Finance Act 2000

• (c) the inspection of records and, for that purpose, the production of records in legible form and entry into premises;

• (d) monitoring by the Gas and Electricity Markets Authority, or the Director General of Electricity Supply for Northern Ireland, of the application of provisions of, or made under, this paragraph;

• (e) the doing of things to or by a person authorised by the Authority or the Director General (as well as to or by the Authority or the Director General);

• (f) things being done at times or in ways specified by the Authority, the Director General or such an authorised person.

• (6) A condition prescribed under sub-paragraph (1)(c) may be one that is required to be fulfilled throughout a period, including a period ending after the time when a supply whose exemption turns on the fulfilment of the condition is treated as being made.

• (7) The conditions that may be prescribed under sub-paragraph (3)(b) include, in particular, conditions in connection with—

• (a) the generation of the electricity;

• (b) the materials from which the electricity is generated;

• (c) any of the matters mentioned in paragraphs (b) to (f) of sub-paragraph (5).

• (8) Each of—

• (a) the Gas and Electricity Markets Authority, and

• (b) the Director General of Electricity Supply for Northern Ireland,

shall supply the Commissioners with such information (whether or not obtained under this paragraph), and otherwise give the Commissioners such co-operation, as the Commissioners may require in connection with the application (whether generally or in relation to any particular case) of any relevant provisions.

• (9) In sub-paragraph (8) “relevant provisions” means provisions of or made under—

• (a) this paragraph or paragraph 20, or

• (b) paragraph 23(3) so far as relating to electricity, or paragraph 23(4).

• (10) None of—

• (a) section 57(1) of the Electricity Act 1989,

• (b) section 42(1) of the Gas Act 1986, and

• (c) Article 61(1) of the Electricity (Northern Ireland) Order 1992,

(provisions restricting disclosure of information) applies to any disclosure of information made in pursuance of sub-paragraph (8).

Exemption under paragraph 19: averaging periods

20

• (1) This paragraph applies where a person (“the supplier”) makes supplies of electricity on the basis that they are exempt under paragraph 19 (“exempt renewable supplies”).

• (2) The rules about balancing and averaging periods are—

• (a) a balancing period is a period of 3 months;

• (b) when a balancing period ends, a new one begins;

• (c) the first balancing period and the first averaging period begin at the same time;

• (d) unless the supplier specifies an earlier time, that time is the time when he is treated as making the first of the exempt renewable supplies;

• (e) when an averaging period ends, a new one begins;

• (f) an averaging period ends once it has run for 2 years (but may end sooner under paragraph (g) or sub-paragraph (4)(a) or (5)(a));

• (g) if the supplier stops making exempt renewable supplies, the end of the balancing period in which he makes the last exempt renewable supply is also the end of the averaging period in which that balancing period falls.

• (3) At the end of each balancing period calculate—

• (a) the total of—

• (i) the quantity of renewable source electricity that the supplier acquired or generated in that period, and

• (ii) any balancing credit carried forward to that balancing period; and

• (b) the total of—

• (i) the quantity of electricity supplied by exempt renewable supplies made by him in that period, and

• (ii) any balancing debit carried forward to that balancing period.

• (4) If the total mentioned in sub-paragraph (3)(a) exceeds that mentioned in sub-paragraph (3)(b)—

• (a) the averaging period within which the balancing period fell ends at the end of the balancing period, and

• (b) a balancing credit equal to the difference between the two totals is carried forward to the next balancing period.

• (5) If the totals mentioned in paragraphs (a) and (b) of sub-paragraph (3) are the same—

• (a) the averaging period within which the balancing period fell ends at the end of the balancing period, and

• (b) no balancing credit or debit is carried forward to the next balancing period.

• (6) If the total mentioned in sub-paragraph (3)(b) exceeds that mentioned in sub-paragraph (3)(a), then—

• (a) in a case where, at the time when the balancing period ends, an averaging period also ends because of sub-paragraph (2)(f) or (g), the supplier is for the purposes of this Schedule deemed to make at that time a taxable supply of a quantity of electricity equal to the excess;

• (b) in any other case, a balancing debit equal to the excess is carried forward to the next balancing period.

Regulations to avoid double charges to levy

21

• (1) The Commissioners may by regulations make provision for avoiding, counteracting or mitigating double charges to levy.

• (2) For the purposes of this paragraph there is a double charge to levy where—

• (a) a supply of a taxable commodity (“the produced commodity”) is a taxable supply, and

• (b) a taxable commodity used directly or indirectly in producing the produced commodity has been the subject of a taxable supply.

• (2A) In sub-paragraph (2)(b) “taxable supply” does not include a deemed supply under paragraph 24A, 24B, 24C or 42D.

• (3) Regulations under this paragraph may, in particular, make provision for a supply of a taxable commodity to be wholly or to any extent—

• (a) exempt from the levy, or

• (b) deemed not a supply of the commodity.

• (4) The provision mentioned in sub-paragraph (3) includes provision for exceptions to any of sub-paragraphs (1) to (3) of paragraph 23 or paragraph 24(3).

• (5) The powers conferred by this paragraph are in addition to the powers to make provision by tax credit regulations in relation to any such case as is mentioned in paragraph 62(1)(g).

Regulations giving effect to exemptions

22

• (1) The Commissioners may by regulations make provision for giving effect to the exclusions and exemptions provided for by paragraphs 8 to 21.

• (2) Regulations under this paragraph may, in particular, include provision for—

• (a) determining the extent to which a supply of a taxable commodity is, or is to be treated as being, a taxable supply;

• (b) authorising a person making supplies of a taxable commodity to another person to treat the supplies to that other person as being taxable supplies only to an extent certified by the Commissioners.

