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Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 5 — Supplementary provisions

    341

 

              (b)             expenses incurred in meeting, or contributing to, the costs of

administering the scheme;

              (c)             the costs of borrowing for the purposes of the scheme;

              (d)             fees, commission, stamp duty and similar incidental expenses of

acquiring the shares.

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          (4)      In this paragraph “employee share scheme” means any scheme or

arrangement for enabling shares to be acquired by reason of employees’

employment.

Meaning of “employment”

  26       For the purposes of this Schedule—

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              (a)             references to employment by a company include holding an office

with that company, and related expressions have a corresponding

meaning, and

              (b)             members of a company whose affairs are managed by the members

themselves are treated as holding an office with the company.

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Exercise of option after death of employee or recipient

  27      (1)      Where an option to acquire shares obtained by reason of the employee’s

employment is exercised by the recipient after the employee’s death, the

condition in paragraph 14 (income tax position of the employee) is treated as

met if it would be met were the employee still alive.

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          (2)      Where an option to acquire shares obtained by reason of the employee’s

employment is exercised after the death of the recipient, paragraph 1(1)(b)

and Part 3 of this Schedule, and sub-paragraph (1) above, apply as if the

recipient were still alive and the option were exercised by him.

Meaning of “group company” and “parent company”

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  28       For the purposes of this Schedule—

              (a)             a company is a “group company”, in relation to another company, if

they are members of the same group,

              (b)             two companies are members of the same group if, and only if, one is

a 51% subsidiary of the other or both are 51% subsidiaries of a third

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company, and

              (c)             a company is a “parent company” in relation to another company if

that other is its 51% subsidiary.

Meaning of “consortium” and “commercial association of companies”

  29      (1)      For the purposes of this Schedule a company is a member of a consortium

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owning another company if it is one of five or fewer companies—

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

company’s ordinary share capital, and

              (b)             each of which beneficially owns not less than 10% of that capital.

                   For this purpose the shareholdings of members of a group of companies

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shall be treated as held by a single company.

          (2)      In this Schedule a “commercial association of companies” means a company

together with such of its associated companies as carry on businesses that

 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 5 — Supplementary provisions

    342

 

are of such a nature that the businesses of the company and the associated

companies, taken together, may be reasonably considered to make up a

single composite undertaking.

                   “Associated company” here has the meaning given by section 416 of the

Taxes Act 1988.

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Minor definitions

  30       In this Schedule—

                    “the Contributions and Benefits Act” means—

                    (a)                   the Social Security Contributions and Benefits Act 1992 (c. 4),

or

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                    (b)                   the Social Security Contributions and Benefits (Northern

Ireland) Act 1992 (c. 7);

                    “control” has the meaning given by section 840 of the Taxes Act 1988;

                    “insurance company” and “life assurance business” have the meanings

given by section 431(2) of that Act;

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                    “investment company” has the meaning given by section 130 of that

Act;

                    “market value” has the same meaning as in the Taxation of Chargeable

Gains Act 1992 (c. 12) (see sections 272 and 273 of that Act);

                    “option” includes any right to acquire shares;

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                    “ordinary shares”, in relation to a company, means shares forming part

of the company’s ordinary share capital;

                    “shares” includes—

                    (a)                   an interest in shares, and

                    (b)                   stock or an interest in stock.

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Index of defined expressions

  31       In this Schedule the following expressions are defined or otherwise

explained by the provisions indicated:

 

commercial association of companies

paragraph 29(2)

 
 

consortium

paragraph 29(1)

 

30

 

Contributions and Benefits Act

paragraph 30

 
 

control

paragraph 30

 
 

employment and related expressions

paragraph 26

 
 

the employee

paragraph 1(3)

 
 

employing company

paragraph 1(3)

 

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group

paragraph 28(b)

 
 

group company

paragraph 28(a)

 
 

insurance company

paragraph 30

 
 

investment company

paragraph 30

 
 

 

Finance Bill
Schedule 23 — Corporation tax relief for employee share acquisition
Part 6 — Commencement and transitional provisions

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life assurance business

paragraph 30

 
 

market value

paragraph 30

 
 

option

paragraph 30

 
 

ordinary shares

paragraph 30

 
 

parent company

paragraph 28(c)

 

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the recipient

paragraph 1(3)

 
 

shares

paragraph 30

 
 

subject to forfeiture

paragraph 19

 
 

within the charge to corporation tax (of a

paragraph 3(2)

 
 

business)

  

10

 

Part 6

Commencement and transitional provisions

Commencement

  32       This Schedule applies to accounting periods of the employing company

beginning on or after 1st January 2003.

