Office of Public Sector Information
SCHEDULE 2 continued PART 4 continued
28 (1) Eligible shares must be—
(a) fully paid up, and
(b) not redeemable.
(2) For the purposes of sub-paragraph (1)(a) shares are not to be regarded as fully paid up if there is an undertaking to pay cash at a future date to the company whose shares they are.
(3) For the purposes of sub-paragraph (1)(b) “redeemable” shares include shares that may become redeemable at a future date.
(4) Sub-paragraph (1)(b) does not apply to shares in a registered industrial and provident society which is a co-operative society.
(5) In sub-paragraph (4)—
“registered industrial and provident society” means a society registered or deemed to be registered under the Industrial and Provident Societies Act 1965 (c. 12) or the Industrial and Provident Societies Act (Northern Ireland) 1969 (c. 24 (N.I.)), and
“co-operative society” has the same meaning as in section 1 of the 1965 Act or, as the case may be, the 1969 Act.
29 (1) Eligible shares must not be shares in—
(a) a service company, or
(b) a company that—
(i) has control of a service company, and
(ii) is under the control of a person or persons who fall within sub-paragraph (2)(b)(i) or (ii) as it applies to a service company.
(2) For the purposes of this paragraph a company is a “service company” if—
(a) the business carried on by it consists substantially in the provision of the services of persons employed by it, and
(b) the majority of those services are provided to—
(i) a person who has control of the company,
(ii) two or more persons who together have control of the company, or
(iii) a company associated with the company.
(3) For the purposes of sub-paragraph (2)(b)(iii) a company is associated with another company if both companies are under the control of the same person or persons.
(4) For the purposes of sub-paragraphs (1) to (3)—
(a) a partnership is to be treated as a single person; and
(b) where a partner (alone or together with others) has control of a company, the partnership is to be treated as having (in the same way) control of that company.
(5) For the purposes of this paragraph the question whether a person controls a company is to be determined in accordance with section 416(2) to (6) of ICTA.
30 (1) Eligible shares must not be subject to any restrictions other than—
(a) those affecting all ordinary shares in the company,
(b) those permitted by—
(i) paragraph 31 (voting rights),
(ii) paragraph 32 (provision for forfeiture), or
(iii) paragraph 33 (pre-emption conditions), or
(c) those involved in there being a holding period (see paragraphs 36, 61 and 67).
(2) 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
(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 (3) and (4).
(3) Sub-paragraph (2) does not extend to so much of any contract, agreement, arrangement or condition as contains provisions similar in purpose and 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).
(4) 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 way as to discriminate against participants, and
(b) have notified all qualifying employees of the existence of the undertaking.
31 Eligible shares may be shares carrying no voting rights or limited voting rights.
32 (1) Free or matching shares may be subject to provision for forfeiture—
(a) on the participant ceasing to be in relevant employment at any time in the forfeiture period,
(b) on the participant withdrawing the shares from the plan at any such time, or
(c) in the case of matching shares, on the participant withdrawing from the plan at any such time the partnership shares in respect of which those shares were awarded.
(2) Sub-paragraph (1)(a) does not, however, authorise the making of provision for forfeiture on the participant ceasing to be in relevant employment—
(a) because of injury or disability,
(b) on being dismissed by reason of redundancy,
(c) by reason of a transfer to which the Transfer of Undertakings (Protection of Employment) Regulations 1981 (S.I. 1981/1794) apply,
(d) if the relevant employment is employment by an associated company (see paragraph 95(2)), by reason of a change of control or other circumstances ending that company’s status as an associated company,
(e) by reason of the participant’s retirement on or after reaching the specified retirement age (see paragraph 98), or
(f) on the participant’s death.
(3) Forfeiture may not be linked to the performance of any person or persons.
(4) The same provision for forfeiture must apply in relation to all free or matching shares included in the same award under the plan.
(5) In this paragraph “the forfeiture period” means the forfeiture period specified in the plan, which must be a period of not more than 3 years beginning with the date on which the shares were awarded to the participant.