Deemed supply: use of commodities by utilities and producers

23

• (1) Where an electricity utility—

• (a) has electricity available to it, and

• (b) as regards a quantity of the electricity, makes no supply of that quantity to another person but causes it to be consumed in the United Kingdom,

the utility is for the purposes of this Schedule deemed to make a supply to itself of that quantity of the electricity.

• (2) Where a gas utility—

• (a) holds gas in a gaseous state, and

• (b) as regards a quantity of the gas, makes no supply of that quantity to another person but causes it to be burned in the United Kingdom,

the utility is for the purposes of this Schedule deemed to make a supply to itself of that quantity of the gas.

• (3) Where—

• (a) a person has produced a taxable commodity,

• (b) the commodity is either—

• (i) a taxable commodity other than electricity, or

• (ii) electricity that has been produced from taxable commodities, and

• (c) as regards a quantity of the commodity, the person makes no supply of that quantity to another person but causes it to be burned (or, in the case of electricity, consumed) in the United Kingdom,

the person is for the purposes of this Schedule deemed to make a supply to himself of that quantity of the commodity.

• (4) The Commissioners may by regulations make provision for electricity to be treated for the purposes of sub-paragraph (3)(b)(ii)—

• (a) as produced from taxable commodities unless prescribed conditions are fulfilled, or

• (b) as produced otherwise than from taxable commodities only where prescribed conditions are fulfilled.

• (5) The conditions that may be prescribed under sub-paragraph (4) include, in particular, conditions in connection with the materials from which the electricity is produced.

Deemed supply: change of circumstances etc

24

• (1) This paragraph applies in the following cases.

• (1A) The first case is where—

• (a) a supply of a taxable commodity has been made,

• (b) the supply was not a taxable supply, and

• (c) there is such a change in circumstances or any person’s intentions that, if the changed circumstances or intentions had existed at the time the supply was made, the supply would have been a taxable supply.

• (1B) The second case is where—

• (a) a supply of a taxable commodity has been made,

• (b) the supply was made on the basis that it was not a taxable supply, and

• (c) it is later determined that the supply was (to any extent) a taxable supply.

• (2) This paragraph does not apply where the reason that—

• (a) the supply was not a taxable supply, or

• (b) the supply was made on the basis that it was not a taxable supply,

is that it was, or was thought to be, exempt from the levy under paragraph 19 or 20A (exemption for supply of electricity produced from renewable sources or in combined heat and power stations) (but see paragraph 20 or 20B).

• (3) Where this paragraph applies, The person to whom the supply was made is for the purposes of this Schedule deemed to make a taxable supply of the commodity to himself.

• (3A) Where—

• (a) had matters been as mentioned in sub-paragraph (1A)(c), only part of the supply would have been a taxable supply, or

• (b) the determination referred to in sub-paragraph (1B)(c) is that only part of the supply was a taxable supply,

the reference in sub-paragraph (3) to the commodity shall be read as a reference to a corresponding part of it.

• (4) Where—

• (a) a supply of a taxable commodity was not a taxable supply by virtue of being supplied for use in premises of a description mentioned in any of paragraphs (a) to (f) of paragraph 9(2), and

• (b) those premises cease to be premises of any of those descriptions,

sub-paragraph (3) only applies to so much (if any) of the commodity supplied as was not used in the premises before they ceased to be premises of any of those descriptions.

• (5) The Commissioners may by regulations make provision specifying descriptions of occurrences and non-occurrences that are to be taken as being, or as not being, changes of circumstances or intentions for the purposes of sub-paragraph (1A)(c).

Part III — Time of supply

Introduction

25

This Part of this Schedule applies to determine when a supply of a taxable commodity is treated as taking place.

Electricity or gas: supply when climate change levy accounting document issued

26

• (1) This paragraph applies—

• (a) to supplies of electricity, and

• (b) to supplies of gas where the gas is supplied in a gaseous state and is of a kind supplied by a gas utility.

• (2) Where this paragraph applies, a supply is treated as taking place each time a climate change levy accounting document in respect of a supply is issued by the person making the supply.

• (3) A supply that is treated as taking place under this paragraph is a supply of the electricity or gas covered by the accounting document.

• (4) Nothing in this paragraph applies to any electricity or gas that is covered by a special utility scheme (see paragraph 29).

Electricity or gas: duty to issue climate change levy accounting document

27

• (1) This paragraph applies where on any day—

• (a) electricity, or gas that is in a gaseous state and is of a kind supplied by a gas utility, is actually supplied to a person (“the consumer”),

• (b) the supply by which the electricity or gas is supplied is a taxable supply, and

• (c) the person liable to account for the levy on that supply is the person making the supply (“the supplier”).

• (2) A climate change levy accounting document covering the electricity or gas actually supplied on that day must be issued by the supplier no later than—

• (a) the end of the period of 15 weeks beginning with that day, if on that day the consumer is a small-scale user of the commodity supplied;

• (b) the end of the period of 6 weeks beginning with that day, if on that day the consumer is not a small-scale user of the commodity supplied.

• (3) A climate change levy accounting document issued under this paragraph that covers the electricity, or the gas of any kind, actually supplied on any day must also cover any electricity or (as the case may be) any gas of that kind that—

• (a) has been actually supplied by the supplier to the consumer on any earlier day, and

• (b) has not been covered by a previous climate change levy accounting document.

• (4) For the purposes of this paragraph—

• (a) an accounting document shall be taken to cover the electricity or gas actually supplied on a day if it covers the electricity or gas actually supplied during a period that includes that day; and

• (b) an accounting document shall be taken to cover the electricity or gas actually supplied on a day or during a period if it is an accounting document for a quantity of electricity or gas that is a reasonable estimate of the quantity actually supplied.

