Finance Act 1989

Schedule 6A (1) (1) In this paragraph “relevant zero-rated supply” means a grant or other supplytaking place on or after 1st April 1989 which— (a) relates to a building intended for use solely for a relevant residentialpurpose or a relevant charitable purpose or part of such a building; and (b) is zero-rated, in whole or in part, by virtue of Group 8 of Schedule 5 tothis Act. (2) Sub-paragraph (3) below applies where— (a) one or more relevant zero-rated supplies relating to a building (or partof a building) have been made to any person; (b) within the period of ten years beginning with the day on which thebuilding is completed, the person grants an interest in, right over or licenceto occupy the building or any part of it (or the building or any part of itincluding, consisting of or forming part of the part to which the relevantzero-rated supply or supplies related); and (c) after the grant the whole or any part of the building, or of the part towhich the grant relates, (or the whole of the building or of the part to whichthe grant relates, or any part of it including, consisting of or forming partof the part to which the relevant zero-rated supply or supplies related) isnot intended for use solely for a relevant residential purpose or a relevantcharitable purpose. (3) Where this sub-paragraph applies, to the extent that the grant relates toso much of the building as— (a) by reason of its intended use gave rise to the relevant zero-rated supplyor supplies; and (b) is not intended for use solely for a relevant residential purpose or arelevant charitable purpose after the grant, it shall be taken to be a taxable supply in the course or furtherance ofa business which is not zero-rated by virtue of Group 8 of Schedule 5 to thisAct (if it would not otherwise be such a supply). (4) Sub-paragraph (5) below applies where— (a) one or more relevant zero-rated supplies relating to a building (or partof a building) have been made to any person; and (b) within the period of ten years beginning with the day on which thebuilding is completed, the person uses the building or any part of it (or thebuilding or any part of it including, consisting of or forming part of thepart to which the relevant zero-rated supply or supplies related) for apurpose which is neither a relevant residential purpose nor a relevantcharitable purpose. (5) Where this sub-paragraph applies, his interest in, right over or licenceto occupy so much of the building as— (a) by reason of its intended use gave rise to the relevant zero-rated supplyor supplies; and (b) is used otherwise than for a relevant residential purpose or a relevantcharitable purpose, shall be treated for the purposes of this Act as supplied to him for thepurpose of a business carried on by him and supplied by him in the course orfurtherance of the business when he first uses it for a purpose which isneither a relevant residential purpose nor a relevant charitable purpose. (6) Where sub-paragraph (5) above applies— (a) the supply shall be taken to be a taxable supply which is not zero-ratedby virtue of Group 8 of Schedule 5 to this Act (if it would not otherwise besuch a supply); and (b) the value of the supply shall be such that the amount of tax chargeableon it is equal to the amount of the tax which would have been chargeable onthe relevant zero-rated supply (or, where there was more than one such supply,the aggregate amount which would have been chargeable on them) had so much ofthe building as is mentioned in sub-paragraph (5) above not been intended foruse solely for a relevant residential purpose or a relevant charitablepurpose. (2) (1) Subject to sub-paragraphs (2) and (3) and paragraph 3 below, where anelection under this paragraph has effect in relation to any land, if and tothe extent that any grant made in relation to it at a time when the electionhas effect by the person who made the election, or where that person is a bodycorporate by that person or a relevant associate, would (apart from thissub-paragraph) fall within Group 1 of Schedule 6 to this Act, the grant shallnot fall within that Group. (2) Sub-paragraph (1) above shall not apply in relation to a grant if thegrant is made in relation to— (a) a building or part of a building intended for use as a dwelling or numberof dwellings or solely for a relevant residential purpose; or (b) a building or part of a building intended for use solely for a relevantcharitable purpose, other than as an office. (3) Sub-paragraph (1) above shall not apply in relation to a grant if— (a) the grant is made to a registered housing association and the associationhas given to the grantor a certificate stating that the land is to be used(after any necessary demolition work) for the construction of a building orbuildings intended for use as a dwelling or number of dwellings or solely fora relevant residential purpose; or (b) the grant is made to an individual and the land is to be used for theconstruction, otherwise than in the course or furtherance of a businesscarried on by him, of a building intended for use by him as a dwelling. (4) Subject to the following provisions of this paragraph, no input tax on anysupply or importation which, apart from this sub-paragraph, would be allowableby virtue of the operation of this paragraph shall be allowed if the supplyor importation took place before the first day for which the election inquestion has effect. (5) Subject to sub-paragraph (6) below, sub-paragraph (4) above shall notapply where the person by whom the election was made— (a) has not, before the first day for which the election has effect, made inrelation to the land in relation to which the election has effect any grantfalling within Group 1 of Schedule 6 to this Act; or (b) has before that day made in relation to that land a grant or grants sofalling but the grant, or all the grants,— (i) were made in the period beginning with 1st April 1989 and ending with 31stJuly 1989; and (ii) would have been taxable supplies but for the amendments made by Schedule3 to the Finance Act 1989. (6) Sub-paragraph (5) above does not make allowable any input tax on suppliesor importations taking place before 1st August 1989 unless— (a) it is attributable by or under regulations to grants made by the personon or after 1st April 1989 which would have been taxable supplies but for theamendments made by Schedule 3 to the Finance Act 1989; and (b) the election has effect from 1st August 1989. (7) Sub-paragraph (4) above shall not apply in relation to input tax on grantsor other supplies which are made in the period beginning with 1st April 1989and ending with 31st July 1989 if— (a) they would have been zero-rated by virtue of item 1 or 2 of Group 8 ofSchedule 5 to this Act or exempt by virtue of item 1 of Group 1 of Schedule6 to this Act but for the amendments made by Schedule 3 to the Finance Act1989; and (b) the election has effect from 1st August 1989. (3) (1) An election under paragraph 2 above shall have effect— (a) from the beginning of the day on which the election is made or of anylater day specified in the election; or (b) where the election is made before 1st November 1989, from the beginningof 1st August 1989 or of any later day so specified. (2) An election under paragraph 2 above shall have effect in relation to anyland specified, or of a description specified, in the election. (3) Where such an election is made in relation to, or to part of, a building(or planned building), it shall have effect in relation to the whole of thebuilding and all the land within its curtilage; and for the purposes of thissub-paragraph buildings linked internally or by a covered walkway, andparades, precincts and complexes divided into separate units, shall be takento be a single building (if they otherwise would not be). (4) Where such an election is made in relation to agricultural land (includinga building on agricultural land), it shall have effect in relation to anyother agricultural land if that other land is not separated from it by— (a) land which is not agricultural land; or (b) agricultural land in separate ownership. (5) For the purposes of sub-paragraph (4) above— (a) land shall be taken not to be separated from other land if it is separatedfrom it only by a road, railway, river or something similar; and (b) land is in separate ownership from land in relation to which an electionis made if the person by whom the election is made has no interest in, rightover or licence to occupy it and, where that person is a body corporate, norelevant associate has any such interest, right or licence. (6) An election under paragraph 2 above shall be irrevocable and, except whereit is an election of a description specified in a notice published by theCommissioners, shall not have effect unless written notification of it isgiven to the Commissioners together with such information as the Commissionersmay require. (7) Except where the Commissioners otherwise allow, a notification requiredunder sub-paragraph (6) above shall be given not later than the end of theperiod of thirty days beginning with the day on which the election is made. (8) In paragraph 2 above and this paragraph “relevantassociate”, in relation to a body corporate by which an electionunder paragraph 2 above has been made in