33 (1) If the requirements of this paragraph are met, eligible shares may be subject to provision requiring shares—
(a) that were awarded to an employee under the plan, and
(b) that are held by an employee or a permitted transferee,
to be offered for sale on the employee ceasing to be in relevant employment.
(2) For the purposes of sub-paragraph (1)(b) a “permitted transferee” means a person to whom, under the articles of association of the company, the employee is permitted to transfer the shares.
(3) The requirements of this paragraph are that under the articles of association of the company—
(a) the same provision applies to all employees of the company or, in the case of a parent company, to all employees of that company or any company of which that company has control,
(b) the shares are required to be offered for sale at a specified consideration, and
(c) anyone disposing of shares of the same class (whether or not as an employee) is required to offer the shares for sale on no better terms.
34 (1) If a SIP provides for free shares, it must meet the plan requirements contained in—
paragraph 35 (maximum annual award), and
paragraph 36 (the holding period).
(2) If a SIP provides for free shares and for performance allowances, the requirements of the following paragraphs also apply—
paragraph 38 (performance allowances: general application),
paragraph 39 (performance allowances: targets and measures),
paragraph 40 (performance allowances: information to be given to employees), and
either paragraph 41 or 42 (performance allowances: methods of awarding shares).
(3) The plan must meet any plan requirements contained in those paragraphs.
(4) For the purpose of the SIP code a plan provides for performance allowances if it provides for—
(a) whether or not free shares will be awarded to an individual, or
(b) the number or value of free shares awarded,
to be conditional on performance targets being met.
35 (1) The plan must provide that the initial market value of the free shares awarded to a participant in a tax year is not to exceed £3,000.
(2) The “initial market value” of shares means their market value on the date on which they are awarded.
(3) 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 restrictions or risk.
(4) 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).
36 (1) The plan must require the company in respect of each award of free shares to specify a period (“the holding period”) during which a participant is bound by contract with the company—
(a) to permit the free shares awarded to the participant to remain in the hands of the trustees, and
(b) not to assign, charge or otherwise dispose of the beneficial interest in the shares.
(2) The holding period—
(a) must be a period of at least 3 years but not more than 5 years, beginning with the date on which the shares in question are awarded to the participant, and
(b) must be the same for all shares in the same award.
(3) The plan—
(a) may authorise the company to specify different holding periods from time to time, but
(b) must prevent the company from increasing the holding period specified in respect of free shares that have been awarded under the plan.
(4) The participant’s obligations with respect to the holding period are subject to—
(a) paragraph 37 (power to authorise trustees to accept general offers etc.),
(b) paragraph 79 (meeting by trustees of PAYE obligations), and
(c) paragraph 90(5) (termination of plan: early removal of shares with participant’s consent).
(5) If at any time in the holding period the participant ceases to be in relevant employment, the participant’s obligations with respect to that period come to an end.
37 (1) A participant may direct the trustees to do any of the following during the holding period.
(2) The participant may direct the trustees to accept an offer for any of the participant’s free shares (“the original shares”) if the acceptance or agreement will result in a new holding being equated with the original shares for the purposes of capital gains tax.
(3) The participant may direct the trustees to agree to a transaction affecting the participant’s free shares, or such of them as are of a particular class, if the transaction would be entered into as a result of a compromise, arrangement or scheme applicable to or affecting—
(a) all the ordinary share capital of the company or, as the case may be, all the shares of the class in question, or
(b) all the shares, or all the shares of the class in question, which are held by a class of shareholders identified otherwise than by reference to their employment or their participation in an approved SIP.
(4) The participant may direct the trustees to accept an offer for the participant’s free shares of—
(a) cash, with or without other assets, or
(b) a qualifying corporate bond (whether alone or with other assets or cash or both),
if the offer forms part of a general offer falling within sub-paragraph (5).
(5) A general offer falls within this sub-paragraph if—
(a) it is made to holders of shares of the same class as the participant’s or to holders of shares in the same company, and
(b) it is made in the first instance on a condition such that if it is satisfied the person making the offer will have control of that company.
(6) In sub-paragraph (5) “control” has the meaning given by section 416 of ICTA.
38 A plan that provides for performance allowances in relation to an award must make provision for such allowances for all qualifying employees in relation to that award.