• (5) A climate change levy accounting document issued under this paragraph must contain a statement of—

• (a) the quantity of electricity or gas that it covers,

• (b) the period during which, or during which it is estimated that, that quantity was actually supplied,

• (c) the supplier’s name and address,

• (d) the customer’s name and address, and

• (e) the reference number used by the supplier for the customer.

• (6) For the purposes of this paragraph a person is, on any day, a small-scale user of a commodity if the rate at which he is taken to be supplied with that commodity on that day does not exceed the prescribed rate.

• (7) The Commissioners may make provision by regulations as to the rate at which a person is, for the purposes of sub-paragraph (6), taken to be supplied with a commodity on any day.

• (8) Regulations under sub-paragraph (7) may, in particular, include provision for—

• (a) rates to be determined or estimated in accordance with the regulations;

• (b) rates to be so determined or estimated by reference to the quantity of a commodity actually supplied, or estimated to have been actually supplied, during a period ending with, or at any time before or after, the day in question;

• (c) cases where a person is supplied with a commodity of any kind by two or more suppliers.

• (9) Nothing in this paragraph applies to any electricity or gas—

• (a) that is covered by a special utility scheme (see paragraph 29), or

• (b) that is actually supplied before 1st April 2001.

• (10) This paragraph applies subject to paragraph 36(5).

Electricity or gas: actual supply not followed by climate change levy accounting document

28

• (1) This paragraph applies where on any day—

• (a) electricity, or gas that is in a gaseous state and is of a kind supplied by a gas utility, is actually supplied to a person (“the consumer”),

• (b) the supply by which the electricity or gas is supplied is a taxable supply,

• (c) the person liable to account for the levy on that supply is the person making the supply (“the supplier”), and

• (d) the supplier does not within the period applicable under sub-paragraph (2) of paragraph 27 issue a climate change levy accounting document under that paragraph covering the electricity or gas.

• (2) Where this paragraph applies, a supply is treated as taking place at the end of that period.

• (3) A supply that is treated as taking place under this paragraph is a supply of all the electricity or (as the case may be) gas of the same kind that—

• (a) has been actually supplied by the supplier to the consumer before the end of that period, and

• (b) has not been covered by a climate change levy accounting document.

• (4) Sub-paragraph (4) of paragraph 27 (interpretation of “covered by an accounting document”) applies for the purposes of this paragraph as for those of that paragraph.

• (5) Nothing in this paragraph applies to any electricity or gas—

• (a) that is covered by a special utility scheme (see paragraph 29),

• (b) that is actually supplied before 1st April 2001, or

• (c) that is treated under paragraph 36(3) as supplied on that day.

Electricity or gas: special utility schemes

29

• (1) For the purposes of this Schedule a “special utility scheme” is a scheme for determining when—

• (a) a supply of electricity, or

• (b) a supply of gas that is in a gaseous state and is of a kind supplied by a gas utility,

is treated as taking place in cases where the electricity or gas is covered by the scheme.

• (2) If in the opinion of the Commissioners it is reasonable to do so, they may in accordance with the provisions of this paragraph prepare a special utility scheme for a utility or for two or more utilities.

In this paragraph “utility” includes a person who makes supplies on which levy is chargeable by virtue of paragraph 5(2) (partly exempt combined heat and power stations).

• (3) A special utility scheme shall specify the period for which it is to have effect.

• (4) No special utility scheme shall be of any effect in relation to any electricity or gas supplied by a utility unless the utility elects in writing to be bound by it for the specified period.

• (5) If a utility makes such an election—

• (a) the scheme shall have effect for the specified period in relation to such electricity or gas supplied by the utility as is covered by the scheme, and

• (b) during the specified period the scheme applies to determine when a supply of a taxable commodity is treated as taking place if the commodity is electricity or gas covered by the scheme.

• (6) A special utility scheme may—

• (a) cover all or any of the electricity or gas supplied by a utility for which the scheme is prepared;

• (b) provide for paragraph 36 or 37 not to apply, or to apply with modifications, to electricity or gas covered by the scheme.

• (7) The Commissioners may by regulations make further provision with respect to special utility schemes, including (in particular) provision amending this paragraph.

Other commodities: general rules for supply by UK residents

30

• (1) This paragraph applies to supplies that are not of either of the descriptions mentioned in paragraphs (a) and (b) of paragraph 26(1) (electricity and gas in a gaseous state).

• (2) The general rules as to when such supplies are taken to be made are, in cases where the supply is made by a person resident in the United Kingdom, as follows—

• (a) if the commodity is to be removed, the supply takes place at the time of the removal;

• (b) if the commodity is not to be removed, the supply takes place when the commodity is made available to the person to whom it is supplied;

• (c) if the commodity (being sent or taken on approval or sale or return or similar terms) is removed before it is known whether a supply will take place, the supply takes place when it becomes certain that the supply has taken place or, if sooner, 12 months after the removal.

• (3) These general rules are subject to—

paragraph 31 (earlier invoice),

paragraph 32 (later invoice),

paragraph 34 (deemed supplies), and

paragraph 36 (directions by Commissioners).

Other commodities: earlier invoice

31

• (1) If before the time applicable under paragraph 30(2) the person making the supply—

• (a) issues an invoice in respect of the supply, or

• (b) receives a payment in respect of it,

the supply is treated, to the extent that it is covered by the invoice or payment, as taking place when the invoice is issued or the payment is received.

• (2) Sub-paragraph (1) does not apply where the commodity (being sent or taken on approval or sale or return or similar terms) is removed before it is known whether a supply will take place.

