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Income Tax (Earnings and Pensions) Act 2003

Type Public General Act

Publication 2003-03-06

Last updated 2026-03-15

State In force

Department Statute Law Database

Source legislation.gov.uk

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(4) Subsection (3) does not apply to any statutory instrument made under section 24A(11) (assumptions about related employments), section 270AA(3) (exemption from income tax for qualifying childcare vouchers: meaning of “eligible employee”), section 318AZA(3) (exemption from income tax for other care: meaning of “eligible employee”),section 323C(1) (trivial benefits provided by employers), section 343(3) (deduction for professional membership fees: order adding certain fees) or section 688A(7) (PAYE regulations: managed service companies) or to which section 312A(10) (reduction of tax-exempt amount in respect of certain bonus payments) , section 402D(10) (meaning of basic pay for purpose of calculating charge on termination award), section 404B(4) (reduction of tax-free threshold for employment-termination etc payments) or section 681F(3) (variation of income limit etc for high income child benefit charge: orders increasing liability to tax) applies .

Interpretation

Connected persons

718

Section 993 of ITA 2007 (how to tell whether persons are connected) applies for the purposes of this Act.

Control in relation to a body corporate

719

Section 995 of ITA 2007 (meaning of “control”) applies for the purposes of this Act, unless otherwise indicated.

Meaning of “the Inland Revenue” etc.

720

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other definitions

721

(1) In this Act—

“cash voucher” has the same meaning as in Chapter 4 of Part 3 (see section 75),

“the Contributions and Benefits Act” means SSCBA 1992 or SSCB(NI)A 1992;

“credit-token” has the same meaning as in Chapter 4 of Part 3 (see section 92),

“foreign employer” means an individual, partnership or body of persons resident outside, and not resident in, the United Kingdom,

“non-cash voucher” has the same meaning as in Chapter 4 of Part 3 (see section 84),

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) Any reference in this Act to being domiciled in the United Kingdom is to be read as a reference to being domiciled in any part of the United Kingdom.

(4) For the purposes of this Act the following are members of a person’s family—

(a) the person’s spouse or civil partner,

(b) the person’s children and their spouses or civil partners,

(d) the person’s dependants.

(5) For the purposes of this Act the following are members of a person’s family or household—

(a) members of the person’s family,

(b) the person’s domestic staff, and

(6) The following provisions (which relate to the legal equality of illegitimate children) are to be disregarded in interpreting references in this Act to a child or children—

(a) section 1 of the Family Law Reform Act 1987 (c. 42);

(b) the paragraph inserted in Schedule 1 to the Interpretation Act 1978 (c. 30) by paragraph 73 of Schedule 2 to the 1987 Act;

(d) Article 155 of the Children (Northern Ireland) Order 1995 (S.I. 1995/755 (N.I. 2)).

(7) In the employment income Parts any reference to earnings which is not limited by the context—

(a) to earnings within Chapter 1 of Part 3, or

(b) to any other particular description of earnings,

includes a reference to any amount treated as earnings by any of the provisions mentioned in section 7(5) (meaning of “employment income” etc.).

Amendments, repeals, citation etc.

Consequential amendments

722

Schedule 6 contains consequential amendments.

Commencement and transitional provisions and savings

723

(1) This Act comes into force on 6th April 2003 and has effect—

(a) for the purposes of income tax, for the tax year 2003-04 and subsequent tax years, and

(b) for the purposes of corporation tax, for accounting periods ending after 5th April 2003.

(2) Subsection (1) is subject to Schedule 7, which contains transitional provisions and savings.

Repeals and revocations

724

(1) The enactments specified in Part 1 of Schedule 8 (which include certain spent provisions) are repealed to the extent specified.

(2) The instruments specified in Part 2 of that Schedule are revoked to the extent specified.

Citation

725

This Act may be cited as the Income Tax (Earnings and Pensions) Act 2003.

SCHEDULE 1

Part 1 — Abbreviations of Acts and instruments

Part 2 — Index of expressions defined in this Act or ICTA

Note: this index does not apply to expressions used in any of Chapters 6 to 9 of Part 7 (share incentive plans and other arrangements for acquiring shares): separate indexes appear at the end of Schedules 2 to 5.

SCHEDULE 2

Part 1 — Introduction

1

(A1) For the purposes of the SIP code a share incentive plan (a “SIP”) is a Schedule 2 SIP if the requirements of Parts 2 to 9 of this Schedule are met in relation to the SIP.

(3) The requirements consist of general requirements (see Part 2) and requirements as to—

the eligibility of individuals (see Part 3),

the types of shares that may be awarded (see Part 4),

free shares (see Part 5),

partnership shares (see Part 6),

matching shares (see Part 7),

cash dividends and dividend shares (see Part 8), and

the trustees (see Part 9).

(4) Sub-paragraph (A1) is subject to Part 10 of this Schedule which—

(a) requires notice of a plan to be given to Her Majesty's Revenue and Customs (“HMRC”) in order for the plan to be a Schedule 2 SIP (see paragraph 81A(1)),

(b) provides for a plan in relation to which such notice is given to be a Schedule 2 SIP (see paragraph 81A(4)), and

(c) gives power to HMRC to enquire into a plan and to decide that the plan should not be a Schedule 2 SIP (see paragraphs 81F to 81I).

(5) Sub-paragraph (A1) is also subject to Part 10A of this Schedule (disqualifying events).

SIPs: free shares and partnership shares

2

(1) In the SIP code a “share incentive plan” (or “SIP” for short) means (in accordance with section 488(4)) a plan established by a company providing—

(a) for shares to be appropriated to employees without payment (“free shares”), or

(b) for shares to be acquired on behalf of employees out of sums deducted from their salary (“partnership shares”).

(2) In the SIP code, in relation to a SIP—

“the company” means the company which established the plan;

“plan requirements” means requirements applying to the plan;

“the trustees” means the body of persons established under Part 9 to exercise functions in connection with the plan.