39 (1) A plan that provides for performance allowances must comply with the following requirements with respect to performance targets and performance measures.
(2) The performance targets must be set for performance units comprising one or more employees.
(3) The performance measures used must—
(a) be based on business results or other objective criteria, and
(b) be fair and objective measures of the performance of the units to which they are or may be applied.
(4) For the purposes of an award of free shares under the plan an employee must not be a member of more than one performance unit.
40 (1) A plan that provides for performance allowances in relation to an award of shares must require the company—
(a) to notify each qualifying employee who has accepted an invitation to participate in the award of the performance targets and measures which, under the plan, will be used to determine the number or value of free shares awarded to the employee, and
(b) to notify all qualifying employees—
(i) of the company, or
(ii) in the case of a group plan, of any constituent company,
in general terms, of the performance measures to be used to determine the number or value of free shares to be awarded to each employee participating in the award.
(2) The notices must be given as soon as reasonably practicable.
(3) The company may exclude from the notice mentioned in sub-paragraph (1)(b) any information whose disclosure the company reasonably considers would prejudice commercial confidentiality.
41 (1) The requirements of this paragraph are those contained in sub-paragraph (2).
(2) In the case of an award in relation to which the plan provides for performance allowances—
(a) at least 20% of the shares in the award must be awarded without reference to performance in accordance with the requirement of paragraph 9 (participation on same terms),
(b) the remaining shares must be awarded by reference to performance, and
(c) the highest number of shares within paragraph (b) awarded to an individual must not be more than four times the highest number of shares within paragraph (a) awarded to an individual.
(3) In determining for the purposes of sub-paragraph (2)(a) whether the requirement of paragraph 9 is met, the shares to which sub-paragraph (2)(a) applies are to be treated as a separate award of free shares.
(4) If the plan meets the requirements of this paragraph, the requirement of paragraph 9 does not apply to any provision of the plan relating to the awarding of shares within sub-paragraph (2)(b).
(5) If free shares of different classes are awarded, the requirements of this paragraph apply separately in relation to each class.
42 (1) The requirements of this paragraph are those contained in sub-paragraphs (2) and (3).
(2) In the case of an award in relation to which the plan provides for performance allowances—
(a) some or all of the shares in the award must be awarded by reference to performance, and
(b) the awarding of the shares to qualifying employees who are members of the same performance unit must meet the requirement of paragraph 9 (participation on same terms).
(3) The performance targets set in connection with such an award must be consistent targets (see sub-paragraph (6)).
(4) In determining for the purposes of sub-paragraph (2)(b) whether the requirement of paragraph 9 is met, the free shares awarded in respect of each performance unit are to be treated as a separate award of free shares.
(5) If this method is used, nothing in paragraph 9 requires the awarding of shares to members of different performance units to be on the same terms.
(6) In sub-paragraph (3) “consistent targets” means targets which, at the time when they are set in accordance with the plan, can reasonably be viewed as being comparable in terms of the likelihood of their being met by the performance units to which they apply.
43 (1) If a SIP provides for partnership shares, the following paragraphs apply—
paragraph 44 (partnership share agreements),
paragraph 45 (deductions from salary),
paragraph 46 (maximum amount of deductions),
paragraph 47 (minimum amount of deductions),
paragraph 48 (notice of possible effect of deductions on benefit entitlement),
paragraph 49 (partnership share money held for employee),
paragraph 50 (application of money deducted where no accumulation periods),
paragraph 51 (accumulation periods),
paragraph 52 (application of money deducted in accumulation period),
paragraph 53 (restriction on number of shares awarded),
paragraph 54 (stopping and re-starting deductions),
paragraph 55 (withdrawal from partnership share agreement),
paragraph 56 (repayment of partnership share money on withdrawal of approval or termination), and
paragraph 57 (access to partnership shares).
(2) The plan must meet any plan requirements contained in those paragraphs.
(3) References in the SIP code to the trustees acquiring partnership shares on behalf of an employee include their appropriating to an employee shares already held by them.