• (3) Sub-paragraph (1) applies subject to any direction under paragraph 35(3).

Other commodities: later invoice

32

• (1) If within 14 days after the time applicable under paragraph 30(2) the person making the supply issues an invoice in respect of it, the supply is treated as taking place at the time the invoice is issued.

• (2) This does not apply—

• (a) to the extent that the supply is treated as taking place at the time mentioned in paragraph 31(1) (earlier invoice), or

• (b) if the person liable to account for any levy charged on the supply has notified the Commissioners in writing that he elects not to avail himself of sub-paragraph (1).

• (3) The Commissioners may, at the request of a person liable to account for any levy charged on any supplies, direct that sub-paragraph (1) shall apply—

• (a) in relation to those supplies, or

• (b) in relation to such of those supplies as may be specified in the direction,

with the substitution for the period of 14 days of such longer period as may be specified in the direction.

• (4) Sub-paragraphs (1) to (3) apply subject to any direction under paragraph 35.

Other commodities: supply by non-UK residents

33

• (1) This paragraph applies to supplies that—

• (a) are not of either of the descriptions mentioned in paragraphs (a) and (b) of paragraph 26(1) (electricity and gas in a gaseous state), and

• (b) are made by a person who is not resident in the United Kingdom.

• (2) The supply is treated as taking place—

• (a) when the commodity is delivered to the person to whom it is supplied, or

• (b) if earlier, when it is made available in the United Kingdom to that person.

• (3) Sub-paragraph (2) applies subject to—

• (a) sub-paragraph (4),

• (b) paragraph 34 (deemed supplies), and

• (c) any direction under paragraph 35.

• (4) If within 14 days after the time applicable under sub-paragraph (2) the person to whom the supply is made elects in writing for the supply to be treated as taking place at the time the election is made, the supply is treated as taking place at the time the election is made.

Other commodities: deemed supplies

34

• (1) This paragraph applies to supplies that—

• (a) are not of either of the descriptions mentioned in paragraphs (a) and (b) of paragraph 26(1) (electricity and gas in a gaseous state), and

• (b) are deemed to be made under paragraph 23, 24 or 43B.

• (2) A supply that is deemed to be made under paragraph 23 is treated as taking place when the commodity is burned ....

• (3) A supply that is deemed to be made under paragraph 24 is treated as taking place upon the occurrence of the change in circumstances or intentions or, as the case may be, upon the later determination.

• (4) A supply that is deemed to be made under paragraph 43B is treated as taking place upon the later determination.

Other commodities: directions by Commissioners

35

• (1) This paragraph applies to supplies that are not of either of the descriptions mentioned in paragraphs (a) and (b) of paragraph 26(1) (electricity and gas in a gaseous state).

• (2) The Commissioners may, at the request of the person liable to account for any levy charged on any supplies to which this paragraph applies, make a direction under sub-paragraph (3) or (4) altering the time at which those supplies (or such of those supplies as may be specified in the direction) are to be treated as taking place.

• (3) The Commissioners may direct that the supplies shall be treated as taking place—

• (a) at times or on dates determined by or by reference to the occurrence of some event described in the direction, or

• (b) at times or on dates determined by or by reference to the time when some event so described would in the ordinary course of events occur,

provided the resulting times or dates are in every case earlier than would otherwise apply.

• (4) The Commissioners may direct that the supplies shall be treated as taking place—

• (a) at the beginning of the relevant working period (as defined in the case of the person making the request in and for the purposes of the direction), or

• (b) at the end of the relevant working period (as so defined).

• (5) A direction under sub-paragraph (4) shall not apply to the extent that the time when the supplies in question are made is determined by paragraph 31(1).

Supplies invoiced or paid for before 1st April 2001

36

• (1) This paragraph applies where—

• (a) the taxable commodities covered by an invoice issued, or payment received, before 1st April 2001 are to any extent commodities that have not been burned (or, in the case of electricity, consumed) before the invoice is issued or payment is received, and

• (b) the advance invoicing or payment is not acceptable normal practice.

It does not matter whether the invoice mentioned in paragraph (a) is, or is not, a climate change levy accounting document.

• (2) A fair apportionment shall be made to determine the quantity of the taxable commodities covered by the invoice or payment that will not be, or was not, burned (or consumed) before 1st April 2001.

• (3) Where this paragraph applies, a supply is treated as taking place on 1st April 2001.

That supply is a supply of the quantity of the taxable commodities that is mentioned in, and determined under, sub-paragraph (2).

• (4) For the purposes of this paragraph advance invoicing or payment is “acceptable normal practice” if—

• (a) the supply is of a kind in the case of which it is normal practice for invoices to be issued, or payments made, in respect of taxable commodities not already burned (or consumed),

• (b) that practice does not involve issuing invoices, or making payments, more than 15 weeks in advance of the burning (or consumption) of any of the taxable commodities in respect of which the invoice is issued or payment is made, and

• (c) the advance invoicing or payment is in accordance with the practice.

• (5) Nothing in paragraph 27 requires a climate change levy accounting document to be issued to cover any commodities that are supplied by a supply that, under sub-paragraph (3), is treated as made on 1st April 2001.

• (6) This paragraph applies to invoices issued, and payments received, before the passing of this Act (as well as to those issued or received after its passing).

Supplies of electricity or gas spanning change of rate etc.

37

• (1) This paragraph applies in the case of a supply of electricity, or of gas that is in a gaseous state and is of a kind supplied by a gas utility, affected by—

• (a) a change in the descriptions of supplies that are taxable supplies,

• (b) a change in any rate of levy in force,

• (c) a change consisting in the rate of levy applicable to the supply ceasing to be, or becoming, the rate that is applicable to ... reduced-rate supplies, or

• (d) the change consisting in the transition from 31st March 2001 to 1st April 2001.

