House of Lords - Explanatory Note
Income Tax (Earnings And Pensions) Bill - continued          House of Lords

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Paragraph 40: Performance allowances: information to be given to employees

3073.     This paragraph specifies the information that must be given to employees if the SIP provides for performance allowances. The paragraph derives from paragraph 28 of Schedule 8.

3074.     In sub-paragraph (1)(a) the words "each qualifying employee who has accepted an invitation to participate in the award" replace the words "each employee participating in the award". See Change 161 in Annex 1.

Paragraph 41: Performance allowances: method one

3075.     This paragraph deals with the first method of calculating performance allowances. It derives from paragraph 29 of Schedule 8.

3076.     Sub-paragraphs (1) and (2) derive from paragraph 29(1) of Schedule 8. Sub-paragraph (1) is designed to correspond to sub-paragraph (1) in paragraph 42.

Paragraph 42: Performance allowances: method two

3077.     This paragraph deals with the second method of calculating performance allowances.

3078.     Sub-paragraphs (1), (2), (4) and (5) derive from paragraph 30 of Schedule 8; and sub-paragraphs (3) and (6) derive from paragraph 118(2)(c) and (4) of that Schedule.

3079.     The material in sub-paragraphs (3) and (6) seems better placed here than in a paragraph dealing with disqualifying events, which has itself now been placed in Part 10 of this Schedule (Approval of plans). See Note 64 in Annex 2.

Part 6: Partnership shares

3080.     This Part is the fifth of eight that deal with the requirements that a SIP must meet before it may be approved. This Part, which consists of paragraphs 43 to 57, deals with requirements relating to partnership shares. A SIP does not have to provide for partnership shares to be acquired for employees (it may provide for free shares to be appropriated to employees - see paragraph 2(1)), so there may well be SIPs to which the provisions of this Part of this Schedule do not apply.

Paragraph 43: Partnership shares: introduction

3081.     This paragraph is introductory.

3082.     In Schedule 8, the requirements relating to partnership shares are introduced in paragraph 33. But that paragraph merely states that if a plan provides for partnership shares, it must comply with the requirements of that Part of Schedule 8. Sub-paragraph (1) follows an alternative, more helpful, procedure and (adopting the procedure used elsewhere in this Schedule) indicates the provisions that apply.

3083.     Sub-paragraph (1) nevertheless departs from the introductory wording used at the beginning of the majority of the other Parts of this Schedule. This is because a number of the paragraphs in this Part of the Schedule are permissive as opposed to mandatory - that is, they deal with provisions which the plan may contain, as opposed to provisions that the plan must contain.

3084.     Sub-paragraph (3) deals with a general point relating to the acquisition of partnership shares. This provision derives from paragraph 39(2) of Schedule 8; but it has now been moved so that this general point is dealt with early on.

3085.     Sub-paragraph (4) contains the definition of the word "salary". This definition is in paragraph 48 of Schedule 8; and it has been amended by paragraph 3 of Schedule 13 to FA 2001. The ambit of this definition has, however, been widened, so that this definition, instead of applying only for the purposes of the provisions relating to partnership shares, applies for the purposes of the SIP code generally. See Note 65(A) in Annex 2.

Paragraph 44: Partnership share agreements

3086.     This paragraph states that the SIP must provide for qualifying employees to enter into partnership share agreements. (The definition of "qualifying employee" may be found in paragraph 8(6) of this Schedule.) This paragraph derives from paragraph 34 of Schedule 8.

3087.     This paragraph now has three sub-paragraphs. Sub-paragraph (2) deals with the definition of the term "partnership share agreements" and the ambit of that definition.

3088.     Paragraph 34 of Schedule 8 referred to "the company" on three different occasions, with the company being defined elsewhere in that Schedule, in relation to a SIP, as the company which established the plan (as it is in paragraph 2(2) of this Schedule). One of those three occasions referred to the employee authorising the company to deduct part of the employee's salary. However, in the case of a group plan, an employee might be employed by a group company which had not established the SIP; and, in such a case, the reference to authorising "the company" to make deductions from salary would not work well.