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Transitional provisions

  33      (1)      Relief is not available under this Schedule in respect of shares to the extent

that a deduction is available or has been made in respect of relevant

expenses in computing the chargeable profits of the employing company or

any other company for the purposes of corporation tax for an accounting

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period beginning before 1st January 2003.

          (2)      In sub-paragraph (1) “relevant expenses” means any expenses referable,

directly or indirectly, to the provision of the shares in question.

          (3)      In relation to any time before the coming into force of the Income Tax

(Earnings and Pensions) Act 2003 (c. 1) (“ITEPA”), this Schedule has effect as

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if—

              (a)             the references to a charge to income tax under ITEPA were to a

charge to income tax under section 19 of the Taxes Act 1988;

              (b)             the reference in paragraph 14(1)(a)(ii) to section 476 or 477 of ITEPA

were to section 135 of the Taxes Act 1988;

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              (c)             the reference in paragraph 14(2)(a) to section 519, 520, 524 or 525 of

ITEPA were to section 185(3)(a) of the Taxes Act 1988;

              (d)             the reference in paragraph 14(2)(b) to section 530 of ITEPA were to

paragraph 44 of Schedule 14 to the Finance Act 2000 (c. 17);

              (e)             the reference in paragraph 20(2)(a) to section 427 of ITEPA were to

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section 140A of the Taxes Act 1988;

              (f)             the references in paragraph 24(1) to paragraphs 2, 3, 9 and 10(3) of

Schedule 4AA to the Taxes Act 1988 were to paragraphs 106, 107,

112A and 112B(3) respectively of Schedule 8 to the Finance Act 2000.

 

 

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Schedule 24 — Restriction of deductions for employee benefit contributions

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Schedule 24

Section 143

 

Restriction of deductions for employee benefit contributions

Restriction of deductions

  1       (1)      This Schedule applies where—

              (a)             a calculation is required to be made for tax purposes of a person’s

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profits for any period, and

              (b)             a deduction would (but for this Schedule) be allowed for that period

in respect of employee benefit contributions made, or to be made, by

that person (“the employer”).

                   But it does not apply to a deduction of a kind mentioned in paragraph 8.

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          (2)      For the purposes of this Schedule an employer makes an “employee benefit

contribution” if—

              (a)             he pays money or transfers an asset to another person (“the third

party”), and

              (b)             the third party is entitled or required, under the terms of an

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employee benefit scheme, to hold or use the money or asset for or in

connection with the provision of benefits to employees of the

employer.

          (3)      The deduction in respect of employee benefit contributions mentioned in

sub-paragraph (1) is allowed only to the extent that—

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              (a)             during the period in question or within nine months from the end of

it—

                    (i)                   qualifying benefits are provided out of the contributions, or

                    (ii)                  qualifying expenses are paid out of the contributions,

                              or

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              (b)             where the making of the contributions is itself the provision of

qualifying benefits, the contributions are made during that period or

within those nine months.

          (4)      An amount disallowed under sub-paragraph (3) is allowed as a deduction

for a subsequent period to the extent that—

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              (a)             qualifying benefits are provided out of the employee benefit

contributions in question before the end of that subsequent period,

or

              (b)             where the making of the contributions is itself the provision of

qualifying benefits, the contributions are made before the end of that

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subsequent period.