relation to any building or land,means a body corporate which under section 29 of this Act— (a) was treated as a member of the same group as the body corporate by whichthe election was made at the time when the election first had effect; (b) has been so treated at any later time when the body corporate by which theelection was made had an interest in, right over or licence to occupy thebuilding or land (or any part of it); or (c) has been treated as a member of the same group as a body corporate withinparagraph (a) or (b) above or this paragraph at a time when that bodycorporate had an interest in, right over or licence to occupy the building orland (or any part of it). (9) In paragraph 2 above “registered housing association”means a registered housing association within the meaning of the Housing Associations Act 1985 or Part VII of the Housing (Northern Ireland) Order 1981. (4) (1) This paragraph has effect where rent is payable in consideration of thegrant of an interest in, right over, or licence to occupy any building or landto which an election under paragraph 2 above relates (or any part of any suchbuilding or land). (2) If— (a) the rent relates to a period beginning before and ending on or after thefirst day for which the election has effect; and (b) the grant for which the rent is consideration would, apart from thissub-paragraph, take place before that day, the grant shall be treated as taking place on that day to the extent thatit is made for rent relating to the part of the period falling on or afterthat day. (3) If— (a) the rent relates to a period beginning on or after the first day for whichthe election has effect; and (b) the grant for which the rent is consideration would, apart from thissub-paragraph, take place before that day, the grant shall be treated as taking place on the first day of the periodto which the rent relates. (4) If— (a) the rent relates to a period beginning before the first day for which theelection has effect; and (b) the grant for which the rent is consideration takes place on or after thatday, tax shall not be chargeable on the grant by virtue of paragraph 2 aboveto the extent that it is made for rent relating to any time before that day. (5) Where the rent is payable by a person in relation to a period when he isin occupation of a building completed before 1st August 1989 (or part of sucha building) or land of which he was in occupation immediately before thatdate, any tax which would be chargeable by virtue of paragraph 2 above on thegrant for which the rent is consideration— (a) except in the case of a charity, shall be chargeable as if theconsideration were reduced by 50 per cent. if and to the extent that the rentrelates to or to any part of the year beginning on 1st August 1989 and endingon 31st July 1990; and (b) in the case of a charity— (i) shall be chargeable as if the consideration were reduced by 80 per cent.if and to the extent that the rent relates to or to any part of the yearbeginning on 1st August 1989 and ending on 31st July 1990; (ii) shall be chargeable as if the consideration were reduced by 60 per cent.if and to the extent that the rent relates to or to any part of the yearbeginning on 1st August 1990 and ending on 31st July 1991; (iii) shall be chargeable as if the consideration were reduced by 40 per cent.if and to the extent that the rent relates to or to any part of the yearbeginning on 1st August 1991 and ending on 31st July 1992; and (iv) shall be chargeable as if the consideration were reduced by 20 per cent.if and to the extent that the rent relates to or to any part of the yearbeginning on 1st August 1992 and ending on 31st July 1993. (5) (1) Paragraph 6 below shall apply on the first occasion during the periodbeginning with the day when the construction of a building or work withinsub-paragraph (2) below is first planned and ending ten years after thecompletion of the building or work on which a person who is a developer inrelation to the building or work— (a) grants an interest in, right over or licence to occupy the building orwork (or any part of it) which is an exempt supply; or (b) is in occupation of the building, or uses the work, (or any part of it)when not a fully taxable person (or, if a person treated under section 29 ofthis Act as a member of a group, when the representative member is not a fullytaxable person). (2) Subject to sub-paragraph (3) below, the buildings and works within thissub-paragraph are— (a) any building neither designed as a dwelling or number of dwellings norintended for use solely for a relevant residential purpose or a relevantcharitable purpose; and (b) any civil engineering work, other than a work necessary for thedevelopment of a permanent park for residential caravans. (3) A building or work is not within sub-paragraph (2) above if— (a) construction of it was commenced before 1st August 1989; or (b) a grant of the fee simple in it which falls within paragraph (a) (ii) or(iv) of item 1 of Group 1 of Schedule 6 to this Act has been made before theoccasion concerned. (4) For the purposes of this paragraph a taxable person is, in relation to anybuilding or work, a fully taxable person throughout a prescribed accountingperiod if— (a) at the end of that period he is entitled to credit for input tax on allsupplies to, and importations by, him in the period (apart from any on whichinput tax is excluded from credit by virtue of section 14(10) of this Act);or (b) the building or work is not used by him at any time during the period in,or in connection with, making any exempt supplies of goods or services. (5) Subject to sub-paragraph (6) below, in this paragraph and paragraph 6below “developer”, in relation to a building or work, meansany person who— (a) constructs it; (b) orders it to be constructed; or (c) finances its construction, with a view to granting an interest in, right over or licence to occupyit (or any part of it) or to occupying or using it (or any part of it) for hisown purposes. (6) Where— (a) a body corporate treated under section 29 of this Act as a member of agroup is a developer in relation to a building or work; and (b) it grants an interest in, right over or licence to occupy the building orwork (or any part of it) to another body corporate which is treated under thatsection as a member of the group, then, for the purposes of this paragraph and paragraph 6 below, as fromthe time of the grant any body corporate such as is mentioned in sub-paragraph(7) below shall be treated as also being a developer in relation to thebuilding or work. (7) The bodies corporate referred to in sub-paragraph (6) above are any whichunder section 29 of this Act— (a) was treated as a member of the same group as the body corporate making thegrant at the time of the grant; (b) has been so treated at any later time when the body corporate by which thegrant was made had an interest in, right over or licence to occupy thebuilding or work (or any part of it); or (c) has been treated as a member of the same group as a body corporate withinparagraph (a) or (b) above or this paragraph at a time when that bodycorporate had an interest in, right over or licence to occupy the building orwork (or any part of it). (6) (1) Where this paragraph applies the interest in, right over or licence tooccupy the building or work (or any part of it) held by the developer shallbe treated for the purposes of this Act as supplied to the developer for thepurpose of a business carried on by him and supplied by him in the course orfurtherance of the business on the last day of the prescribed accountingperiod during which it applies or, if later, of the prescribed accountingperiod during which the building or work becomes substantially ready foroccupation or use. (2) The supply treated as made by sub-paragraph (1) above shall be taken tobe a taxable supply and the value of the supply shall be the aggregateof— (a) the value of grants relating to the land on which the building or work isconstructed made or to be made to the developer, other than any grants to bemade for consideration in the form of rent the value of which cannot beascertained by the developer when the supply is treated as made; and (b) the value of all the taxable supplies of goods and services, other thanany that are zero-rated, made or to be made for or in connection with theconstruction of the building or work. (3) Where the value of a supply which, apart from this sub-paragraph, wouldbe treated as made by sub-paragraph (1) above would be less than£100,000, no supply shall be treated as made by that sub-paragraph. (7) Where the benefit of the consideration for the grant of an interest in,right over or licence to occupy land accrues to a person but that person isnot the person making the grant— (a) the person to whom the benefit accrues shall for the purposes of this Actbe treated as the person making the grant; and (b) to the extent that any input tax of the person actually making the grantis attributable to the grant it shall be treated as input tax of the personto whom the benefit accrues. (8) The Notes to Group 8 of Schedule 5 to this Act and Group 1 of Schedule 6to this Act apply in relation to this Schedule as they apply in relation totheir respective Groups but subject to any appropriate modifications.