(4) In the SIP code references to an employee’s “salary” are to be read as follows—
(a) in the case of an individual within the scope of the charge to tax under Part 2 of this Act, they are to be read as references to such of the earnings of the eligible employment—
(i) as are liable to be paid under deduction of tax under PAYE regulations, after deducting any amounts included by virtue of the benefits code, or
(ii) as would be liable to be so paid apart from the SIP code;
(b) in the case of an individual not within the scope of the charge to tax under Part 2 of this Act, they are to be read as references to such of the earnings of the eligible employment as would have fallen within sub-paragraph (i) or (ii) of paragraph (a) if the individual had been within the scope of that charge to tax.
(5) In sub-paragraph (4) “the eligible employment” means the employment by reference to which the employee is eligible to participate in the plan.
44 (1) The plan must provide for qualifying employees to enter into agreements with the company (“company A”) under which—
(a) the employee authorises the employer company to deduct part of the employee’s salary for the purchase of partnership shares, and
(b) company A undertakes to arrange for partnership shares to be awarded to the employee in accordance with the plan.
(2) Such agreements are referred to in the SIP code as “partnership share agreements”.
(3) In sub-paragraph (1) “the employer company” means the company by reference to which the employee meets the employment requirement in relation to the plan.
45 (1) The plan must provide for a partnership share agreement to be given effect by deductions from the employee’s salary.
(2) Amounts so deducted are referred to in the SIP code as “partnership share money”.
(3) The partnership share agreement must specify—
(a) what amounts are to be deducted, and
(b) at what intervals;
but this does not prevent the employee and the company agreeing to vary those amounts or intervals.
(4) For the purposes of sub-paragraph (3)(a) the agreement may specify a percentage of the employee’s salary.
(5) The plan must require the employer company to calculate the amounts and intervals having regard to paragraph 46 (maximum amount of deductions from salary).
(6) In sub-paragraph (5) “the employer company” means the company by reference to which the employee meets the employment requirement in relation to the plan.
46 (1) The amount of partnership share money deducted from an employee’s salary must not exceed—
(a) £125 in any month, or
(b) where the salary is not paid at monthly intervals, such amount as bears to £125 the same proportion as the pay interval in question bears to one month.
(2) The amount of partnership share money deducted from an employee’s salary must not exceed 10% of the employee’s salary.
“10% of the employee’s salary” means—
if the plan does not provide for an accumulation period, 10% of the salary payment from which the deduction is made;
if the plan provides for an accumulation period, 10% of the total of the employee’s salary payments over that period.
(3) The plan may authorise the company to specify lower limits than those specified in sub-paragraphs (1) and (2).
(4) If it does so, different limits may be specified in relation to different awards of shares.
(5) Any amount deducted in excess of that allowed by sub-paragraph (1) or (2), or any lower limit in the plan, must be paid over to the employee as soon as practicable.
47 (1) The plan may provide that the amount to be deducted under a partnership share agreement in any month must not be less than a minimum amount specified in the plan.
(2) The specified minimum amount must not be greater than £10.
(3) Sub-paragraphs (1) and (2) apply whatever the intervals at which the employee is paid may be.
48 (1) The plan must provide that the company may not enter into a partnership share agreement with an employee unless the agreement contains a notice under this paragraph.
(2) A notice under this paragraph is a notice in a prescribed form containing prescribed information as to the possible effect of deductions on an employee’s entitlement to social security benefits, statutory sick pay and statutory maternity pay.
(3) In this paragraph “prescribed” means prescribed by regulations made by the Board of Inland Revenue.
49 (1) The plan must provide that partnership share money deducted under a partnership share agreement is—
(a) paid to the trustees as soon as practicable, and
(b) held by them on behalf of the employee until such time as it is applied by them in acquiring partnership shares on the employee’s behalf.
(2) Sub-paragraph (1) is subject to paragraphs 50(5)(b) and 52(6)(b) and (7) (obligations to pay money to the employee).
(3) The plan must provide for the trustees to keep any money required to be held by them under this paragraph in an account (interest bearing or otherwise) with—
(a) a person falling within section 840A(1)(b) of ICTA (certain institutions permitted to accept deposits),
(b) a building society, or
(c) a firm falling within section 840A(1)(c) of ICTA (EEA firms permitted to accept deposits).