3089.     Sub-paragraph (1)(a), read with sub-paragraph (3), accordingly provides for the authorisation to make deductions from the employee's salary to be given to the company by reference to which the employee meets the employment requirement in relation to the plan. See Change 162 in Annex 1.

Paragraph 45: Deductions from salary

3090.     This paragraph states that the SIP must provide for a partnership share agreement to be given effect by deductions from the employee's salary. Amounts so deducted are referred to in the SIP code as "partnership share money". This paragraph derives from paragraph 35 of Schedule 8.

3091.     The rewritten paragraph has six sub-paragraphs (as opposed to the four in paragraph 35 of Schedule 8); but in the rewritten legislation each sub-paragraph consists of a single sentence. (In the case of sub-paragraph (3), two separate sentences have been joined.)

3092.     In sub-paragraph (2), the term "partnership share money" now applies to the entirety of the SIP code, instead of being confined to one part of Schedule 8, as was the case in FA 2000. In other contexts the expression was undefined; but it is considered that the definition provided here would have been held to apply in those other contexts also. See Note 65(B) in Annex 2.

Paragraph 46: Maximum amount of deductions

3093.     This paragraph specifies the maximum amount of partnership share money that may be deducted. The paragraph derives from paragraph 36 of Schedule 8.

3094.     In the second sentence of sub-paragraph (2), the word "This" has been replaced by the more specific "10% of the employee's salary".

3095.     In sub-paragraphs (3) and (4), two sub-paragraphs, each one sentence long, now replace a single sub-paragraph with two sentences. In sub-paragraph (4) there have been changes in the detail of the wording.

Paragraph 47: Minimum amount of deductions

3096.     This paragraph specifies the minimum amount of partnership share money that may be deducted. The paragraph derives from paragraph 37 of Schedule 8.

3097.     In sub-paragraph (1), the words "under a partnership share agreement" replace the words "in pursuance of the partnership share agreement"; and in sub-paragraph (3), the words "may be" have been added at the end.

Paragraph 48: Notice of possible effect of deductions on benefit entitlement

3098.     This paragraph states that the SIP must provide that the company may not enter into a partnership share agreement unless the employee is given a notice relating to the possible effect of deductions on social security benefits. The paragraph derives from paragraph 38 of Schedule 8.

3099.     That paragraph provides authority to make regulations, and regulations have been made. They are the Employee Share Ownership Plans (Partnership Shares - Notice of Effects on Benefits, Statutory Sick Pay and Statutory Maternity Pay) Regulations 2000 (SI 2000 No 2090).

Paragraph 49: Partnership share money held for employee

3100.     This paragraph states that the SIP must provide that partnership share money must be paid to the trustees and held by them on the employee's behalf. The paragraph derives from paragraph 39(1), (3) and (4) of Schedule 8.

3101.     In sub-paragraph (1) the words "in accordance with" have been replaced by the word "under".

3102.     Sub-paragraph (3) has been amended to take account of the amendments made by article 107 of the Financial Services and Markets Act 2000 (Consequential Amendments) (Taxes) Order 2001 (SI 2001 No 3629).

3103.     In sub-paragraph (4), the word order has been changed. The subject of the sentence has been placed first, followed immediately by the main verb, and the condition has been moved to the end of the sentence.

Paragraph 50: Application of money deducted where no accumulation periods

3104.     This paragraph specifies how partnership share money must be applied if the SIP does not provide for an accumulation period. The paragraph derives from paragraph 40 of Schedule 8.

3105.     The five sub-paragraphs have, however, been placed in a different order. The major proposition has been placed first (sub-paragraph (1)); and this is followed by the proposition relating to the market value of the shares (sub-paragraph (2)). It is only these two sub-paragraphs that are affected by the operation of paragraph 53 (restrictions on number of shares awarded), so this limitation is dealt with next (sub-paragraph (3)). The definition of the expression "the acquisition date" is dealt with next (sub-paragraph (4)) in a location that follows the two sub-paragraphs in which the expression is used (as opposed to being placed between those two sub-paragraphs). The provision dealing with surplus partnership money is now placed at the end (sub-paragraph (5)).