7

In section 42 (adjustment of consideration on changes in tax) of the Value Added Tax Act 1983—

• (a) the following subsection shall be inserted after subsection (1)—

(1A) Subsection (1) above shall apply in relation to a tenancy or lease as itapplies in relation to a contract except that a term of a tenancy or leaseshall not be taken to provide that the rule contained in that subsection isnot to apply in the case of the tenancy or lease if the term does not referspecifically to value added tax or this section.

, and

• (b) in subsection (2), the words “(including a change attributable tothe making of an election under paragraph 2 of Schedule 6A to thisAct)” shall be added at the end.

8

In section 45(4) (orders etc.) of the Value Added TaxAct 1983, there shall be added after paragraph (c)—

(d) an order under section 35A above, except one making only such amendmentsas are necessary or expedient in consequence of provisions of an order underthis Act which— (i) vary Schedule 5 or Schedule 6 to this Act; but (ii) are not within paragraph (c) above.

9

In section 48 (interpretation) of the Value Added Tax Act 1983, after thedefinition of “Commissioners” there shall be inserted—

“fee simple”— (a) in relation to Scotland, means the estate or interest of the proprietorof the dominium utile or, in the case of land not held on feudal tenure, theestate or interest of the owner; (b) in relation to Northern Ireland, includes the estate of a person who holdsland under a fee farm grant;

.

10

In Schedule 1 (registration) to the Value Added Tax Act 1983—

• (a) in paragraph 1 there shall be added at the end—

(6) Where, apart from this sub-paragraph, an interest in, right over orlicence to occupy any land would under sub-paragraph (5) above be disregardedfor the purposes of sub-paragraph (1) above, it shall not be if it is suppliedon a taxable supply which is not zero-rated.

, and

• (b) in paragraph 2 there shall be added at the end—

(4) Where, apart from this sub-paragraph, an interest in, right over orlicence to occupy any land would under sub-paragraph (3) above be disregardedfor the purposes of sub-paragraph (1) above, it shall not be if it is suppliedon a taxable supply which is not zero-rated.

11

In Schedule 2 (supplies of goods and services) to the Value Added Tax Act1983—

• (a) in paragraph 4, for the word “granting” there shall be substitutedthe word “grant”,

• (b) in paragraph 5(1), for the words “the goods” there shall besubstituted the word “goods”, and

• (c) there shall be added at the end—

(8) (1) Subject to sub-paragraphs (2) and (3) below, paragraphs 5 to 7 above haveeffect in relation to land forming part of the assets of, or held or used forthe purposes of, a business as if it were goods forming part of the assets of,or held or used for the purposes of, a business. (2) In the application of those paragraphs by virtue of sub-paragraph (1)above, references to transfer, disposition or sale shall have effect asreferences to the grant or assignment of any interest in, right over orlicence to occupy the land concerned. (3) Except in relation to— (a) the grant or assignment of a major interest; or (b) a grant or assignment otherwise than for a consideration, in the application of paragraph 5(1) above by virtue of sub-paragraph (1)above the reference to a supply of goods shall have effect as a reference toa supply of services.

Commencement

12

• (1) Subject to sub-paragraphs (2) and (3) and paragraph 13 below, theamendments made by paragraphs 1 to 4 of this Schedule shall have effect inrelation to grants, assignments and other supplies made on or after 1st April1989.

• (2) Note 4(b) to Group 8 of Schedule 5 to the Value AddedTax Act 1983 shall have effect in relation to grants, assignments and othersupplies made on or after 1st August 1989.

• (3) In relation to grants and assignments made on or after 1st April 1989 butbefore 1st August 1989—

• (a) that Group shall have effect as if the Notes to it included a Note in thesame terms as Note (1) to that Group as it had effect before the substitutionmade by paragraph 1 above, and

• (b) Group 8A of that Schedule shall have effect as if the Notes to it includeda Note in the same terms as Note (5) to that Group as it had effect before theamendments made by paragraph 2 above.

• (4) Paragraphs 5, 7, 8, 11 and 13(6) and (7) of this Schedule and paragraph6, so far as relating to section 35A(2) of, and paragraphs 2 to 7 of Schedule6A to, the Value Added Tax Act 1983, shall come into force on 1st August 1989.

• (5) Subject to the preceding provisions of this paragraph, this Schedule shallcome into force on 1st April 1989.

13

• (1) Subject to sub-paragraph (3) below, the amendments made by paragraphs 1and 2 of this Schedule shall not have effect in relation to a grant,assignment or other supply where—

• (a) it is made in pursuance of a legally binding obligation to make it whichwas incurred before 21st June 1988, and

• (b) if the Commissioners so require (whether before or after it is made), itis proved to their satisfaction by the production of documents made beforethat date that it is so made.

• (2) Subject to sub-paragraph (3) below, the amendments made by paragraphs 1and 2 of this Schedule shall not have effect in relation to a grant orassignment of an interest in, or in any part of, a building or its sitewhere—

• (a) the grant or assignment takes place before 21st June 1993,

• (b) the person making the grant or assignment was under a legally bindingobligation incurred before 21st June 1988 to construct (or reconstruct) thebuilding or to construct any development of which it forms part (other thanan obligation to receive services or goods in the course of the constructionor reconstruction),

• (c) if the Commissioners so require (whether before or after the grant orassignment is made), it is proved to their satisfaction by the production ofdocuments made before that date that he was under that obligation, and

• (d) planning permission for the construction (or reconstruction) of thebuilding was granted before 21st June 1988.

• (3) Where the grant or assignment is of a tenancy or lease—

• (a) if a premium is payable, sub-paragraph (1) or (2) above shall apply onlyto the extent that it is made for consideration in the form of the premium;and

• (b) if a premium is not payable, sub-paragraph (1) or (2) above shall applyonly to the extent that it is made for consideration in the form of the firstpayment of rent due under the tenancy or lease.