• (2) For the purposes of this paragraph a supply is affected by a change if the electricity or gas of which it is a supply (“the supplied commodity”) is actually supplied partly before the change and partly after.

However, this paragraph does not apply in the case of a supply that, under paragraph 36(3), is treated as made on 1st April 2001.

• (3) If the person liable to account for any levy on the supply so elects—

• (a) the rate at which levy is chargeable on any part of the supply, or

• (b) any question whether, or to what extent, the supply is a taxable supply,

shall be determined in accordance with sub-paragraph (5) or (6).

• (4) An election for determination in accordance with sub-paragraph (6) may be made only where—

• (a) there is such a change as is mentioned in sub-paragraph (1)(c), and

• (b) all the supplied commodity is actually supplied before the supply is treated as taking place.

• (5) Where the election is for determination in accordance with this sub-paragraph, the rules are—

• (A) Treat the fraction of the supplied commodity actually supplied before the change (“the pre-change fraction”) as supplied by a supply made before the change and treat the fraction of the supplied commodity actually supplied after the change (“the post-change fraction”) as supplied by a supply made after the change.

• (B) Where the pre-change and post-change fractions are not known (because, for example, there are no relevant meter readings available)—

“the pre-change fraction" is calculated by dividing—

• (a) the number of days in the period over which the supply is actually made that fall before the change, by

• (b) the number of days in that period; and

“the post-change fraction" is the difference between 1 and the pre-change fraction.

• (C) If use of the fractions given by rule B would produce an inequitable result, the pre-change and post-change fractions may be derived from a reasonable estimate of the fractions of the supplied commodity actually supplied before and after the change.

• (6) Where the election is for determination in accordance with this sub-paragraph, treat the change as taking place immediately after the time at which the last of the supplied commodity was actually supplied.

SCHEDULE 7

Provisional Collection of Taxes Act 1968 (c. 2)

1

In section 1(1) of the Provisional Collection of Taxes Act 1968 (taxes in relation to which resolutions may have temporary statutory effect), after “value added tax" there shall be inserted “ , climate change levy, ”.

Bankruptcy (Scotland) Act 1985 (c. 66)

2

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

Insolvency Act 1986 (c. 45)

3

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

Income and Corporation Taxes Act 1988 (c. 1)

4

In section 827 of the Taxes Act 1988 (no deduction for penalties etc.), the following subsection shall be inserted after subsection (1C)—

(1D) Where a person is liable to make a payment by way of— (a) any penalty under any provision of Schedule 6 to the Finance Act 2000 (climate change levy), (b) interest under paragraph 70 of that Schedule (interest on recoverable overpayments etc.), (c) interest under any of paragraphs 81 to 85 of that Schedule (interest on climate change levy due and on interest), or (d) interest under paragraph 109 of that Schedule (interest on penalties), the payment shall not be allowed as a deduction in computing any income, profits or losses for any tax purposes.

Insolvency (Northern Ireland) Order 1989 (N.I. 19)

5

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

Finance Act 1996 (c. 8)

6

In section 197(2) of the Finance Act 1996 (enactments for which interest rates are set under section 197), after paragraph (f) there shall be inserted—

(g) the following provisions of Schedule 6 to the Finance Act 2000 (interest payable to or by the Commissioners in connection with climate change levy), that is to say, paragraphs 41(2)(f), 62(3)(f), 66, 70(1)(b) and 81(3).

Finance Act 1997 (c. 16)

7

• (1) The Finance Act 1997 is amended as follows.

• (2) In section 51(5) (indirect taxes in respect of which the Commissioners may make regulations about enforcement by distress), after paragraph (e) insert—

(f) climate change levy.

• (3) In section 52(5) (enforcement in Scotland of indirect taxes by diligence), after paragraph (e) insert—

(f) climate change levy.

• (4) Sub-paragraph (3) extends only to Scotland.

SCHEDULE 8

Part I — Introductory

Employee share ownership plans

1

• (1) In this Schedule an “employee share ownership plan” means a plan established by a company providing—

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

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

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

• (3) Where a plan contains provision for all, or more than one, of the kinds of shares mentioned in sub-paragraphs (1) and (2), it may leave it for the company to decide when the provisions relating to each kind of share are to have effect.

• (4) In this Schedule, in relation to an employee share ownership plan “the company” means the company which established the plan.

Group plans

2

• (1) An employee share ownership plan established by a company that controls other companies (a “parent company”) may extend to all or any of those other companies.

In this Schedule a plan established by a parent company which so extends is referred to as a “group plan".

• (2) In relation to a group plan a “participating company” means the parent company or any other company to which for the time being the plan is expressed to extend.

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

3

• (1) For the purposes of this Schedule an award of shares is made under a plan on each occasion when in accordance with the plan—

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

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

• (2) For the purposes of this Schedule an individual participates in an award of free, matching or partnership shares under the plan if shares (“the individual award”) included in that award are—

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

• (b) in the case of an award of partnership shares, acquired on his behalf,

and references to shares awarded to an individual are to free or matching shares appropriated to him, or partnership shares acquired on his behalf, under the plan.

• (3) In this Schedule “participant”, in relation to a plan, means an individual to whom shares have been awarded under the plan.

Application for approval

4

• (1) Where an employee share ownership plan has been established, on the application of the company the Inland Revenue shall approve the plan if they are satisfied that it meets the requirements of this Schedule.

• (2) An application for approval must contain such particulars and be supported by such evidence as the Inland Revenue may require.

