the option

cannot be a qualifying option so far as it relates to the excess.

          (4)      If the grant of two or more options at the same time causes that limit to be

exceeded, sub-paragraph (5) applies.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 3 — Qualifying companies

    440

 

          (5)      For the purpose of determining which part of each option relates to the

excess, the amount of the excess is to be divided pro rata among the options

according to the value of the shares in respect of which each option was

granted.

          (6)      Paragraph 5(6) to (8) (determination of value of shares) apply for the

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purposes of this paragraph as they apply for the purposes of paragraph 5.

Part 3

Qualifying companies

Qualifying companies: introduction

  8        A “qualifying company” is a company in relation to which the requirements

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of this Part of this Schedule as to the following are met at the appropriate

time—

                    independence (see paragraph 9),

                    having only qualifying subsidiaries (see paragraphs 10 and 11),

                    gross assets (see paragraph 12), and

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                    trading activities (see paragraphs 13 and 14, read with paragraphs 15 to

23).

The independence requirement

  9       (1)      The independence requirement consists of two conditions.

          (2)      The first condition is that the company is not—

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              (a)             a 51% subsidiary of another company, or

              (b)             a company which is under the control of—

                    (i)                   another company, or

                    (ii)                  another company and any other person connected with that

other company,

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                              without being a 51% subsidiary of that other company.

          (3)      The second condition is that no arrangements are in existence by virtue of

which the company could become such a subsidiary or fall under such

control.

          (4)      Arrangements with a view to a qualifying exchange of shares (see paragraph

30

40) do not count for the purposes of the second condition.

The qualifying subsidiaries requirement

  10      (1)      A company that has one or more subsidiaries is not a qualifying company

unless every subsidiary of the company is a qualifying subsidiary (see

paragraph 11).

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          (2)      For this purpose—

              (a)             “subsidiary” means any company which the company controls,

either on its own or together with any person connected with it, and

              (b)             the question whether a person controls a company is to be

determined in accordance with section 416(2) to (6) of ICTA

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(“control” in the context of close companies).

 

 

 
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