• (4) The amendments made by paragraphs 1 and 2 of this Schedule shall not haveeffect in relation to a supply relating to a building or civil engineeringwork where—

• (a) the supply takes place before 21st June 1993,

• (b) the supply is made to the person constructing the building or work (orreconstructing the building),

• (c) that person was under a legally binding obligation incurred before21st June 1988 to construct the building or work (or to reconstruct thebuilding) or to construct any development of which it forms part (other thanan obligation to receive services or goods in the course of the constructionor reconstruction),

• (d) if the Commissioners so require (whether before or after the supply ismade), it is proved to their satisfaction by the production of documents madebefore that date that he was under that obligation,

• (e) planning permission for the construction of the building or work (or thereconstruction of the building) was granted before 21st June 1988, and

• (f) before the supply takes place the person constructing the building or work(or reconstructing the building) has given to the person making the supply acertificate in such form as may be specified in a notice published by theCommissioners stating that the supply is zero-rated (in whole or to the extentspecified in the certificate) by virtue of this sub-paragraph.

• (5) Where a grant, assignment or other supply is zero-rated by virtue of thisparagraph, it is not a relevant zero-rated supply for the purposes ofparagraph 1 of Schedule 6A to the Value Added Tax Act1983.

• (6) Nothing in paragraphs 5 and 6 of that Schedule shall apply—

• (a) in relation to a person who has constructed a building if he incurredbefore 21st June 1988 a legally binding obligation to make a grant orassignment of a major interest in, or in any part of, the building or itssite;

• (b) in relation to a building or work if there was incurred before that datea legally binding obligation to make in relation to the building or work asupply within item 2 of Group 8 of Schedule 5 to the Value Added Tax Act 1983;

• (c) in relation to a person who has constructed a building if—

• (i) he incurred before that date a legally binding obligation to construct thebuilding or any development of which it forms part, and

• (ii) planning permission for the construction of the building was grantedbefore that date,

except where that person does not make a grant or assignment of a majorinterest in, or in any part of, the building or its site before 21st June1993.

• (7) If the Commissioners so require, proof of any of the matters specified insub-paragraph (6)(a), (b) or (c)(i) above shall be given to their satisfactionby the production of documents made before 21st June 1988.

SCHEDULE 4

1

The Taxes Act 1988 shall be amended in accordance with the followingprovisions of this Schedule.

2

• (1) In section 171(4) (limit on pay of which half may be exempt from tax) for “£3,000” there shall be substituted “£4,000”.

• (2) This paragraph shall have effect in relation to profit-related pay paidby reference to profit periods beginning on or after 1st April 1989.

3

After section 177 there shall be inserted—

(177A) (1) Where a scheme employer has died, his personal representatives may makea written application to the Board under this section for the amendment of theregistration of the scheme. (2) If on receiving an application under this section the Board are satisfiedthat, apart from the death of the scheme employer, there would be no groundsfor cancelling the registration of the scheme, the Board shall amend theregistration of the scheme by substituting the personal representatives forthe deceased scheme employer. (3) An application under this section shall be made before the end of theperiod of one month beginning with the date of the grant of probate or lettersof administration or, in Scotland, confirmation of executors. (4) Where the Board amend the registration of a scheme under this section,this Chapter shall (subject to any necessary modifications) have effect as ifthe personal representatives had been the scheme employer throughout. (5) The Board shall give notice to the personal representatives if they refusean application under this section. (177B) (1) The alteration of the terms of a registered scheme shall not of itselfinvalidate the registration of the scheme. (2) Subsection (1) above is without prejudice to the power of cancellationconferred on the Board by section 178(3A); but the power conferred by section178(3A) shall not be exercisable by virtue of an alteration registered inaccordance with this section. (3) Where the terms of a registered scheme have been altered, the schemeemployer may apply to the Board for the registration of the alteration. (4) An application under subsection (3) above— (a) shall be in such form as the Board may prescribe; (b) shall be made within the period of one month beginning with the day onwhich the alteration is made; (c) shall contain a declaration by the applicant that the alteration is withinsubsection (8) below and that the scheme as altered complies with therequirements of Schedule 8 (either as that Schedule had effect when the schemewas registered, or as it then had effect but subject to one or more subsequentamendments specified in the declaration); (d) shall be accompanied by a report by an independent accountant, in a formprescribed by the Board, to the effect that in his opinion the alteration iswithin subsection (8) below and the scheme as altered complies with therequirements of Schedule 8 (either as that Schedule had effect when the schemewas registered, or as it then had effect but subject to one or more subsequentamendments specified in the report). (5) The Board shall not more than three months after the day on which theyreceive an application under subsection (3) above either register thealteration or refuse the application; and in either case they shall givenotice of their decision to the applicant. (6) Subject to subsection (7) below, the Board shall register an alterationon an application under subsection (3) above. (7) The Board may refuse an application under subsection (3) above if they arenot satisfied— (a) that the application complies with the requirements of subsection (4)above, or (b) that the declaration referred to in subsection (4)(c) above is true. (8) An alteration is within this subsection if— (a) it relates to a term which is not relevant to the question whether thescheme complies with the requirements of Schedule 8; or (b) it relates to a term identifying any person (other than the schemeemployer) who pays the emoluments of employees to whom the scheme relates; or (c) it consists of the addition of a term making provision for an abbreviatedprofit period of the kind referred to in paragraph 10(3) of Schedule 8; or (d) it amends the provisions by reference to which the employees to whom thescheme relates may be identified, and does so only for the purposes of profitperiods which begin after the date on which the alteration is made; or (e) it relates to a provision of a kind referred to in paragraph 13(4) or (5)or 14(3), (4) or (5) of Schedule 8 (as those provisions have effect at thetime of the application for registration of the alteration), and has effectonly for the purposes of profit periods beginning after the date on which thealteration is made; or (f) it amends the provisions as to when payments will be made to employees,and does so only for the purposes of profit periods beginning after the dateon which the alteration is made; or (g) the scheme did not comply with the requirements of Schedule 8 when it wasregistered, and the alteration— (i) is made in order to bring the scheme into compliance with the requirementsof that Schedule (either as it had effect when the scheme was registered oras it has effect at the time of the application for registration of thealteration), and (ii) is made for the purposes of the first and any subsequent profit period towhich the scheme relates, and (iii) is made within two years of the beginning of the first profit period, and (iv) does not invalidate (in whole or in part) any payment of profit-relatedpay already made under the scheme.

4

• (1) Section 178 (cancellation of registration) shall be amended as follows.

• (2) In subsection (1) for the words “subsection (5)” there shall besubstituted the words “subsections (5) and (5A)”.

• (3) After subsection (3) there shall be inserted—

(3A) Where the terms of a registered scheme have been altered, then, subjectto section 177B(2), the Board may cancel the registration of the scheme witheffect from the beginning of the profit period during which the alterationtook effect or with effect from the beginning of any later profit period. (3B) If after an alteration of the terms of a scheme has been registered undersection 177B it appears to the Board— (a) that the application for registration of the alteration did not complywith the requirements of subsection (4) of that section, or (b) that the declaration referred to in subsection (4)(c) of that section wasfalse, the Board may cancel the registration of the scheme with effect from thebeginning of the profit period during which the alteration took effect or witheffect from the beginning of any later profit period.