Appeal against refusal of approval

5

• (1) If the Inland Revenue refuse to approve the plan, the company may appeal to the Special Commissioners.

• (2) Notice of appeal must be given to the Inland Revenue within 30 days after their decision was notified to the company.

• (3) If the Special Commissioners allow the appeal they may direct the Inland Revenue to approve the plan with effect from such date (but not earlier than the application for approval) as the Commissioners may specify.

Part II — General requirements

Introduction

6

The plan must meet the requirements of—

The purpose of the plan

7

• (1) The purpose of the plan must be to provide benefits to employees in the nature of shares in a company which give them a continuing stake in that company.

• (2) The plan must not contain, and the operation of the plan must not involve, features which are neither essential nor reasonably incidental to that purpose.

All-employee nature of plan

8

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

• (a) meets the requirements mentioned in Part III (eligibility of individuals) in relation to an award of shares under the plan, and

• (b) is chargeable to tax under Case I of Schedule E in respect of the employment by reference to which he satisfies the condition in paragraph 14 (the employment requirement),

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

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

This does not apply to any provision required or authorised by this Schedule.

• (3) The plan may provide that an employee who—

• (a) meets the requirements mentioned in Part III (eligibility of individuals) in relation to an award of shares under the plan, but

• (b) is not chargeable to tax as mentioned in sub-paragraph (1)(b),

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

• (4) For the purposes of this Schedule an individual is a “qualifying employee”, in relation to an award of shares, if—

• (a) he is eligible to participate in the award, and

• (b) either—

• (i) he must be invited to participate in the award (see sub-paragraph (1)), or

• (ii) under the plan he may be invited to participate in the award (see sub-paragraph (3)) and has been so invited.

Participation on same terms

9

• (1) The requirement of this paragraph is—

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

• (b) that 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 an employee’s—

• (a) remuneration,

• (b) length of service, or

• (c) hours worked.

This is subject to sub-paragraph (4).

• (4) Where 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 paragraph 29 (performance allowances: method one) or, as the case may be, paragraph 30 (performance allowances: method two).

For this purpose “performance allowance” has the meaning given in paragraph 25(1).

No preferential treatment for directors etc.

10

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

• (a) on directors, or

• (b) on employees receiving higher levels of remuneration.

• (2) The second requirement of this paragraph is that in the case of a plan established by a company that is a member of a group, the identity of the company (or, if it is a group plan, the participating 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 higher levels of remuneration, or

• (b) on directors of such companies.

• (3) This paragraph is subject to paragraph 9(3) (award of shares by reference to remuneration etc.).

No further conditions

11

No conditions, other than those required or permitted 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 in any way associated 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, any participating company,

and the operation of the plan must not be in any way associated with such loans.

• (2) For the purposes of sub-paragraph (1) “arrangements” includes any scheme, agreement, undertaking or understanding, whether or not legally enforceable.

Part III — Eligibility of individuals

Introduction

13

• (1) The plan must provide that an individual may only participate in an award of shares if—

• (a) in the case of free shares, he is eligible to participate in the award at the time it is made, and

• (b) in the case of partnership or matching shares—

• (i) if there is no accumulation period, he is eligible to participate in the award at the time the partnership share money relating to the award is deducted, and

• (ii) if there is an accumulation period, he is eligible to participate in the award at the time of the first deduction of partnership share money relating to the award.

• (2) For the purposes of sub-paragraph (1), in the case of an award of matching shares the deduction of partnership share money “relating” to the award is the deduction relating to the award of partnership shares to which the matching shares relate.

• (3) An individual is eligible to participate in an award of shares under the plan if and only if—

• (a) the requirements of the plan are met as to—

• (i) employment (see paragraph 14),

• (ii) no material interest (see paragraph 15), and

• (iii) not participating in other schemes (see paragraph 16), and

• (b) in a case where the individual is not within paragraph 8(1) (employees who must be invited to participate in the award), any further eligibility requirements of the plan are met.

The employment requirement

14

• (1) The plan must provide that an individual is not eligible to participate in an award of shares unless—

• (a) he is an employee of the company or, in the case of a group plan, of a participating company, and

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

• (1A) Except in the case of a group plan, a 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.

• (1B) In the case of a group plan, a qualifying company means—

• (a) a company that is a participating company at the end of the qualifying period, or

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

• (c) a company that when the individual was employed by it was an associated company of—

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

• (ii) another company qualifying under this paragraph.

• (2) If the plan provides for a qualifying period, that period must be—

• (a) in the case of free shares, a period of not more than 18 months ending with the date on which the award is made,

• (b) in the case of partnership or matching shares—

• (i) if the plan does not provide for an accumulation period, a period of not more than 18 months ending with the deduction of partnership share money relating to the award, and

• (ii) if the plan provides for an accumulation period, a period of not more than six months ending with the start of the accumulation period relating to the award.

• (3) For the purposes of sub-paragraph (2), in the case of an award of matching shares the deduction of partnership share money or accumulation period “relating” to the award is the deduction or period relating to the award of partnership shares to which the matching shares relate.

• (4) In relation to an award, the same qualifying period must apply in relation to all employees of the company or, in the case of a group plan, of the participating companies.

• (5) Subject to sub-paragraphs (2) and (4), the plan may authorise the company to specify different qualifying periods in respect of different awards of shares.

The “no material interest" requirement

15

• (1) The plan must provide that an individual is not eligible to participate in an award of shares if he has, or has within the preceding twelve months had, a material interest in—

• (a) a close company whose shares may be awarded under the plan, or

• (b) a company which has control of such a company or is a member of a consortium which owns such a company.