Matching shares

3

(1) A SIP that provides for partnership shares may also provide for shares to be appropriated without payment to employees in proportion to the partnership shares acquired by them (“matching shares”).

(2) If a SIP contains provision for all, or more than one, of the following—

free shares,

partnership shares, and

matching shares,

Group plans

4

(1) A SIP established by a company that controls other companies (a “parent company”) may extend to all or any of those other companies.

(2) In the SIP code a SIP established by a parent company which so extends is referred to as a “group plan”.

(3) In relation to a group plan a “constituent company” means—

(a) the parent company, or

(b) any other company to which for the time being the plan is expressed to extend.

(4) Paragraph 91 deals with jointly owned companies and companies controlled by them.

Meaning of “award of shares”, “participant” etc.

5

(1) For the purposes of the SIP code an “award of shares” is made under a SIP on each occasion when in accordance with the plan—

(a) free or matching shares are appropriated to employees, or

(b) partnership shares are acquired on behalf of employees.

(2) Accordingly, references to shares awarded to an individual under a SIP are to—

(a) free or matching shares appropriated to the individual, or

(b) partnership shares acquired on the individual’s behalf,

under the plan.

(3) For the purposes of the SIP code an individual participates in an award of free, matching or partnership shares under a SIP if shares included in that award are—

(a) in the case of an award of free or matching shares, appropriated to the individual, or

(b) in the case of an award of partnership shares, acquired on the individual’s behalf.

(4) In the SIP code, in relation to a SIP, “participant” means an individual to whom shares have been awarded under the plan.

Part 2 — General requirements

General requirements for approval: introduction

6

(1) A SIP must meet the plan requirements contained in—

paragraph 7 (the purpose of the plan),

paragraph 8 (all-employee nature of plan),

paragraph 9 (participation on same terms),

paragraph 10 (no preferential treatment for directors and senior employees),

paragraph 11 (no further conditions), and

paragraph 12 (no loan arrangements).

(2) The requirements of this Part are also to be taken to include the requirements of paragraphs 89 and 90 (plan termination notices etc).

The purpose of the plan

7

(1) The purpose of the plan must be to provide, in accordance with this Schedule, benefits to employees in the form of shares in a company which give them a continuing stake in that company.

(1A) The plan must not provide benefits to employees otherwise than in accordance with this Schedule.

(1B) For example, the plan must not provide cash to employees as an alternative to shares.

(1C) Sub-paragraph (1A) does not prohibit an employee receiving a benefit from a company as a result of any shares in that company being held on the employee's behalf under the plan where the employee would have received the same benefit from the company had the shares been acquired by the employee otherwise than by virtue of the plan.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

All-employee nature of plan

8

(1) The plan must provide that every employee who—

(a) meets the requirements of Part 3 of this Schedule (eligibility of individuals) in relation to an award of shares under the plan, and

(b) is a UK resident taxpayer,

is eligible to participate in the award, and is invited to do so.

(2) An employee is a UK resident taxpayer if—

(a) the employee's earnings from the employment by reference to which the employee meets the employment requirement are (or would be if there were any) general earnings to which section 15 applies (earnings for year when employee UK resident) ...

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) The plan must not contain any feature which has or is likely to have the effect of discouraging any description of employees within sub-paragraph (1) from participating in an award of shares under the plan.

(4) Sub-paragraph (3) does not apply to any provision required or authorised by this Schedule.

(5) The plan may provide that an employee who—

(a) meets the requirements of Part 3 of this Schedule (eligibility of individuals) in relation to an award of shares under the plan, but

(b) is not a UK resident taxpayer (see sub-paragraph (2)),

is eligible to participate in the award, and may be invited to do so.

(6) For the purposes of the SIP code an individual is a “qualifying employee”, in relation to an award of shares, if the individual—

(a) is eligible to participate in it under sub-paragraph (1), or

(b) is eligible to participate in it under sub-paragraph (5) and has been invited to do so.

Participation on same terms

9

(1) The requirement of this paragraph is that—

(a) every employee who is invited to participate in an award must be invited to participate on the same terms, and

(b) those who do participate must actually do so on the same terms.

(2) The requirement of this paragraph is infringed by the awarding of free shares by reference to factors other than those mentioned in sub-paragraph (3).

(3) The requirement of this paragraph is not infringed by the awarding of free shares by reference to—

(a) an employee’s remuneration,

(b) an employee’s length of service, or

but this is subject to sub-paragraph (4).

(4) If the awarding of free shares is by reference to more than one of the factors mentioned in sub-paragraph (3), the requirement of this paragraph is infringed unless—

(a) each factor gives rise to a separate entitlement related to the level of remuneration, length of service or (as the case may be) hours worked, and

(b) the total entitlement is the sum of those separate entitlements.

(5) In the case of an award of free shares which provides for performance allowances, this paragraph has effect as provided in—

(a) paragraph 41 (performance allowances: method one), or

(b) paragraph 42 (performance allowances: method two).

(6) In sub-paragraph (5) “performance allowances” has the meaning given in paragraph 34(4).

(7) In the case of an award of partnership shares, the requirement of this paragraph is not infringed by the operation of any percentage limit specified in or under paragraph 46(2) or (3) (maximum amount of deductions) so far as the application of that limit to employees with different levels of remuneration results in deductions of different amounts or in the award of different numbers of shares.

No preferential treatment for directors and senior employees

10

(1) The first requirement of this paragraph is that no feature of the plan has or is likely to have the effect of conferring benefits wholly or mainly—

(a) on directors, or

(b) on employees receiving the higher or highest levels of remuneration.

(2) The second requirement of this paragraph applies only if the plan is established by a company that is a member of a group.

(3) The requirement is that the identity of the company (or, if it is a group plan, the constituent companies) must not be such that the plan has or is likely to have the effect of conferring benefits wholly or mainly—

(a) on employees of companies that are members of the group who receive the higher or highest levels of remuneration, or

(b) on directors of such companies.

(4) The requirements of this paragraph are not infringed by the awarding of free shares in circumstances where (as a result of paragraph 9(3) and (4)) that would not constitute an infringement of the requirements of paragraph 9.