Paragraph 51: Accumulation periods

3106.     This paragraph contains provisions that apply if the SIP provides for an accumulation period. The paragraph derives from paragraph 41 of Schedule 8.

3107.     The material in Schedule 8 has been rearranged, with a view to making the main propositions more prominent and easier to understand. Sub-paragraph (2) derives from the opening words of paragraph 41(2) of Schedule 8; and sub-paragraphs (3) and (4) reorganise all the other material in paragraph 41(2) and (3) of that Schedule.

3108.     At the end of sub-paragraph (4)(b), the words "all individuals entering into partnership share agreements" have replaced the words "all individuals who are eligible to participate in the award". The new wording is intended to be a more accurate statement of the legislative intention. See Change 163 in Annex 1.

3109.     Sub-paragraph (5) is arranged somewhat differently from paragraph 41(4) of Schedule 8.

Paragraph 52: Application of money deducted in accumulation period

3110.     This paragraph contains provisions that govern how partnership share money deducted may be applied during an accumulation period. The paragraph derives from paragraph 42 of Schedule 8.

3111.     The material in this paragraph has been rearranged. After the introductory proposition (sub-paragraph (1)), the central propositions are now in sub-paragraphs (2) and (3); those propositions are followed by a limitation that applies to those two sub-paragraphs (sub-paragraph (4)), and then by a definition with the same ambit (sub-paragraph (5)).

3112.     Sub-paragraph (4) provides for sub-paragraphs (2) and (3) (instead of the paragraph as a whole) to be subject to paragraph 53; and sub-paragraph (5) provides for the definition of "the acquisition date" to apply in both sub-paragraphs (2) and (3) (instead of in sub-paragraph (2) only as in paragraph 42 of Schedule 8).

3113.     In sub-paragraph (2) the words "under a partnership share agreement" have been added; and in sub-paragraph (7) the constituent parts of this provision have been reorganised, and the words "to be" have been added in the expression "is to be paid".

Paragraph 53: Restriction on number of shares awarded

3114.     This paragraph provides that the SIP may authorise the company to specify the maximum number of shares to be included in an award of partnership shares.

3115.     This paragraph derives from paragraph 43 of Schedule 8, presenting the material in a somewhat different order.

3116.     The wording of sub-paragraph (5) has been modified to deal with the removal of the expression "the individual award" (an expression introduced in paragraph 3 of Schedule 8), which made its one and only appearance at this point. The new wording includes the expression "on behalf of each employee".

Paragraph 54: Stopping and re-starting deductions

3117.     An employee is entitled both to stop deductions under a partnership share agreement and to restart those deductions. This paragraph sets out the requirements that the SIP must contain to deal with these matters.

3118.     This paragraph derives from paragraph 44 of Schedule 8. The material is presented in a somewhat different order, with the new order following the order in which events may be expected to occur.

3119.     Sub-paragraphs (1) and (3) refer to deductions "under" a partnership share agreement and not to deductions "in pursuance of" a partnership share agreement.

3120.     Sub-paragraph (7) retains the requirement that a notice under this paragraph should be a notice in writing, but moves that requirement to a sub-paragraph of its own.

Paragraph 55: Withdrawal from partnership share agreement

3121.     This paragraph sets out the requirement that a SIP must provide that an employee may give notice to withdraw from a partnership share agreement. The paragraph derives from paragraph 45 of Schedule 8.

3122.     Sub-paragraph (1) has been rewritten to emphasise that it is the notice that may be given at any time rather than the withdrawal from the plan that may be effected at any time.

3123.     Sub-paragraph (4) retains the requirement that a notice under this paragraph should be a notice in writing, but moves that requirement to a sub-paragraph of its own.

Paragraph 56: Repayment of partnership share money on withdrawal of approval or termination

3124.     This paragraph sets out the requirement that a SIP must provide that partnership share money held on behalf of an employee must be paid over to that employee in certain circumstances. The paragraph derives from paragraph 46 of Schedule 8.

3125.     This material has been placed in a different order. Provisions relating to the withdrawal of approval are dealt with before the provisions relating to the issue of a plan termination notice.