• (2) For the purposes of this paragraph an individual is regarded as having a material interest in a company if—

• (a) the individual,

• (b) the individual together with one or more associates of his, or

• (c) any associate of the individual’s, with or without any other such associates,

has a material interest in the company.

• (3) This paragraph is supplemented—

• (a) as regards the meaning of “material interest”, by paragraphs 17 to 19, and

• (b) as regards the meaning of “associate”, by paragraph 20 (read with paragraphs 21 and 22).

The requirement of non-participation in other relevant share schemes

16

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

• (a) shares have been (or are at the same time to be) appropriated to him in accordance with an approved profit sharing scheme established by the company or a connected company, or

• (b) he has participated (or is at the same time to participate) in another employee share ownership plan established by the company or a connected company and approved under this Schedule.

• (2) The plan must provide that an individual is not eligible to participate in an award of partnership or matching shares under the plan in any tax year if, in that year, he has participated (or at the same time participates) in an award of shares under another employee share ownership plan established by the company or a connected company and approved under this Schedule.

• (3) For the purposes of this paragraph an individual is treated as having participated in an award of free shares under an employee share ownership plan if he would have participated in that award but for his failure to obtain a performance allowance (see paragraph 25).

• (4) 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.

Meaning of “material interest"

17

• (1) For the purposes of paragraph 15 (the “no material interest” requirement) a material interest in a company means—

• (a) beneficial ownership of, or the ability to control, directly or through the medium of other companies or by any other indirect means, more than 25% of the ordinary share capital of the company; or

• (b) where the company is a close company, possession of or entitlement to acquire such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive more than 25% of the assets that would then be available for distribution among the participators.

• (2) In this paragraph—

• “close company” includes a company that would be a close company but for—section 414(1)(a) of the Taxes Act 1988 (exclusion of companies not resident in the United Kingdom), orsection 415 of that Act (exclusion of certain quoted companies); and

• “participator” has the meaning given by section 417(1) of that Act.

• (3) This paragraph is supplemented by paragraph 18 (options etc.) and paragraph 19 (shares held by trustees of approved profit sharing scheme etc.).

Material interest: options etc.

18

• (1) For the purposes of paragraph 17(1) (meaning of material interest) a right to acquire shares (however arising) is treated as a right to control them.

• (2) In any case where—

• (a) the shares attributed to an individual consist of or include shares which he or another person has a right to acquire, and

• (b) the circumstances are such that if that right were to be exercised the shares acquired would be shares which were previously unissued and which the company is contractually bound to issue in the event of the exercise of the right,

then in determining at any time prior to the exercise of the right whether the number of shares attributed to the individual exceeds a particular percentage of the ordinary share capital of the company, that ordinary share capital shall be taken to be increased by the number of unissued shares referred to in paragraph (b).

• (3) The references in sub-paragraph (2) to the shares attributed to an individual are to the shares which in accordance with paragraph 17(1)(a) fall to be brought into account in his case to determine whether their number exceeds a particular percentage of the company’s ordinary share capital.

Material interest: shares held by trustees of approved profit sharing schemes etc.

19

In applying paragraph 17(1) (meaning of material interest) there shall be disregarded—

• (a) the interest of the trustees of—

• (i) any approved profit sharing scheme, or

• (ii) an approved employee share ownership plan,

in any shares held by them in accordance with the scheme or plan but which have not been appropriated to or acquired on behalf of an individual; and

• (b) any rights exercisable by those trustees by virtue of any such interest.

Meaning of “associate"

20

• (1) In paragraph 15 (the “no material interest” requirement) “associate”, in relation to a person, means—

• (a) any relative or partner of that person,

• (b) the trustee or trustees of any settlement in relation to which that person, or any relative of his (living or dead), is or was a settlor, and

• (c) where that person is interested in any shares or obligations of the company which are subject to any trust, or are part of the estate of a deceased person, the trustee or trustees of the settlement concerned or (as the case may be) the personal representatives of the deceased.

• (2) In sub-paragraph (1)(a) and (b) “relative” means husband or wife, parent or remoter forebear, child or remoter issue, or brother or sister.

• (3) In sub-paragraph (1)(b) “settlor” and “settlement” have the same meaning as in Chapter IA of Part XV of the Taxes Act 1988 (see section 660G(1) and (2)).

Meaning of “associate": trustees of employee benefit trust

21

• (1) This paragraph applies for the purposes of paragraph 20(1)(c) (meaning of “associate”: trustees of settlement) where an individual is interested as a beneficiary of an employee benefit trust in shares or obligations of a company (“the relevant company”) in relation to which it falls to be determined whether that individual has an interest.

• (2) The trustees of the employee benefit trust are not regarded as associates of the individual by reason only of his being so interested if neither—

• (a) the individual, nor

• (b) the individual together with one or more associates of his, nor

• (c) any associate of the individual’s, with or without any other such associates,

has at any time on or after 14th March 1989 been the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 25% of the ordinary share capital of the company.

• (3) In this paragraph “employee benefit trust” has the same meaning as in paragraph 7 of Schedule 8 to the Taxes Act 1988.

• (4) Sub-paragraphs (9) to (12) of that paragraph apply for the purposes of this paragraph in relation to an individual as they apply for the purposes of that paragraph in relation to an employee.

• (5) In sub-paragraph (2)(b) and (c) “associate" does not include the trustees of an employee benefit trust by reason only that the individual has an interest in shares or obligations of the trust.