No further conditions

11

No conditions apart from those required or authorised by this Schedule may be imposed on an employee’s participation in an award of shares under the plan.

No loan arrangements

12

(1) The arrangements for the plan must not make any provision, or be associated in any way with any provision made, for loans to some or all of the employees of—

(a) the company, or

(b) in the case of a group plan, of any constituent company.

(2) The operation of the plan must not be associated in any way with such loans.

(3) In sub-paragraph (1) “arrangements” includes any scheme, agreement, undertaking or understanding, whether or not legally enforceable.

Part 3 — Eligibility of individuals

Eligibility of individuals: introduction

13

A SIP must meet the plan requirements contained in—

paragraph 14 (time of eligibility to participate),

paragraph 15 (the employment requirement),

paragraph 18 (requirement not to participate simultaneously in connected SIPs), and paragraph 18A (successive participation in connected SIPs)

Time of eligibility to participate

14

(1) The plan must provide that an individual may only participate in an award of shares if the individual is eligible to participate in the award at the appropriate time mentioned below.

(2) In the case of an award of free shares, the appropriate time is the time when the award is made.

(3) In the case of an award of partnership shares where the plan does not provide for an accumulation period, the appropriate time is the time of the deduction of the partnership share money relating to the award.

(4) In the case of an award of partnership shares where the plan does provide for an accumulation period, the appropriate time is the time of the first deduction of partnership share money relating to the award.

(5) In the case of an award of matching shares where the plan does not provide for an accumulation period, the appropriate time is the time of the deduction of the partnership share money relating to the award of partnership shares to which the matching shares relate.

(6) In the case of an award of matching shares where the plan does provide for an accumulation period, the appropriate time is the time of the first deduction of partnership share money relating to the award of partnership shares to which the matching shares relate.

(7) For the purposes of this paragraph an individual is eligible to participate in an award of shares under the plan if and only if the requirements of the plan are met as to—

(a) employment (see paragraph 15),

(b) not participating simultaneously in connected SIPs (see paragraph 18), and

(ba) successive participation in connected SIPs (see paragraph 18A), ...

(8) In the case of an individual within paragraph 8(5) (all-employee nature of plan: non-UK resident taxpayer), the individual is not eligible to participate in an award of shares under the plan unless (in addition to the requirements mentioned in sub-paragraph (7)) any further eligibility requirements of the plan are met.

The employment requirement

15

(1) The plan must provide that an individual is not eligible to participate in an award of shares unless the individual meets the requirement in sub-paragraph (2).

(2) The requirement is that the individual—

(a) is an employee of—

(i) the company, or

(ii) in the case of a group plan, a constituent company, and

(b) if the plan provides for a qualifying period, has at all times during that period been an employee of a qualifying company.

(3) In the SIP code “the employment requirement” means the requirement in sub-paragraph (2).

(4) This paragraph is supplemented—

(a) as regards qualifying periods, by paragraph 16, and

(b) as regards the meaning of “qualifying company”, by paragraph 17.

Qualifying periods

16

(1) This paragraph applies if the plan provides for a qualifying period in relation to an award.

(2) In the case of an award of free shares, the qualifying period must be a period of not more than 18 months ending with the date on which the award is made.

(3) In the case of an award of partnership shares where the plan does not provide for an accumulation period, the qualifying period must be a period of not more than 18 months ending with the deduction of partnership share money relating to the award.

(4) In the case of an award of partnership shares where the plan does provide for an accumulation period, the qualifying period must be a period of not more than 6 months ending with the start of the accumulation period relating to the award.

(5) In the case of an award of matching shares where the plan does not provide for an accumulation period, the qualifying period must be a period of not more than 18 months ending with the deduction of partnership share money relating to the award of partnership shares to which the matching shares relate.

(6) In the case of an award of matching shares where the plan does provide for an accumulation period, the qualifying period must be a period of not more than 6 months ending with the start of the accumulation period relating to the award of partnership shares to which the matching shares relate.

(7) In relation to an award, the same qualifying period must apply in relation to all employees—

(a) of the company, or

(a) in the case of a group plan, of the constituent companies.

(8) The plan may authorise the company to specify different qualifying periods in respect of different awards of shares, but the requirements in sub-paragraphs (2) to (7) apply to periods so specified.

Meaning of “qualifying company”

17

(1) For the purposes of paragraph 15(2) “qualifying company” has the meaning given by this paragraph.

(2) Except in the case of a group plan, “qualifying company” means—

(a) the company, or

(b) a company that, when the individual was employed by it, was an associated company—

(i) of the company, or

(ii) of another company qualifying under this paragraph.

(3) In the case of a group plan, “qualifying company” means—

(a) a company that is a constituent company at the end of the qualifying period mentioned in paragraph 15(2),

(b) a company that, when the individual was employed by it, was a constituent company, or

(i) (i)a company qualifying under paragraph (a) or (b), or

(ii) another company qualifying under this paragraph.

Requirement not to participate in other SIPs

18

(1) The plan must provide that an individual is not eligible to participate in an award of free, matching or partnership shares under the plan in a tax year if the individual—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) is at the same time to participate, in an award of shares under another Schedule 2 SIP established by the company or a connected company.

(2) For the purposes of this paragraph an individual is to be treated as having participated in an award of free shares under a SIP if the individual would have participated in that award but for the individual’s failure to obtain a performance allowance (see paragraph 34).

(3) In this paragraph “connected company” means— (a)a company which controls or is controlled by the company or which is controlled by a company which also controls the company, or (b)a company which is a member of a consortium owning the company or which is owned in part by the company as a member of a consortium.

The “no material interest” requirement

19

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Meaning of “material interest”

20

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Material interest: options and interests in SIPs

21

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Meaning of “associate”

22

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Meaning of “associate”: trustees of employee benefit trust

23

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Meaning of “associate”: trustees of discretionary trust

24

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Part 4 — Types of shares that may be awarded

25

(1) The requirements of the following paragraphs must be met with respect to any shares that may be awarded under a SIP—

paragraph 26 (shares must be part of ordinary share capital of certain companies),

paragraph 27 (requirement as to listing etc.),

paragraph 28 (shares must be fully paid up and not redeemable), and

paragraph 29 (prohibited shares)

(2) In this Part of this Schedule “eligible shares” means shares that may be awarded under the plan.