• (4) After subsection (5) there shall be inserted—

(5A) Where— (a) the scheme employer has died, and (b) his personal representatives by notice request the Board to cancel theregistration of the scheme with effect from the date of death, then, if the notice is given before the end of the period of one monthbeginning with the date of the grant of probate or letters of administrationor, in Scotland, confirmation of executors, the Board shall comply with therequest.

5

At the end of section 179 (recovery of tax) there shall be added—

(3) Where— (a) the scheme employer has died, but (b) his personal representatives have not been substituted for him as thescheme employer by virtue of section 177A, the reference in subsection (2) above to the scheme employer shall beconstrued as a reference to the personal representatives. (4) Where— (a) a payment to which this section applies was made by a person other thanthe scheme employer, and (b) the scheme employer is not resident in the United Kingdom, then in relation to that payment the reference in subsection (2) aboveto the scheme employer shall include a reference to the person by whom thepayment was made.

6

At the end of section 180 (annual returns) there shall be added—

(5) Where— (a) the scheme employer has died, but (b) his personal representatives have not been substituted for him as thescheme employer by virtue of section 177A, the reference in subsection (1) above to the scheme employer shall beconstrued as a reference to the personal representatives.

7

At the end of section 181 (information) there shall be added—

(4) Where the scheme employer has died, his personal representatives shallinform the Board of his death by notice given before the end of the period ofone month beginning with the date of the grant of probate or letters ofadministration or, in Scotland, confirmation of executors.

8

• (1) Section 182 (appeals) shall be amended as follows.

• (2) In subsection (1) after paragraph (b) there shall be inserted—

(bb) against a refusal by the Board of an application under section 177B(3);

.

• (3) After subsection (1) there shall be inserted—

(1A) An appeal to the Special Commissioners may be made by the personalrepresentatives of a scheme employer against a refusal by the Board of anapplication under section 177A.

• (4) In subsection (2) for the words “scheme employer” there shall besubstituted the word “appellant”.

9

• (1) Paragraph 7 of Schedule 8 (no payments for employees with materialinterest in company) shall be amended as follows.

• (2) In sub-paragraph (1), the words “, or is an associate of a person who has,” shall be omitted.

• (3) In sub-paragraph (3), after the words “section 417(3) and (4)” thereshall be inserted the words “, but subject to sub-paragraph (4) below”.

• (4) The following sub-paragraphs shall be added at the end—

(4) For the purposes of this paragraph, where an employee of a company has aninterest in shares or obligations of the company as a beneficiary of anemployee benefit trust, the trustees shall not be regarded as associates ofhis by reason only of that interest unless sub-paragraph (8) below applies inrelation to him. (5) A trust is an employee benefit trust for the purposes of this paragraphif— (a) all or most of the employees of the company are eligible to benefit underit, and (b) none of the property subject to it has been disposed of on or after 14thMarch 1989 (whether by sale, loan or otherwise) except in the ordinary courseof management of the trust or in accordance with sub-paragraph (6) below. (6) Property is disposed of in accordance with this sub-paragraph if— (a) it is applied for the benefit of— (i) individual employees or former employees of the company, (ii) spouses, former spouses, widows or widowers of employees or formeremployees of the company, (iii) relatives, or spouses of relatives, of persons within sub-paragraph (i)or (ii) above, or (iv) dependants of persons within sub-paragraph (i) above, (b) it is applied for charitable purposes, or (c) it is transferred to the trustees of an approved profit sharing scheme(within the meaning of section 187), of another employee benefit trust, or ofa qualifying employee share ownership trust (within the meaning of Schedule5 to the Finance Act 1989), and the property applied or transferred consists of any of the ordinaryshare capital of the company or of money paid outright. (7) In sub-paragraph (6)(a)(iii) above “relative” means parent or remoter forebear, child or remoterissue, brother, sister, uncle, aunt, nephew or niece. (8) This sub-paragraph applies in relation to an employee if at any time onor after 14th March 1989— (a) the employee, either on his own or with any one or more of his associates,or (b) any associate of his, with or without other such associates, has been the beneficial owner of, or able (directly or through the mediumof other companies or by any other indirect means) to control, more than 25per cent. of the ordinary share capital of the company. (9) Where— (a) on or after 14th March 1989 an employee of a company, or an associate ofhis, receives a payment (“the relevant payment”) from the trustees of anemployee benefit trust, and (b) at any time during the period of three years ending with the day on whichthe relevant payment is received, the property subject to the trust consistsof or includes any part of the ordinary share capital of the company, the employee or associate shall be treated for the purposes ofsub-paragraph (8) above as if he were the beneficial owner of the appropriatepercentage of the ordinary share capital of the company on the day on whichthe relevant payment is received (in addition to any percentage of that sharecapital of which he is actually the beneficial owner on that day). (10) For the purposes of sub-paragraph (9) above, the appropriate percentageis— $$Ax100B$where—$ - A is the smaller of— - (a) the aggregate of the relevant payment and any other paymentsreceived by the employee or associates of his from the trustees of the trustduring the period of 12 months ending with the day on which the relevant payment is received, and - (b) the aggregate of the distributions made to the trustees of the trustby the company in respect of its ordinary share capital during the period ofthree years ending with the day on which the relevant payment is received; and - B is the aggregate of— - (a) any distributions made by the company in respect of its ordinaryshare capital during the period of 12 months ending with the day on which therelevant payment is received, - (b) any distributions so made during the period of 12 months immediatelypreceding that mentioned in paragraph (a) above, and - (c) any distributions so made during the period of 12 months immediately preceding that mentioned in paragraph (b) above, divided by the number of the periods mentioned in paragraphs (a) to(c) above in which distributions were so made. (11) Where— (a) an employee or associate is treated by sub-paragraph (9) above as if hewere the beneficial owner of a percentage of the ordinary share capital of acompany by reason of receiving the relevant payment from the trustees of atrust, and (b) that employee, or an associate of his, has, during the period of 12 monthsending with the day on which the relevant payment is received, received oneor more payments from trustees of another employee benefit trust or trustssatisfying the requirement in paragraph (b) of sub-paragraph (9) above, that sub-paragraph shall have effect in relation to the employee orassociate mentioned in paragraph (a) above as if he had received the paymentfrom the trustees of the trust or of each of the trusts mentioned in paragraph(b) above (or where more than one payment has been received from the trusteesof a trust, the last of the payments) on the day on which the relevant paymentis received. (12) In sub-paragraphs (8) to (11) above “associate”, in relation to an employee, does not include thetrustees of an employee benefit trust by reason only that the employee has aninterest in shares or obligations of the trust.

10

• (1) Paragraphs 13(2) and 14(2) of Schedule 8 (which provide for a scheme’sdistributable pool to be at least 5 per cent. of the pay of all the employeesto whom the scheme relates if profits remain unchanged) shall be omitted.