Paragraph 57: Access to partnership shares

3126.     This paragraph sets out the requirement that a SIP must provide that, when partnership shares have been awarded to an employee, the employee may withdraw any or all of those shares from the plan. The paragraph derives from paragraph 47 of Schedule 8.

3127.     Sub-paragraph (2) has been expanded by the addition of the words "If the employee does so" at the beginning of this provision.

Part 7: Matching shares

3128.     This Part is the sixth of eight that deal with the requirements that a SIP must meet before it may be approved. This Part, which consists of paragraphs 58 to 61, deals with requirements relating to matching shares. A SIP does not have to provide for matching shares - defined earlier in this Schedule as shares that may be appropriated without payment to employees in proportion to the partnership shares acquired by them (see paragraph 3(1)). There will therefore probably be SIPs to which the provisions of this Part of this Schedule do not apply.

Paragraph 58: Matching shares: introduction

3129.     This paragraph is introductory, setting out the requirements that a SIP must meet if it provides for matching shares. It derives from paragraph 49 of Schedule 8.

3130.     This paragraph lists the requirements contained in the following paragraphs of Part 7 of this Schedule, introducing the individual paragraphs that will follow (as in paragraph 6 of Schedule 8) as opposed to stating that the plan "must comply with the requirements of this Part of this Schedule" (as in paragraph 49 of Schedule 8).

Paragraph 59: General requirements for matching shares

3131.     This paragraph sets out the general requirements relating to matching shares that must be contained in the SIP. The paragraph derives from paragraph 50 of Schedule 8.

Paragraph 60: Ratio of matching shares to partnership shares

3132.     This paragraph sets out the ratio of matching shares to partnership shares that must be specified in the partnership share agreement. The paragraph derives from paragraph 51 of Schedule 8.

Paragraph 61: Holding period for matching shares

3133.     This paragraph applies the provisions relating to the holding period for free shares to matching shares. The paragraph derives from paragraph 52 of Schedule 8.

3134.     The rewritten paragraph is more closely aligned with paragraph 67 of this Schedule than is the case with the corresponding provisions in Schedule 8.

Part 8: Cash dividends and dividend shares

3135.     This Part is the seventh of eight that deal with the requirements that a SIP must meet before it may be approved. This Part, which consists of paragraphs 62 to 69, deals with the treatment of cash dividends. The SIP may provide that, where the company so directs, the cash dividends must be applied in acquiring further plan shares, known as "dividend shares". The application of cash dividends in this way is referred to as "reinvestment" in the SIP code.

3136.     Although it would be more consistent to begin each Part of this Schedule by listing the plan requirements that must be met, there are difficulties in beginning this Part in this way. The plan may or may not contain a direction authorising reinvestment; and the company may or may not give a direction for reinvestment to take place. The list of provisions that apply if the trustees are authorised to carry out reinvestment is therefore postponed until paragraph 63.

Paragraph 62: Reinvestment of cash dividends

3137.     This paragraph sets out propositions that are of central importance for this Part of this Schedule. A SIP may provide that, where the company so directs, the trustees must apply all cash dividends in respect of plan shares in acquiring further plan shares on behalf of participants. This application of cash dividends is referred to as "reinvestment" in the SIP code, and the further plan shares acquired are referred to as "dividend shares".

3138.     Sub-paragraphs (1) to (4) of this paragraph derive from sub-paragraphs (1), (2) and (4) of paragraph 53 of Schedule 8; and sub-paragraph (5) derives from paragraph 56(5) of that Schedule. (Paragraph 53(3) of Schedule 8 is the source for paragraph 69 in this Schedule.).

3139.     Sub-paragraph (1) contains a reference to "the trustees", so permitting the use of a verb in the active, and not the passive, voice; and sub-paragraph (4) contains additional concluding words to make its meaning easier to grasp.

3140.     Sub-paragraph (5) consists of a proposition placed considerably earlier than in the corresponding Part of Schedule 8, in the interests of user-friendliness.