26

Eligible shares must form part of the ordinary share capital of—

(a) the company,

(b) a company which has control of the company, or

(c) a company which either is, or has control of, a company which is a member of a consortium owning either the company or a company having control of the company.

Requirement as to listing etc.

27

(1) Eligible shares must be—

(a) shares of a class listed on a recognised stock exchange,

(b) shares in a company which is not under the control of another company, ...

(ba) shares in a company which is subject to an employee-ownership trust, or

(2) A “listed company” is a company whose shares are listed on a recognised stock exchange, other than—

(a) a close company, or

(b) a company that would be a close company if resident in the United Kingdom.

(3) But a company is not a close company for the purposes of sub-paragraph (2) if it is subject to an employee-ownership trust.

(4) A company (“C”) is “subject to an employee-ownership trust” if—

(a) C meets the trading requirement set out in section 312D,

(b) C meets the indirect employee-ownership requirement,

(d) C is not under the control of another company (ignoring for this purpose another company acting in its capacity as the trustee of the settlement by virtue of which C meets the indirect employee-ownership requirement).

(5) Section 312E (the indirect employee-ownership requirement) applies for the purposes of sub-paragraph (4), subject to the following modifications—

(a) subsection (3) of that section has effect as if—

(i) the words “during the qualifying period” were omitted, and

(ii) in paragraph (a) for “10 December 2013” there were substituted “ 1 October 2014 ”, and

(b) subsection (4) has effect as if for paragraph (b) there were substituted—

(b) section 236L of that Act applies as if the reference in subsection (1)(c) of that section to the period of 12 months ending with the time in question were a reference to any time on or after 1 October 2014.

(6) Section 312G (meaning of “service company”) applies for the purposes of sub-paragraph (4)(c), subject to the following modifications—

(a) in subsection (3)(b), the reference to the company which makes the payment is to be read as a reference to C,

(b) in subsection (4)(a), the reference to the time the payment is made is to be read as a reference to any time, and

(c) in subsection (4)(b), the reference to any time before the time the payment is made is to be read as a reference to any time.

Shares must be fully paid up and not redeemable

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 co-operative society.

(5) In sub-paragraph (4) “registered co-operative society” means—

(a) a society registered as a co-operative society under the Co-operative and Community Benefit Societies Act 2014,

(b) a pre-commencement society (within the meaning of that Act) that is a co-operative society within the meaning of section 2 of that Act,

(c) a society registered or deemed to be registered under the Industrial and Provident Societies Act (Northern Ireland) 1969 that is a co-operative society within the meaning of section 1 of that Act , or

(d) an SCE formed in accordance with Council Regulation (EC) No 1435/2003 on the Statute for a European Cooperative Society.

Prohibited shares

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 sections 450 and 451 of CTA 2010.

Only certain kinds of restriction allowed

30

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Permitted restrictions: voting rights

31

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Permitted restrictions: provision for forfeiture

32

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Permitted restrictions: pre-emption conditions

33

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Part 5 — Free shares

Free shares: introduction

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.

Maximum annual award

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 £3,600 .

(2) The “initial market value” of shares means their market value on the date on which they are awarded.

(2A) The Treasury may by order amend sub-paragraph (1) by substituting for any amount for the time being specified there an amount specified in the order.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The holding period

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

(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.

Holding period: power of participant to direct trustees to accept general offers etc.

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 a Schedule 2 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 sections 450 and 451 of CTA 2010.

(7) For the purposes of sub-paragraph (5) it does not matter if the general offer is made to different shareholders by different means.

(8) If in the case of a takeover offer (as defined in section 974 of the Companies Act 2006) there arises a right under section 983 of that Act to require the offeror to acquire the participant's free shares, or such of them as are of a particular class, the participant may direct the trustees to exercise that right.

Performance allowances: general application

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.

Performance allowances: targets and measures

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.

Performance allowances: information to be given to employees

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.

Performance allowances: method one

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.

Performance allowances: method two

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.

Part 6 — Partnership shares

Partnership shares: introduction

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.

(2A) The plan must provide that partnership shares are not to be subject to any provision for forfeiture.

(2B) Partnership shares may (notwithstanding sub-paragraph (2A) if relevant) be subject to provision requiring partnership shares acquired on behalf of an employee to be offered for sale but only if the requirement of sub-paragraph (2C) is met.

(2C) The consideration at which the shares are required to be offered for sale must be at least equal to—

(a) the amount of partnership share money applied in acquiring the shares on behalf of the employee, or

(b) if lower, the market value of the shares at the time they are offered for sale.

(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.

Deductions from salary

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.

Maximum amount of deductions

46

(1) The amount of partnership share money deducted from an employee’s salary must not exceed £1,800 in any tax year.

(2) The amount of partnership share money deducted from an employee’s salary for any tax year must not exceed 10% of the employee’s salary for the tax year.

(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.

(4A) A limit lower than that specified in sub-paragraph (2) may be framed—

(a) as a proposition substituting a percentage lower than that so specified, or

(b) as a proposition that a particular description of earnings is not to be regarded as forming part of an employee’s salary for the purposes of that sub-paragraph.

(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.

(6) The Treasury may by order amend sub-paragraph (1) by substituting for any amount for the time being specified there an amount specified in the order.

Minimum amount of deductions

47

(1) The plan may provide that the amount to be deducted under a partnership share agreement on any occasion must not be less than a minimum amount specified in the plan.

(2) The specified minimum amount must not be greater than £10.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notice of possible effect of deductions on benefit entitlement

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 , statutory neonatal care pay and statutory maternity pay.

(3) In this paragraph “prescribed” means prescribed by regulations made by the Commissioners for Her Majesty’s Revenue and Customs.