• (2) In consequence of sub-paragraph (1) above—

• (a) the following provisions shall be omitted—

• section 175(3);

• in section 176(1), the words “(but not more than six months)”;

• section 178(2)(b);

• in paragraph 13(1) of Schedule 8, the word “fixed”;

• paragraph 13(3) of that Schedule;

• paragraph 14(7) of that Schedule.

• (b) in paragraph 13 of Schedule 8—

• (i) after sub-paragraph (1) there shall be inserted—

(1A) That percentage must be a fixed percentage specified in the scheme and,if the scheme relates to more than one period, must be the same for eachperiod.

;

• (ii) in sub-paragraph (4)(a), for the words “the base year referred to insub-paragraph (3) above” there shall be substituted the words “a baseyear specified in the scheme”;

• (iii) in sub-paragraph (5), for the words “must be” onwards there shall besubstituted the words “must not exceed the profits for a base year specifiedin the scheme”;

• (iv) for sub-paragraph (6), there shall be substituted—

(6) The base year referred to in sub-paragraph (4)(a) and sub-paragraph (5)above must be a period of 12 months ending at a time within the period of twoyears immediately preceding the profit period, or the first of the profitperiods, to which the scheme relates

;

• (c) in paragraph 14(5) of that Schedule, for the words “must be” onwardsthere shall be substituted the words “must not exceed the profits in theperiod of 12 months immediately preceding the first or only profit period towhich the scheme relates”.

11

At the end of paragraph 13 of Schedule 8 (calculation of distributablepool by method A) there shall be added—

(7) Any provision included in a scheme by virtue of sub-paragraph (4) or (5)above may take effect either from the scheme’s first profit period or from anylater profit period determined in accordance with the scheme.

12

In paragraph 14 of Schedule 8 (calculation of distributable pool by methodB), in sub-paragraph (5) the words “specified in, or” shall be omitted.

13

At the end of paragraph 14 of Schedule 8 there shall be added—

(8) Any provision included in a scheme by virtue of sub-paragraph (3)(b), (4)or (5) above may take effect either from the scheme’s first profit period orfrom any later profit period determined in accordance with the scheme.

14

• (1) Paragraph 19 of Schedule 8 (profit and loss account for purposes ofprofit-related pay scheme) shall be amended as follows.

• (2) After sub-paragraph (4) (account to make no allowance for remuneration ofpersons excluded from scheme) there shall be inserted—

(4A) In sub-paragraph (4) above “remuneration”, in relation to a person, includes fees andpercentages, any sums paid by way of expenses allowance (insofar as those sumsare charged to income tax), any contributions paid in respect of him under anypension scheme and the estimated value of any other benefits received by himotherwise than in cash.

• (3) In sub-paragraph (6) (items which may be left out of account in arrivingat profits or losses) for paragraph (f) there shall be substituted—

(f) profit-related pay payable under the scheme, and profit-related paypayable under any other registered scheme if it is one to which paragraph 21below applies; (ff) secondary Class 1 contributions under Part I of the Social Security Act 1975 or Part I of the SocialSecurity (Northern Ireland) Act 1975 in respect of profit-related pay payableunder the scheme;

.

15

After paragraph 20 of Schedule 8 there shall be inserted—

(21) (1) This paragraph shall apply to a scheme if the employment unit is a partof an undertaking, and the scheme states that the profits or losses of theunit are for the purposes of the scheme to be taken to be equivalent to thoseof the whole undertaking (which must be identified by the scheme). (2) Where this paragraph applies to a scheme, this Schedule shall have effectas if any reference to the profits or losses of the employment unit were areference to the profits or losses of the undertaking of which it forms part. (22) (1) Where paragraph 21 above applies to a scheme, the scheme must containprovisions ensuring that no payments are made under it by reference to aprofit period unless, at the beginning of that profit period,— (a) there is at least one other registered scheme which relates to employeesemployed in the same undertaking as that of which the employment unit formspart, and (b) the number of the employees to whom the scheme relates does not exceed 33per cent. of the number of the employees to whom that other scheme relates (orif there is more than one other scheme, the aggregate number of the employeesto whom they relate). (2) Another registered scheme shall be disregarded for the purposes ofsub-paragraph (1) above— (a) if paragraph 21 above applies to it, or (b) if, by virtue of provisions of the kind described in paragraph 6 above,no payments could be made under it by reference to the profit periodconcerned. (3) Where paragraph 21 above applies to two or more schemes relating toemployment units which are parts of the same undertaking, an employee to whomanother scheme relates shall not be counted for the purposes of sub-paragraph(1)(b) above in connection with more than one of those schemes.

SCHEDULE 5

Qualifying trusts

1

A trust is a qualifying employee share ownership trust at the time it isestablished if the conditions set out in paragraphs 2 to 11 below aresatisfied in relation to the trust at that time.

General

2

• (1) The trust must be established under a deed (the trust deed).

• (2) The trust must be established by a company (the founding company) which,at the time the trust is established, is resident in the United Kingdom andnot controlled by another company.

Trustees

3

• (1) The trust deed must provide for the establishment of a body of trustees.

• (2) The trust deed must—

• (a) appoint the initial trustees;

• (b) contain rules for the retirement and removal of trustees;

• (c) contain rules for the appointment of replacement and additional trustees.

• (3) The trust deed must provide that at any time while the trust subsists (therelevant time)—

• (a) the number of trustees must not be less than three;

• (b) all the trustees must be resident in the United Kingdom;

• (c) the trustees must include one person who is a trust corporation, asolicitor, or a member of such other professional body as the Board may fromtime to time allow for the purposes of this paragraph;

• (d) most of the trustees must be persons who are not and have never beendirectors of any company which falls within the founding company’s group atthe relevant time;

• (e) most of the trustees must be persons who are employees of companies whichfall within the founding company’s group at the relevant time, and who do nothave and have never had a material interest in any such company;

• (f) the trustees falling within paragraph (e) above must, before beingappointed as trustees, have been selected by a majority of the employees ofthe companies falling within the founding company’s group at the time of theselection or by persons elected to represent those employees.

• (4) For the purposes of sub-paragraph (3) above a company falls within thefounding company’s group at a particular time if—

• (a) it is the founding company, or

• (b) it is at that time resident in the United Kingdom and controlled by thefounding company.

• (5) This paragraph applies in relation to trusts established on or before the day on which the Finance Act 1994 was passed.

3A

Where a trust is established after the day on which the Finance Act 1994 was passed, the trust deed must make provision as mentioned in one of paragraphs (a) to (c) below—

• (a) provision for the establishment of a body of trustees and complying with paragraph 3(2) to (4) above;

• (b) provision for the establishment of a body of trustees and complying with paragraph 3B(2) to (9) below;

• (c) provision that at any time while the trust subsists there must be a single trustee.

3B

• (1) The following are the provisions that must be complied with under paragraph 3A(b) above.

• (2) The trust deed must—

• (a) appoint the initial trustees;

• (b) contain rules for the retirement and removal of trustees;

• (c) contain rules for the appointment of replacement and additional trustees.