“Provision of qualifying benefits”

  2       (1)      For the purposes of this Schedule qualifying benefits are provided where

there is a payment of money or transfer of assets, otherwise than by way of

loan, that—

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              (a)             gives rise both to an employment income tax charge and to an NIC

charge, or would do if the conditions in sub-paragraph (3) were met,

or

              (b)             is made in connection with the termination of the recipient’s

employment with the employer.

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Schedule 24 — Restriction of deductions for employee benefit contributions

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          (2)      In sub-paragraph (1)(a)—

               “employment income tax charge” means a charge to tax under the

Income Tax (Earnings and Pensions) Act 2003 (c. 1) (whether on the

recipient or on someone else);

               “NIC charge” means a liability to pay national insurance contributions

5

under section 6 (Class 1 contributions), 10 (Class 1A contributions)

or 10A (Class 1B contributions) of the Contributions and Benefits

Act.

          (3)      The conditions mentioned in sub-paragraph (1)(a) are—

              (a)             that the duties of the employment in respect of which the payment

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or transfer was made were performed in the United Kingdom, and

              (b)             that the person in respect of whose employment the payment or

transfer was made fulfilled at all relevant times the conditions as to

residence or presence in Great Britain or Northern Ireland prescribed

under section 1(6)(a) of the Contributions and Benefits Act.

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          (4)      In this paragraph “the Contributions and Benefits Act” means—

              (a)             the Social Security Contributions and Benefits Act 1992 (c. 4), or

              (b)             the Social Security Contributions and Benefits (Northern Ireland)

Act 1992 (c. 7).

          (5)      Where the provision of a qualifying benefit takes the form of the payment of

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money, the benefit is treated for the purposes of this Schedule as provided

at the time when the money is treated as received for the purposes of

Chapter 4 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003,

applying the rules in section 18 of that Act (receipt of money earnings).

“Qualifying expenses”

25

  3        In this Schedule “qualifying expenses”—

              (a)             does not include expenses that, if incurred by the employer, would

not be deductible in calculating for tax purposes the employer’s

profits for any period, but

              (b)             subject to that, includes any expenses of the third party (other than

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the provision of benefits to employees of the employer) in operating

the employee benefit scheme in question.

Payment “out of” employee benefit contributions

  4       (1)      For the purposes of paragraph 1(3)(a) any qualifying benefits provided or

qualifying expenses paid by the third party after the receipt by him of

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employee benefit contributions are regarded as being provided or paid out

of those contributions, up to the total amount of the contributions as reduced

by the amount of any benefits or expenses previously provided or paid as

mentioned in paragraph 1(3)(a).

          (2)      For the purposes of paragraph 1(4)(a) any qualifying benefits provided by

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the third party after the receipt by him of employee benefit contributions are

regarded as being provided out of those contributions, up to the total

amount of the contributions as reduced by the amount of any benefits or

expenses previously provided or paid as mentioned in paragraph 1(3)(a) or

(4)(a).

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          (3)      In applying sub-paragraphs (1) and (2) above no account shall be taken of

any other amount received or paid by the third party.

 

 

Finance Bill
Schedule 24 — Restriction of deductions for employee benefit contributions

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Transfer of asset to employee

  5       (1)      This paragraph applies where the provision of a qualifying benefit takes the

form of the transfer of an asset.

          (2)      The amount provided shall be taken for the purposes of this Schedule to be

the total of—

5

              (a)             the amount (if any) expended on the asset by the third party, and

              (b)             in a case where the asset was transferred to the third party by the

employer, the amount of the deduction that would be allowed as

mentioned in paragraph 1(1) in respect of the transfer.

          (3)      But where the amount given by sub-paragraph (2) above is more than the

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amount that is charged to tax under the Income Tax (Earnings and Pensions)

Act 2003 (c. 1) in respect of the transfer, or would be so charged if the

condition in paragraph 2(3)(a) were met, the deduction allowable under

paragraph 1(3) or (4) is limited to that lower amount.