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 991(2)(b) of ITA 2007 (certain institutions permitted to accept deposits),

(b) a building society, or

(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.

Application of money deducted where no accumulation periods

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.

Accumulation periods

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.

Application of money deducted in accumulation period

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.

(2A) The number of shares awarded to the employee must be determined in accordance with one of sub-paragraphs (3), (3A) and (3B) and the partnership share agreement must specify which one of those sub-paragraphs is to apply for the purposes of the agreement.

(3) If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the 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.

(3A) If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the employee must be determined in accordance with the market value of the shares at the beginning of the accumulation period.

(3B) If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the employee must be determined in accordance with the market value of the shares on the acquisition date.

(4) Sub-paragraphs (2) to (3B) are subject to sub-paragraphs (7) and (8) and to paragraph 53 (restriction on number of shares awarded).

(5) In sub-paragraphs (2) to (3B) “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.

Restriction on number of shares awarded

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.

Stopping and re-starting deductions

54

(1) The plan must provide that an employee may at any time give notice to the company to stop deductions under a partnership share agreement.

(2) The plan must provide that, unless a later date is specified in the notice, the company must, on receiving a notice within sub-paragraph (1), ensure within 30 days after receipt of the notice that no further deductions are made by it under the partnership share agreement.

(3) The plan must also provide that an employee who has stopped deductions—

(a) may subsequently give notice to the company to re-start deductions under the agreement, but

(b) may not make up deductions that have been missed.

(4) If the plan makes provision for one or more accumulation periods, it may prevent an employee re-starting deductions more than once in any accumulation period.

(5) The plan must provide that, unless a later date is specified in the notice, the company must, on receiving a notice within sub-paragraph (3), re-start deductions under the partnership share agreement not later than the re-start date.

(6) “The re-start date” means the date of the first deduction due under the partnership share agreement more than 30 days after receipt of the notice under sub-paragraph (3).

(7) In this paragraph “notice” means notice in writing.

55

(1) The plan must provide that an employee may at any time give notice to the company of the employee’s withdrawal from a partnership share agreement.

(2) The plan must provide that, unless a later date is specified in the notice, a notice of withdrawal takes effect 30 days after it is received by the company.

(3) The plan must provide that, where an employee withdraws from a partnership share agreement, any partnership share money held on behalf of the employee is to be paid over to the employee as soon as practicable.

(4) In this paragraph “notice” means notice in writing.

56

(1) The plan must provide that, where the plan is not to be a Schedule 2 SIP by virtue of paragraph 81H or 81I, any partnership share money held on behalf of an employee is to be paid over to the employee.

(2) The plan must require the payment to be made as soon as practicable after the relevant day.

(2A) If the plan is not to be a Schedule 2 SIP by virtue of paragraph 81H, in sub-paragraph (2) “the relevant day” means—

(a) the last day of the period in which notice of an appeal under paragraph 81K(2)(a) may be given, or

(b) if notice of such an appeal is given, the day on which the appeal is determined or withdrawn.

(2B) If the plan is not to be a Schedule 2 SIP by virtue of paragraph 81I, in sub-paragraph (2) “the relevant day” means—

(a) the last day of the period in which notice of an appeal under paragraph 81K(3) may be given, or

(b) if notice of such an appeal is given, the day on which the appeal is determined or withdrawn.

(3) The plan must provide that, where a plan termination notice is issued in respect of the plan (see paragraph 90), any partnership share money held on behalf of an employee is to be paid over to the employee.

(4) The plan must require the payment to be made as soon as practicable after the plan termination notice is notified to the trustees under paragraph 89(2).

Access to partnership shares

57

(1) The plan must provide that when partnership shares have been awarded to an employee, the employee may at any time withdraw any or all of the partnership shares from the plan.

(2) If the employee does so, there may be a charge to tax by virtue of section 506 (charge on partnership shares ceasing to be subject to plan).

Part 7 — Matching shares

Matching shares: introduction

58

If a SIP provides for matching shares it must meet the plan requirements contained in—

paragraph 59 (general requirements for matching shares),

paragraph 60 (ratio of matching shares to partnership shares), and

paragraph 61 (holding period for matching shares).

General requirements for matching shares

59

(1) The plan must provide for the matching shares to be—

(a) shares of the same class and carrying the same rights as the partnership shares to which they relate;

(b) awarded on the same day as the partnership shares to which they relate are awarded; and

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ratio of matching shares to partnership shares

60

(1) The partnership share agreement must specify—

(a) the ratio of matching shares to partnership shares for the time being offered by the company, and

(b) the circumstances and manner in which the ratio may be changed by the company.

(2) The ratio must not exceed 2:1 and must be applied by reference to the number of shares.

(3) A partnership share agreement must provide for the employee to be informed by the company if the ratio offered by the company changes before partnership shares are awarded to the employee under the agreement.

(4) The Treasury may by order amend sub-paragraph (2) by substituting for any ratio for the time being specified there a ratio specified in the order.

Holding period for matching shares

61

Paragraphs 36 and 37 (the holding period and related matters) apply in relation to matching shares as they apply in relation to free shares.

Part 8 — Cash dividends and dividend shares

Reinvestment of cash dividends

62

(1) A SIP may provide that, where the company so directs, the trustees must apply some or all of the cash dividends in respect of plan shares held on behalf of—

(a) all participants, or

(b) all participants who elect to reinvest their dividends,

in acquiring further shares on their behalf.

(1A) The company's direction must set out—

(a) the amount of the cash dividends to be applied as mentioned in sub-paragraph (1), or

(b) how that amount is to be determined.

(2) Sub-paragraph (1) is subject to paragraph 63 (requirements to be met as regards cash dividends).

(3) In the SIP code—

(a) the application of cash dividends as mentioned in sub-paragraph (1) is referred to as “reinvestment”; and

(b) the further plan shares acquired are referred to as “dividend shares”.

(4) The company may modify or revoke a direction requiring the reinvestment of cash dividends.

(5) References in the SIP code to the trustees acquiring dividend shares on behalf of a participant include their appropriating to a participant shares already held by them.