• (3) The trust deed must be so framed that at any time while the trust subsists the conditions set out in sub-paragraph (4) below are fulfilled as regards the persons who are then trustees; and in that sub-paragraph “the relevant time” means that time.

• (4) The conditions are that—

• (a) the number of trustees is not less than three;

• (b) all the trustees are resident in the United Kingdom;

• (c) the trustees include at least one person who is a professional trustee and at least two persons who are non-professional trustees;

• (d) at least half of the non-professional trustees were, before being appointed as trustees, selected in accordance with sub-paragraph (7) or (8) below;

• (e) all the trustees so selected are persons who are employees of companies which fall within the founding company’s group at the relevant time, and who do not have and have never had a material interest in any such company.

• (5) For the purposes of this paragraph a trustee is a professional trustee at a particular time if—

• (a) the trustee is then a trust corporation, a solicitor, or a member of such other professional body as the Board may at that time allow for the purposes of this sub-paragraph,

• (b) the trustee is not then an employee or director of any company then falling within the founding company’s group, and

• (c) the trustee meets the requirements of sub-paragraph (6) below;

and for the purposes of this paragraph a trustee is a non-professional trustee at a particular time if the trustee is not then a professional trustee for those purposes.

• (6) A trustee meets the requirements of this sub-paragraph if—

• (a) he was appointed as an initial trustee and, before being appointed as trustee, was selected by (and only by) the persons who later became the non-professional initial trustees, or

• (b) he was appointed as a replacement or additional trustee and, before being appointed as trustee, was selected by (and only by) the persons who were the non-professional trustees at the time of the selection.

• (7) Trustees are selected in accordance with this sub-paragraph if the process of selection is one under which—

• (a) all the persons who are employees of the companies which fall within the founding company’s group at the time of the selection, and who do not have and have never had a material interest in any such company, are (so far as is reasonably practicable) given the opportunity to stand for selection,

• (b) all the employees of the companies falling within the founding company’s group at the time of the selection are (so far as is reasonably practicable) given the opportunity to vote, and

• (c) persons gaining more votes are preferred to those gaining less.

• (8) Trustees are selected in accordance with this sub-paragraph if they are selected by persons elected to represent the employees of the companies falling within the founding company’s group at the time of the selection.

• (9) For the purposes of this paragraph a company falls within the founding company’s group at a particular time if—

• (a) it is at that time resident in the United Kingdom, and

• (b) it is the founding company or it is at that time controlled by the founding company.

3C

• (1) This paragraph applies where the trust deed provides that at any time while the trust subsists there must be a single trustee.

• (2) The trust deed must—

• (a) be so framed that at any time while the trust subsists the trustee is a company which at that time is resident in the United Kingdom and controlled by the founding company;

• (b) appoint the initial trustee;

• (c) contain rules for the removal of any trustee and for the appointment of a replacement trustee.

• (3) The trust deed must be so framed that at any time while the trust subsists the company which is then the trustee is a company so constituted that the conditions set out in sub-paragraph (4) below are then fulfilled as regards the persons who are then directors of the company; and in that sub-paragraph “the relevant time” is that time and “the trust company” is that company.

• (4) The conditions are that—

• (a) the number of directors is not less than three;

• (b) all the directors are resident in the United Kingdom;

• (c) the directors include at least one person who is a professional director and at least two persons who are non-professional directors;

• (d) at least half of the non-professional directors were, before being appointed as directors, selected in accordance with sub-paragraph (7) or (8) below;

• (e) all the directors so selected are persons who are employees of companies which fall within the founding company’s group at the relevant time, and who do not have and have never had a material interest in any such company.

• (5) For the purposes of this paragraph a director is a professional director at a particular time if—

• (a) the director is then a solicitor or a member of such other professional body as the Board may at that time allow for the purposes of this sub-paragraph,

• (b) the director is not then an employee of any company then falling within the founding company’s group,

• (c) the director is not then a director of any such company (other than the trust company), and

• (d) the director meets the requirements of sub-paragraph (6) below;

and for the purposes of this paragraph a director is a non-professional director at a particular time if the director is not then a professional director for those purposes.

• (6) A director meets the requirements of this sub-paragraph if—

• (a) he was appointed as an initial director and, before being appointed as director, was selected by (and only by) the persons who later became the non-professional initial directors, or

• (b) he was appointed as a replacement or additional director and, before being appointed as director, was selected by (and only by) the persons who were the non-professional directors at the time of the selection.

• (7) Directors are selected in accordance with this sub-paragraph if the process of selection is one under which—

• (a) all the persons who are employees of the companies which fall within the founding company’s group at the time of the selection, and who do not have and have never had a material interest in any such company, are (so far as is reasonably practicable) given the opportunity to stand for selection,

• (b) all the employees of the companies falling within the founding company’s group at the time of the selection are (so far as is reasonably practicable) given the opportunity to vote, and

• (c) persons gaining more votes are preferred to those gaining less.

• (8) Directors are selected in accordance with this sub-paragraph if they are selected by persons elected to represent the employees of the companies falling within the founding company’s group at the time of the selection.

• (9) For the purposes of this paragraph a company falls within the founding company’s group at a particular time if—

• (a) it is at that time resident in the United Kingdom, and

• (b) it is the founding company or it is at that time controlled by the founding company.

Beneficiaries

4

• (1) The trust deed must contain provision as to the beneficiaries under thetrust, in accordance with the following rules.

• (2) The trust deed must provide that a person is a beneficiary at a particulartime (the relevant time) if—

• (a) he is at the relevant time an employee or director of a company which atthat time falls within the founding company’s group,

• (b) at each given time in a qualifying period he was an employee or directorof a company falling within the founding company’s group at that given time,and

• (c) in the case of a director, at that given time he worked as a director of the companyconcerned at the rate of at least 20 hours a week (ignoring such matters asholidays and sickness).

• (2A) The trust deed may provide that a person is a beneficiary at a given time if at that time he is eligible to participate in an SAYE option scheme—

• (a) which was established by a company within the founding company’s group, and

• (b) which is approved under Schedule 3 to the Income Tax (Earnings and Pensions) Act 2003.

• (2B) Where a trust deed contains a rule conforming with sub-paragraph (2A) above it must provide that the only powers and duties which the trustees may exercise in relation to persons who are beneficiaries by virtue only of that rule are those which may be exercised in accordance with the provisions of a scheme such as is mentioned in that sub-paragraph.

• (3) The trust deed may provide that a person is a beneficiary at a particulartime (the relevant time) if—

• (a) he has at each given time in a qualifying period been an employee ordirector of a company falling within the founding company’s group at thatgiven time,

• (b) he has ceased to be an employee or director of the company or the companyhas ceased to fall within that group, and

• (c) at the relevant time a period of not more than eighteen months has elapsedsince he so ceased or the company so ceased (as the case may be).

• (4) The trust deed may provide for a person to be a beneficiary if the personis a charity and the circumstances are such that—

• (a) there is no person who is a beneficiary within any rule which is includedin the deed and conforms with sub-paragraph (2) , (2A) or (3) above, and

• (b) the trust is in consequence being wound up.