Provisional calculation of profits

15

  6        Where the calculation referred to in paragraph 1(1) is made before the end

of the nine-month period mentioned in paragraph 1(3)—

              (a)             for the purposes of making the calculation, paragraph 1(3) shall be

read as if the reference to that nine-month period were a reference to

the period ending at the time when the calculation is made, but

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              (b)             after the end of the nine-month period the calculation shall if

necessary be adjusted to take account of any benefits provided,

expenses paid or contributions made within that period but after the

time of the calculation.

Life assurance business

25

  7       (1)      In the case of an insurance company carrying on life assurance business, the

effect of section 86 of the Finance Act 1989 (c. 26) (spreading of relief for

acquisition expenses) shall be ignored in determining for the purposes of

paragraph 1(1) whether a deduction would (apart from this Schedule) be

allowed for a particular period.

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          (2)      But paragraph 1(4) has effect subject to that section where, in accordance

with sub-paragraph (1) above, an amount is allowed as a deduction for a

particular period under paragraph 1(4).

Deductions to which Schedule does not apply

  8        This Schedule does not apply to any deduction that is allowable—

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              (a)             in respect of anything given as consideration for goods or services

provided in the course of a trade or profession,

              (b)             in respect of contributions under a retirement benefits scheme within

the meaning of Chapter 1 of Part 14 of the Taxes Act 1988 (see section

611 of that Act),

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              (c)             in respect of contributions under a personal pension scheme

approved under Chapter 4 of that Part (see section 630 of that Act),

              (d)             in respect of contributions under an accident benefit scheme,

              (e)             under Schedule 4AA to that Act (approved share incentive plans),

 

 

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Schedule 24 — Restriction of deductions for employee benefit contributions

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              (f)             under section 67 of the Finance Act 1989 (c. 26) (qualifying share

ownership trusts), or

              (g)             under Schedule 23 to this Act (relief for employee share acquisition).

Interpretation

  9       (1)      In this Schedule—

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               “accident benefit scheme” means an employee benefit scheme under

which benefits may be provided only by reason of a person’s

disablement, or death, caused by an accident occurring during his

service as an employee of the employer;

               “employee benefit contribution” shall be read in accordance with

10

paragraph 1(2);

               “employee benefit scheme” means a trust, scheme or other

arrangement for the benefit of persons who are, or include,

employees of the employer;

               “the employer” shall be read in accordance with paragraph 1(1);

15

               “for tax purposes” means for any purposes of income tax or

corporation tax;

               “qualifying benefits” shall be read in accordance with paragraph 2;

               “qualifying expenses” has the meaning given by paragraph 3;

               “the third party” shall be read in accordance with paragraph 1(2).

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          (2)      A reference in this Schedule to a person’s employee includes a reference to

the holder of an office under that person, and “employment” shall be read

accordingly.

Consequential amendments

  10      (1)      In section 43 (Schedule D) and section 44 (investment and insurance

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companies) of the Finance Act 1989, in subsection (2) (amounts charged in

accounts in respect of employees’ remuneration) for paragraphs (a) and (b)

substitute “for which provision is made in the accounts”.

          (2)      In Schedule 29 to the Finance Act 2002 (c. 23) (intangible fixed assets), in

paragraph 113(3)(a) (meaning of “potential emoluments”) omit the words

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“or benefits” and “, or held by an intermediary,”.

Commencement and transitory provisions

  11      (1)      This Schedule has effect in relation to deductions that would (but for this

Schedule) be allowed for a period ending on or after 27th November 2002 in

respect of employee benefit contributions made on or after that date.

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          (2)      In relation to any time before the coming into force of the Income Tax

(Earnings and Pensions) Act 2003 (c. 1), this Schedule has effect as if—

              (a)             the references to tax under that Act were to income tax under

Schedule E;

              (b)             the reference in paragraph 8(e) to Schedule 4AA to the Taxes Act

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1988 (approved share incentive plans) were to Part 12 of Schedule 8

to the Finance Act 2000 (c. 17) (employee share ownership plans);

              (c)             for the words in paragraph 2(5) from “treated as received” to the end

there were substituted “treated as received for the purposes of

section 202A(1)(a) of the Taxes Act 1988, applying the rules in section

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