Requirements to be met as regards cash dividends

63

(1) If a SIP makes the provision authorised by paragraph 62(1) (reinvestment of cash dividends), the following paragraphs apply—

paragraph 65 (general requirements as to dividend shares),

paragraph 66 (acquisition of dividend shares),

paragraph 67 (holding period for dividend shares), and

paragraph 68 (reinvestment: amounts to be carried forward).

(2) The plan must meet any plan requirements contained in those paragraphs.

(3) A SIP must in any event meet the plan requirement contained in paragraph 69 (cash dividends not required to be reinvested).

Limit on amount reinvested

64

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

General requirements as to dividend shares

65

(1) The plan must provide that dividend shares are to be shares—

(a) which are in the same company and of the same class, and carry the same rights, as the shares in respect of which the dividend is paid, and

(b) which are not subject to any provision for forfeiture.

(2) Dividend shares may (notwithstanding sub-paragraph (1)(b) if relevant) be subject to provision requiring dividend shares acquired on behalf of an employee to be offered for sale but only if the requirement of sub-paragraph (3) is met.

(3) The consideration at which the shares are required to be offered for sale must be at least equal to—

(a) the amount of the cash dividends applied in acquiring the shares on behalf of the employee, or

(b) if lower, the market value of the shares at the time they are offered for sale.

Acquisition of dividend shares

66

(1) The plan must provide that the trustees must treat participants fairly and equally in exercising their powers in relation to the acquisition of dividend shares.

(2) The plan must provide for the trustees to acquire dividend shares on behalf of participants on the acquisition date.

(3) The number of dividend shares acquired on behalf of each participant must be determined in accordance with the market value of the shares on the acquisition date.

(4) In this paragraph “the acquisition date” means the date set by the trustees for the acquisition of dividend shares and falling not later than 30 days after the dividend is received by them.

Holding period for dividend shares

67

Paragraphs 36 and 37 (the holding period and related matters) apply in relation to dividend shares as they apply in relation to free shares, except that the holding period must be 3 years.

Reinvestment: amounts to be carried forward

68

(1) This paragraph applies where an amount is not reinvested because it is not sufficient to acquire a share.

(2) The amount may be retained by the trustees and carried forward to be added to the amount of the next cash dividend to be reinvested.

(3) If so retained, the trustees must hold the amount so as to be separately identifiable for the purposes of sub-paragraphs (4) and (5).

(4) An amount retained under this paragraph must be paid over to the participant—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) if ... the participant ceases to be in relevant employment (see paragraph 95), or

(5) An amount required to be paid over to the participant under sub-paragraph (4) must be paid over as soon as practicable.

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash dividends where no requirement to reinvest

69

(1) The plan must require any distributable cash dividends in respect of plan shares held on behalf of a participant to be paid over to the participant as soon as practicable.

(2) “Distributable cash dividends” means cash dividends so far as they are not required to be reinvested under the plan.

Part 9 — Trustees

Requirements etc. relating to trustees: introduction

70

(1) A SIP must meet the plan requirements contained in—

paragraph 71(1) and (2) (establishment of trustees), and

paragraph 79 (meeting by trustees of PAYE obligations).

(2) The following provisions also relate to the trustees—

paragraph 71(3) to (6) (the trust instrument and classes of trustees)

paragraph 72 (duty to act in accordance with participant’s directions),

paragraph 73 (duty not to dispose of plan shares),

paragraph 74 (duty to make payments to participants),

paragraph 75 (duty to give notice of award of shares etc.),

paragraph 76 (power to borrow),

paragraph 77 (power to raise funds to subscribe for rights issue), and

paragraph 80 (other duties in relation to tax liabilities).

Establishment of trustees

71

(1) The plan must provide for the establishment of a body of trustees consisting of persons resident in the United Kingdom (“the trustees”).

(2) The plan must provide that the trustees are required—

(a) in the case of free or matching shares, to acquire shares and appropriate them to employees in accordance with the plan,

(b) in the case of partnership shares, to apply partnership share money in acquiring shares on behalf of employees in accordance with the plan, and

(c) in the case of dividend shares, to apply cash dividends in acquiring shares on behalf of participants in accordance with the plan.

(3) The functions of the trustees with respect to shares held by them must be regulated by a trust (“the plan trust”)—

(a) which is constituted under the law of a part of the United Kingdom, and

(b) the terms of which are embodied in an instrument which complies with the requirements of this Part of this Schedule (“the trust instrument”).

(4) The trust instrument must not contain any terms which are neither essential nor reasonably incidental to complying with the requirements of this Part of this Schedule.

(5) The trust instrument may contain terms that—

(a) define who is a professional trustee and who is a non-professional trustee;

(b) require the trustees to include at least one person who is a professional trustee and at least two who are non-professional trustees;

(c) require at least half of the non-professional trustees to have been, before being appointed as trustees, selected in accordance with a specified process of selection;

(d) require the trustees so selected to be persons who are employees of the company or, in the case of a group plan, of a participating company.

(6) The terms mentioned in sub-paragraph (5) are to be regarded as reasonably incidental to complying with the requirements of this Part of this Schedule for the purposes of sub-paragraph (4).

Duty to act in accordance with participant’s directions

72

(1) The trust instrument must require the trustees—

(a) to dispose of a participant’s plan shares, and

(b) to deal with any right conferred in respect of any of a participant’s plan shares to be allotted other shares, securities or rights of any description,

only in accordance with a direction given by or on behalf of the participant.

(2) Sub-paragraph (1) is subject to—

(a) paragraph 73 (duty not to dispose of plan shares), and

(b) any provision in the plan made in accordance with paragraph 79 (meeting by trustees of PAYE obligations).

(3) The plan may provide for participants to give such general directions, to such effect and in such terms, as are specified in the plan.

Duty not to dispose of plan shares

73

(1) This paragraph applies to a participant’s plan shares that are free, matching or dividend shares.