Paragraph 63: Requirements to be met as regards cash dividends

3141.     This paragraph lists the paragraphs in this Part that apply if the trustees of the SIP are directed to apply cash dividends in acquiring further plan shares. It is new.

3142.     Sub-paragraph (3) provides that the SIP must in any event meet the requirement contained in paragraph 69.

Paragraph 64: Limit on amount reinvested

3143.     This paragraph specifies a limit for total dividend reinvestment that must be included in the plan. It derives from paragraph 54 of Schedule 8.

3144.     Sub-paragraph (2)(b) has new wording, including a mention of "approved SIPs", and this has permitted the removal of the two further sub-paragraphs from the source legislation.

Paragraph 65: General requirements as to dividend shares

3145.     This paragraph sets out the general requirements relating to dividend shares that the plan must meet. It derives from paragraph 55 of Schedule 8.

3146.     In paragraph (a), the words "in the same company" have been added at the beginning. It is likely that these words would be implied if the point ever arose; but this clause places the point beyond any doubt. See Note 66 in Annex 2.

Paragraph 66: Acquisition of dividend shares

3147.     This paragraph sets out the conditions relating to the acquisition of dividend shares that a SIP must meet. The acquisition must take place on "the acquisition date". The paragraph derives from sub-paragraphs (1) to (4) of paragraph 56 of Schedule 8. (Paragraph 56(5) of Schedule 8 is the source of paragraph 62(5) of this Schedule.)

3148.     The definition of "the acquisition date" has now been placed at the end of this paragraph (in sub-paragraph (4)); and there have been changes in the detail of the wording at various places in this paragraph.

3149.     The second sentence of paragraph 56(2) of Schedule 8 has been omitted. This sentence merely stated a proposition that was true in any case, and has accordingly been removed on the basis that it is unnecessary.

Paragraph 67: Holding period for dividend shares

3150.     This paragraph applies the provisions relating to the holding period for free shares to dividend shares. It derives from paragraph 57 of Schedule 8.

3151.     The paragraph is more closely aligned with paragraph 61 of this Schedule than is the case with the corresponding provisions in Schedule 8.

Paragraph 68: Reinvestment: amounts to be carried forward

3152.     This paragraph contains provisions that apply when an amount is not reinvested. The paragraph derives from paragraph 58 of Schedule 8.

3153.     Sub-paragraphs (1) to (3) all derive from paragraph 58(1) of Schedule 8. In order to make the legislation easier to understand that provision is divided into a number of separate propositions; and, as a result, there have been changes in the detail of the wording. In sub-paragraphs (4)(b) and (c), cross-references have been added.

Paragraph 69: Cash dividends where no requirement to reinvest

3154.     This paragraph sets out the provision that a SIP must make for cash dividends that are not required to be reinvested under the plan. The dividends must be paid over to participants as soon as practicable.

3155.     This paragraph derives from paragraph 53(3) of Schedule 8; but that sub-paragraph is now dealt with separately to take account of the circumstances in which it applies (see paragraph 63(3) of this Schedule).

3156.     The material in paragraph 53(3) of Schedule 8 has been reorganised and divided into two sub-paragraphs to make it easier to understand. The definition of "distributable cash dividends" is new.

Part 9: Trustees

3157.     This Part is the last of eight that deal with the requirements that a SIP must meet before it is approved. This Part, which consists of paragraphs 70 to 80, deals with the requirements relating to the trustees. All SIPs must have trustees; but, in accordance with the general policy of placing the various Parts of Schedules 2 to 5 in an order displaying overall consistency, this Part is now the final Part that deals with the requirements to be met.

Paragraph 70: Requirements etc. relating to trustees: introduction

3158.     This paragraph is introductory. It is new, being designed to fulfil the same purpose of introducing paragraphs in Part 9 of this Schedule as is played by other corresponding early paragraphs in each of Parts 2 to 8 of this Schedule.

3159.     In Part 9 of this Schedule, there are two paragraphs that impose plan requirements that must be met, and these are listed in sub-paragraph (1). However, the majority of the paragraphs relate to the powers and duties of the trustees, and these are listed in sub-paragraph (2).

 
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Prepared: 17 February 2003