(4) The plan must provide for the trustees to account to an employee for the interest if the partnership share money held on behalf of the employee is held in an interest bearing account.
50 (1) If the plan does not provide for an accumulation period, it must provide for partnership share money to be applied by the trustees in acquiring partnership shares on behalf of the employee on the acquisition date.
(2) The number of shares awarded to each employee must be determined in accordance with the market value of the shares on the acquisition date.
(3) Sub-paragraphs (1) and (2) are subject to paragraph 53 (restriction on number of shares awarded).
(4) In those sub-paragraphs “the acquisition date” means the date set by the trustees in relation to the award of partnership shares, which must be not later than 30 days after the last date on which the partnership share money to be applied in acquiring the shares was deducted.
(5) Any surplus partnership share money remaining after the acquisition of shares by the trustees—
(a) may with the agreement of the employee be carried forward and added to the amount of the next deduction, and
(b) in any other case must be paid over to the employee as soon as practicable.
51 (1) The plan may provide for accumulation periods not exceeding 12 months.
(2) If the plan does so, the following provisions apply.
(3) The partnership share agreements—
(a) must specify when each accumulation period begins and ends;
(b) may specify that an accumulation period comes to an end on the occurrence of a specified event.
(4) However—
(a) the beginning of the first accumulation period must not be later than the date on which the first deduction of partnership share money is made; and
(b) the accumulation period which applies in relation to each award of partnership shares must be the same for all individuals entering into the partnership share agreements.
(5) The plan may also provide that if—
(a) during an accumulation period, a transaction occurs in relation to any of the shares (“the original holding”) to be acquired under a partnership share agreement which results in a new holding of shares being equated with the original holding for the purposes of capital gains tax, and
(b) the employee consents,
the partnership share agreement is to have effect after the time of the transaction as if it were an agreement for the purchase of the shares comprised in the new holding.
52 (1) This paragraph applies if the plan provides for one or more accumulation periods.
(2) The plan must provide for the partnership share money deducted in each accumulation period under a partnership share agreement to be applied by the trustees in acquiring partnership shares on behalf of the employee on the acquisition date.
(3) The number of shares awarded to each employee must be determined in accordance with the lower of—
(a) the market value of the shares at the beginning of the accumulation period, and
(b) the market value of the shares on the acquisition date.
(4) Sub-paragraphs (2) and (3) are subject to sub-paragraphs (7) and (8) and to paragraph 53 (restriction on number of shares awarded).
(5) In sub-paragraphs (2) and (3) “the acquisition date” means the date set by the trustees in relation to the award of partnership shares, which must be not later than 30 days after the end of the accumulation period which applies in relation to the award.
(6) Any surplus partnership share money remaining after the acquisition of shares by the trustees—
(a) may with the agreement of the employee be carried forward to the next accumulation period, and
(b) in any other case must be paid over to the employee as soon as practicable.
(7) The plan must provide that where the employee ceases to be in relevant employment during an accumulation period, any partnership share money deducted in the period is to be paid over to the individual as soon as practicable.
(8) The partnership share agreement may provide that, where an accumulation period comes to an end on the occurrence of a specified event, the partnership share money deducted in that period must be paid over to the individual as soon as practicable instead of being applied in acquiring shares.
53 (1) The plan may authorise the company to specify the maximum number of shares (“the award maximum”) to be included in an award of partnership shares.
(2) If the plan does so—
(a) a different number may be specified by the company in relation to different awards, and
(b) the following provisions apply to the plan.
(3) The plan must require partnership share agreements to contain an undertaking by the company to notify the employee of any restriction on the number of shares to be included in an award.
(4) The plan must require the notice to be given—
(a) if there is no accumulation period, before the deduction of the partnership share money relating to the award, and
(b) if there is an accumulation period, before the beginning of the accumulation period relating to the award.
(5) The plan must provide that, where the award maximum in respect of an award of partnership shares is smaller than the number of shares which would otherwise be included in the award, the number of partnership shares acquired on behalf of each employee under paragraph 50(1) or 52(2) must be reduced proportionately.
Income Tax (Earnings and Pensions) Act 2003