(2) The trust instrument must prohibit the trustees from disposing of any of those shares (to the participant or otherwise) at any time during the holding period, unless the participant has at that time ceased to be in relevant employment.

(3) Sub-paragraph (2) is subject to—

(a) paragraph 37 (holding period: power to direct trustees to accept general offers etc.),

(b) paragraph 77 (power of trustees to raise funds to subscribe for rights issue),

(d) paragraph 90(5) (termination of plan: early removal of shares with participant’s consent).

Duty to make payments to participants

74

(1) The trust instrument must require the trustees to pay over to a participant as soon as practicable—

(a) any money received by them in respect of, or by reference to, any of the participant’s shares, or

(b) any money’s worth so received unless it consists of new shares within the meaning of paragraph 87 (company reconstructions).

(2) Sub-paragraph (1) is subject to—

(a) paragraphs 62 to 69 (cash dividends and dividend shares),

(b) the trustees' obligations under sections 510 to 514 (PAYE: shares ceasing to be subject to plan; capital receipts), and

Duty to give notice of award of shares etc.

75

(1) The trust instrument must make the following provision regarding notices.

(2) It must provide that, as soon as practicable after any free or matching shares have been awarded to an employee, the trustees must give the employee notice of the award—

(a) specifying the number and description of those shares,

(aa) if the shares are subject to any restriction, giving details of the restriction,

(b) stating their market value on the date on which they were awarded to the employee, and

(3) It must provide that, as soon as practicable after any partnership shares have been awarded to an employee, the trustees must give the employee notice of the award—

(a) specifying the number and description of those shares,

(aa) if the shares are subject to any restriction, giving details of the restriction,

(b) stating the amount of partnership share money applied by the trustees in acquiring the shares on behalf of the employee, and

(4) It must provide that, as soon as practicable after any dividend shares have been acquired on behalf of a participant, the trustees must give the participant notice of the acquisition—

(a) specifying the number and description of those shares,

(b) stating their market value on the acquisition date (as defined by paragraph 66(4)),

(d) informing the participant of any amount carried forward under paragraph 68 (reinvestment: amounts to be carried forward).

(5) It must provide that, where any foreign cash dividend is received in respect of plan shares held on behalf of a participant, the trustees must give the participant notice of the amount of any foreign tax deducted from the dividend before it was paid.

(6) In sub-paragraph (5) “foreign cash dividend” means a cash dividend paid in respect of plan shares in a company not resident in the United Kingdom.

Power of trustees to borrow

76

The trust instrument may provide that the trustees have power to borrow—

(a) to acquire shares for the purposes of the plan, and

(b) for such other purposes as may be specified in the trust instrument.

77

(1) The trustees may dispose of some of the rights arising under a rights issue in order to be able to obtain sufficient funds to exercise other such rights.

(2) The power conferred by sub-paragraph (1) is subject to paragraph 72 (duty to act in accordance with participant’s directions).

78

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meeting by trustees of PAYE obligations

79

(1) The plan must make provision to ensure that, where a PAYE obligation is imposed on the trustees as a result of any of a participant’s plan shares ceasing to be subject to the plan, the trustees are able to meet that obligation—

(a) by disposing of any of those shares, or

(b) if there are any remaining plan shares of the participant, by disposing of any of those shares, or

(2) A “PAYE obligation” includes an obligation under any of sections 510 to 512 (PAYE: shares ceasing to be subject to the plan).

(3) For the purposes of sub-paragraph (1) any reference to the trustees disposing of shares includes a reference to their acquiring the shares as trustees for the purposes of the trust.

(4) A disposal of any of the participant’s plan shares in accordance with provision made under sub-paragraph (1)(b) may give rise to a charge to tax under—

section 505 (charge on free or matching shares ceasing to be subject to plan),

section 506 (charge on partnership shares ceasing to be subject to plan), or

Chapter 3 or 4 of Part 4 of ITTOIA 2005 (dividends etc. from UK or non-UK resident companies etc.) as a result of section 394(2) or 407(2) of that Act (distribution or dividend payment when dividend shares cease to be subject to plan).

Other duties of trustees in relation to tax liabilities

80

(1) The trust instrument must require the trustees to maintain such records as may be necessary for the purposes of—

(a) their own PAYE obligations, or

(b) the PAYE obligations of the employer company so far as they relate to the plan.

(2) In sub-paragraph (1)—

“PAYE obligations”, in relation to the trustees, includes obligations under sections 510 to 514 (PAYE: shares ceasing to be subject to plan and capital receipts);

“the employer company” has the same meaning as in section 513.

(3) The trust instrument must require the trustees, where the participant becomes liable to income tax under—

(a) this Act, or

(b) Chapter 3 or 4 of Part 4 of ITTOIA 2005 (dividends etc. from UK or non-UK resident companies etc.),

by reason of the occurrence of any event, to inform the participant of any facts relevant to determining that liability.

(4) Sections 1105 to 1108 of CTA 2010 (information relating to distributions to be provided by nominee) apply in relation to—

(a) the balance of any cash dividend paid over to the participant under paragraph 64(3),

(b) any amount paid over to a participant under paragraph 68(4) (dividend retained for reinvestment and later paid out), or

as if it were a payment to which section 1105(1)(b) of that Act applied (and, in the case of an amount within paragraph (b) above, as if the cash dividend had been paid at the time of the payment to the participant under paragraph 68(4)).

(5) In a case where dividend shares cease to be subject to the plan before the end of the period of 3 years beginning with the date on which they were acquired on a participant’s behalf, the cash dividend applied to acquire dividend shares on the participant’s behalf is a “relevant dividend” for the purposes of sub-paragraph (4)(c).

PART 10 — Notification of plans, annual returns and enquiries

Application for approval

81

(1) Where—

(a) a SIP has been established, and

(b) the company makes an application to an officer of Revenue and Customs for approval of the plan,

an officer of Revenue and Customs must approve the plan if the officer is satisfied that it meets the requirements of Parts 2 to 9 of this Schedule.

(2) An application for approval must—

(a) be in writing, and

(b) contain such particulars, and be supported by such evidence, as an officer of Revenue and Customs may require.