• (5) For the purposes of sub-paragraph (2) above a qualifying period is aperiod—

• (a) whose length is . . . not more than five years,

• (b) whose length is specified in the trust deed, and

• (c) which ends with the relevant time (within the meaning of thatsub-paragraph).

• (6) For the purposes of sub-paragraph (3) above a qualifying period is aperiod—

• (a) whose length is equal to that of the period specified in the trust deedfor the purposes of a rule which conforms with sub-paragraph (2) above, and

• (b) which ends when the person or company (as the case may be) ceased asmentioned in sub-paragraph (3)(b) above.

• (7) The trust deed must not provide for a person to be a beneficiary unlesshe falls within any rule which is included in the deed and conforms withsub-paragraph (2) , (2A), (3) or (4) above.

• (8) The trust deed must provide that, notwithstanding any other rule which isincluded in it, a person cannot be a beneficiary at a particular time (therelevant time) by virtue of a rule which conforms with sub-paragraph (2), (3) or (4) above if—

• (a) at that time he has a material interest in the founding company, or

• (b) at any time in the period of one year preceding the relevant time he hashad a material interest in that company.

• (9) For the purposes of this paragraph a company falls within the foundingcompany’s group at a particular time if—

• (a) it is at that time resident in the United Kingdom, and

• (b) it is the founding company or it is at that time controlled by thefounding company.

• (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trustees’ functions

5

• (1) The trust deed must contain provision as to the functions of the trustees.

• (2) The functions of the trustees must be so expressed that it is apparentthat their general functions are—

• (a) to receive sums from the founding company and other sums (by way of loanor otherwise);

• (b) to acquire securities;

• (c) to transfer securities or sums (or both) to persons who are beneficiariesunder the terms of the trust deed;

• (cc) to grant rights to acquire shares to persons who are beneficiaries under the terms of the trust deed;

• (d) to transfer securities to the trustees of profit sharing schemes approvedunder Schedule 9 to the Taxes Act 1988, for a price not less than the pricethe securities might reasonably be expected to fetch on a sale in the openmarket;

• (e) pending transfer, to retain the securities and to manage them (whether byexercising voting rights or otherwise).

Sums

6

• (1) The trust deed must require that any sum received by the trustees—

• (a) must be expended within the relevant period,

• (b) may be expended only for one or more of the qualifying purposes, and

• (c) must, while it is retained by them, be kept as cash or be kept in anaccount with a bank or building society.

• (2) For the purposes of sub-paragraph (1) above the relevant period is theperiod of nine months beginning with the day found as follows—

• (a) in a case where the sum is received from the founding company, or acompany which is controlled by that company at the time the sum is received,the day following the end of the period of account in which the sum is chargedas an expense of the company from which it is received;

• (b) in any other case, the day the sum is received.

• (3) For the purposes of sub-paragraph (1) above each of the following is aqualifying purpose—

• (a) the acquisition of shares in the founding company;

• (b) the repayment of sums borrowed;

• (c) the payment of interest on sums borrowed;

• (d) the payment of any sum to a person who is a beneficiary under the termsof the trust deed;

• (e) the meeting of expenses.

• (4) The trust deed must provide that, in ascertaining for the purposes of arelevant rule whether a particular sum has been expended, sums receivedearlier by the trustees shall be treated as expended before sums received bythem later; and a relevant rule is one which is included in the trust deed andconforms with sub-paragraph (1) above.

• (5) The trust deed must provide that, where the trustees pay sums to differentbeneficiaries at the same time, all the sums must be paid on similar terms.

• (6) For the purposes of sub-paragraph (5) above, the fact that terms varyaccording to the levels of remuneration of beneficiaries, the length of theirservice, or similar factors, shall not be regarded as meaning that the termsare not similar.

Securities

7

• (1) Subject to paragraph 8 below, the trust deed must provide that securitiesacquired by the trustees must be shares in the founding company which—

• (a) form part of the ordinary share capital of the company,

• (b) are fully paid up,

• (c) are not redeemable, and

• (d) are not subject to any restrictions other than restrictions which attachto all shares of the same class or a restriction authorised by sub-paragraph(2) below.

• (2) Subject to sub-paragraph (3) below, a restriction is authorised by thissub-paragraph if—

• (a) it is imposed by the founding company’s articles of association,

• (b) it requires all shares held by directors or employees of the foundingcompany, or of any other company which it controls for the time being, to bedisposed of on ceasing to be so held, and

• (c) it requires all shares acquired, in pursuance of rights or interestsobtained by such directors or employees, by persons who are not (or haveceased to be) such directors or employees to be disposed of when they areacquired.

• (3) A restriction is not authorised by sub-paragraph (2) above unless—

• (a) any disposal required by the restriction will be by way of sale for aconsideration in money on terms specified in the articles of association, and

• (b) the articles also contain general provisions by virtue of which any persondisposing of shares of the same class (whether or not held or acquired asmentioned in sub-paragraph (2) above) may be required to sell them on termswhich are the same as those mentioned in paragraph (a) above.

• (4) The trust deed must provide that shares in the founding company may notbe acquired by the trustees at a price exceeding the price they mightreasonably be expected to fetch on a sale in the open market.

• (5) The trust deed must provide that shares in the founding company may notbe acquired by the trustees at a time when that company is controlled byanother company.

8

The trust deed may provide that the trustees may acquire securities otherthan shares in the founding company—

• (a) if they are securities issued to the trustees in exchange in circumstancesmentioned in section [135(1) of the Taxation of Chargeable Gains Act1992], or

• (b) if they are securities acquired by the trustees as a result of areorganisation, and the original shares the securities represent are sharesin the founding company (construing “reorganisation” and “originalshares” in accordance with section 126 of that Act).

9

• (1) The trust deed must provide that—

• (a) where the trustees transfer securities to a beneficiary, they must do soon qualifying terms;

• (b) the trustees must transfer securities before the expiry of the qualifying period beginning with the date on which they acquired them.

• (2) For the purposes of sub-paragraph (1) above a transfer of securities ismade on qualifying terms if—

• (a) all the securities transferred at the same time other than those transferred on a transfer such as is mentioned in sub-paragraph (2ZA) below are transferred on similarterms,

• (b) securities have been offered to all the persons who are beneficiariesunder the terms of the trust deed by virtue of a rule which conforms with paragraph 4(2), (3) or (4) above when the transfer is made, and

• (c) securities are transferred to all such persons who have accepted.

• (2ZA) For the purposes of sub-paragraph (1) above a transfer of securities is also made on qualifying terms if—

• (a) it is made to a person exercising a right to acquire shares, and

• (b) that right was obtained in accordance with the provisions of an SAYE option scheme—

• (i) which was established by, or by a company controlled by, the founding company, and

• (ii) which is approved under Schedule 3 to the Income Tax (Earnings and Pensions) Act 2003, and

• (c) that right is being exercised in accordance with the provisions of that scheme, and

• (d) the consideration for the transfer is payable to the trustees.