(3) Once an officer of Revenue and Customs has decided whether or not to approve the plan, the officer must give notice of the decision to the company.

Appeal against refusal of approval

82

(1) If an officer of Revenue and Customs refuses to approve the plan, the company may appeal ....

(2) The notice of appeal must be given to an officer of Revenue and Customs within 30 days after the date on which notice of the decision is given to the company.

(3) If the appeal is notified to and allowed by the tribunal, the tribunal may direct an officer of Revenue and Customs to approve the plan with effect from a date specified by the tribunal.

(4) The date so specified must not be earlier than that of the application for approval.

Withdrawal of approval

83

(1) This paragraph applies if a disqualifying event (see paragraph 84) occurs in relation to an approved SIP.

(2) An officer of Revenue and Customs may by a notice given to the company withdraw the approval with effect from—

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

(b) a later time specified by an officer of Revenue and Customs in the notice.

(3) The withdrawal of approval of a SIP does not affect the operation of the SIP code in relation to shares awarded to participants in the plan before the time with effect from which approval was withdrawn.

(4) References in the SIP code to an approved SIP in relation to such shares are to a plan that was approved at the time when the shares were awarded.

Disqualifying events for purposes of paragraph 83

84

(1) The following are disqualifying events for the purposes of paragraph 83—

(a) a contravention in relation to the operation of the plan of any of the requirements of this Schedule, the plan itself or the plan trust;

(b) an alteration being made in a key feature of the plan, or in the terms of the plan trust, without the approval of an officer of Revenue and Customs;

(c) if the plan provides for performance allowances in accordance with paragraph 42 (method two), the setting of performance targets in respect of an award of shares which are not consistent targets (within the meaning given by paragraph 42(6));

(d) an alteration being made—

(i) in the share capital of a company any of whose shares are subject to the plan trust, or

(ii) in the rights attaching to any shares of such a company,

that materially affects the value of shares that are subject to the plan trust;

(e) shares of a class of which shares are subject to the plan trust receiving different treatment in any respect from the other shares of that class;

(f) the trustees failing to furnish any information which they are required to furnish under paragraph 93 (power to require information);

(g) the company, or (in the case of a group plan) a company which is or has been a constituent company, failing to furnish any information which it is required to furnish under that paragraph.

(2) For the purposes of sub-paragraph (1)(b) an officer of Revenue and Customs may not withhold ... approval unless it appears to the officer at the time in question that the plan as proposed to be altered would not then be approved on an application under paragraph 81.

(3) Sub-paragraph (1)(e) applies, in particular, to different treatment in respect of—

(a) the dividend payable,

(b) repayment, or

(d) any offer of substituted or additional shares, securities or rights of any description in respect of the shares.

(4) Sub-paragraph (1)(e) does not, however, apply where the difference in treatment arises—

(a) from a key feature of the plan, or

(b) from any of the participants' shares being subject to any restriction.

(5) Nor does it apply as a result only of the fact that shares which have been newly issued receive, in respect of dividends payable with respect to a period beginning before the date on which they were issued, treatment less favourable than that accorded to shares issued before that date.

(6) For the purposes of this paragraph a “key feature” of a plan is a provision of the plan that is necessary in order to meet the requirements of this Schedule.

Appeal against withdrawal of approval

85

(1) This paragraph applies if a SIP has been approved by an officer of Revenue and Customs and the officer decides —

(a) to withdraw approval of the plan, or

(b) to refuse approval under paragraph 84(1)(b) (approval of alteration of plan or plan trust), or

(c) to give a direction under section 998 of CTA 2009 (withdrawal of corporation tax deductions on withdrawal of approval).

(2) The company may appeal against the decision ....

(3) The notice of appeal must be given to an officer of Revenue and Customs within 30 days after the date on which notice of the officer's decision is given to the company.

Part 11 — Supplementary provisions

Company reconstructions

86

(1) In this Part of this Schedule a “company reconstruction” means a transaction to which this paragraph applies.

(2) This paragraph applies to a transaction which occurs in relation to any of a participant’s plan shares (“the original holding”) and—

(a) results in a new holding being equated with the original holding for the purposes of capital gains tax, or

(b) would have that result but for the fact that what would be the new holding consists of or includes a qualifying corporate bond.

(3) But where an excluded issue of shares is made—

(a) that issue of shares does not by itself count as a transaction within sub-paragraph (2); and

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Income Tax (Earnings and Pensions) Act 2003

Interpretation

Connected persons

718

Control in relation to a body corporate

719

Meaning of “the Inland Revenue” etc.

720

Other definitions

721

Amendments, repeals, citation etc.

Consequential amendments

722

Commencement and transitional provisions and savings

723

Repeals and revocations

724

Citation

725

SCHEDULE 1

Part 1 — Abbreviations of Acts and instruments

Part 2 — Index of expressions defined in this Act or ICTA

SCHEDULE 2

Part 1 — Introduction

Approval of share incentive plans (SIPs)

1

SIPs: free shares and partnership shares

2

Matching shares

3

Group plans

4

Meaning of “award of shares”, “participant” etc.

5

Part 2 — General requirements

General requirements for approval: introduction

6

The purpose of the plan

7

All-employee nature of plan

8

Participation on same terms

9

No preferential treatment for directors and senior employees

10

No further conditions

11

No loan arrangements

12

Part 3 — Eligibility of individuals

Eligibility of individuals: introduction

13

Time of eligibility to participate

14

The employment requirement

15

Qualifying periods

16

Meaning of “qualifying company”

17

Requirement not to participate in other SIPs

18

The “no material interest” requirement

19

Meaning of “material interest”

20

Material interest: options and interests in SIPs

21

Meaning of “associate”

22

Meaning of “associate”: trustees of employee benefit trust

23

Meaning of “associate”: trustees of discretionary trust

24

Part 4 — Types of shares that may be awarded

Types of share that may be awarded: introduction

25

Shares must be part of ordinary share capital of certain companies

26

Requirement as to listing etc.