Meaning of “associate": trustees of discretionary trust

22

• (1) This paragraph applies for the purposes of paragraph 20(1)(c) (meaning of “associate”: trustees of settlement) where—

• (a) the person in question (“the beneficiary”) is one of the objects of a discretionary trust, and

• (b) the property subject to the trust has at any time consisted of, or included, shares or obligations of the company (“the relevant company”) in relation to which it falls to be determined whether that person has an interest.

• (2) If—

• (a) the beneficiary has ceased to be eligible to benefit under the discretionary trust by reason of—

• (i) an irrevocable disclaimer or release executed by him, or

• (ii) the irrevocable exercise by the trustees of a power to exclude him from the objects of the trust,

• (b) immediately after the beneficiary ceased to be so eligible, no associate of his was interested in the shares or obligations of the relevant company which were subject to the trust, and

• (c) during the period of twelve months ending with the date when the beneficiary ceased to be so eligible, neither he nor any associate of his received any benefit under the trust,

the beneficiary is not regarded by reason only of the matters mentioned in sub-paragraph (1) as having been interested in the shares or obligations of the relevant company at any time during the period of twelve months mentioned in paragraph (c).

• (3) In sub-paragraph (2) “associate” has the meaning given by paragraph 20, but with the omission of sub-paragraph (1)(c) of that paragraph (trusts and estates).

Part IV — Free shares

Introduction

23

If the plan provides for free shares it must comply with the requirements of this Part of this Schedule.

Maximum annual award

24

• (1) The plan must provide that the initial market value of the free shares awarded to a participant in any tax year cannot exceed £3,000.

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

• (3) For the purposes of this paragraph the market value of shares subject to restrictions or risk of forfeiture shall be determined as if there were no such restriction or risk.

For this purpose shares are “subject to risk of forfeiture” if the interest that may be acquired is only conditional within the meaning of section 140C of the Taxes Act 1988.

Performance allowances

25

• (1) Sub-paragraph (2) applies if the plan provides for performance allowances, that is 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.

• (2) Where this sub-paragraph applies—

• (a) the requirements of—

paragraph 26 (performance allowances: general application),

paragraph 27 (performance measures and targets), and

paragraph 28 (performance allowances: information to be given to employees), and

• (b) the requirements of either paragraph 29 (method one) or paragraph 30 (method two),

must be complied with.

Performance allowances: general application

26

If the plan provides for performance allowances in relation to an award it must make provision for such allowances for all qualifying employees in relation to that award.

Performance allowances: measures and targets

27

• (1) If the plan provides for performance allowances the following requirements must be met with respect to performance measures and performance targets.

• (2) 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.

• (3) The performance targets must be set for performance units comprising one or more employees.

• (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

28

• (1) If the plan provides for performance allowances in relation to an award of shares, the plan must require the company—

• (a) to notify each employee participating 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 him; and

• (b) to notify all qualifying employees of the company or, in the case of a group plan, of any participating 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 the disclosure of which the company reasonably considers would prejudice commercial confidentiality.

Performance allowances: method one

29

• (1) The requirements of this paragraph are that if the plan provides for performance allowances in relation to an award of shares—

• (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 be not more than four times the highest number of shares within paragraph (a) awarded to an individual.

• (2) In determining for the purposes of sub-paragraph (1)(a) whether the requirement of paragraph 9 (participation on same terms) is met the shares to which sub-paragraph (1)(a) above applies are treated as a separate award of free shares.

• (3) Where the plan meets the requirements of sub-paragraph (1), the requirement of paragraph 9 (participation on same terms) does not apply to any provision of the plan relating to the awarding of shares within sub-paragraph (1)(b).

• (4) If free shares of different classes are awarded, the requirements of sub-paragraph (1) apply separately in relation to each class.

Performance allowances: method two

30

• (1) The requirements of this paragraph are that in relation to an award of free shares under the plan—

• (a) some or all of the shares 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).

• (2) In determining for the purposes of sub-paragraph (1)(b) whether the requirement of paragraph 9 (participation on same terms) is met the free shares awarded in respect of each performance unit are treated as a separate award of free shares.

• (3) If this method is used nothing in paragraph 9 (participation on same terms) requires the awarding of shares to members of different performance units to be on the same terms.

The holding period

31

• (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 his free shares to remain in the hands of the trustees, and

• (b) not to assign, charge or otherwise dispose of his beneficial interest in the shares.

• (2) The holding period—

• (a) must be a period of at least three years but not more than five years, beginning with the date on which the shares in question are awarded to the participant, and

• (b) must be the same in respect of all shares in the same award.

• (3) The plan may authorise the company to specify different holding periods from time to time.

But it 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—

• (a) come to an end if during the period he ceases to be in relevant employment, and

• (b) are subject to—

paragraph 32 (power to authorise trustees to accept general offers etc.);

paragraph 73 (meeting PAYE obligations); and

paragraph 121(5) (termination of plan: early removal of shares with participant’s consent).

Holding period: power to authorise trustees to accept general offers etc.

32

A participant may direct the trustees to do any of the following during the holding period—

• (a) to accept an offer for any of his 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; or

• (b) to accept an offer of a qualifying corporate bond (whether alone or with other assets or cash or both) for his free shares if the offer forms part of such a general offer as is mentioned in paragraph (c); or

• (c) to accept an offer of cash, with or without other assets, for his free shares if the offer forms part of a general offer which is made to holders of shares of the same class as his or of shares in the same company and which 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, within the meaning of section 416 of the Taxes Act 1988; or

• (d) to agree to a transaction affecting his free shares or such of them as are of a particular class, if the transaction would be entered into pursuant to a compromise, arrangement or scheme applicable to or affecting—

• (i) all the ordinary share capital of the company or, as the case may be, all the shares of the class in question, or

• (ii) all the shares, or all the shares of the class in question, which are held by a class of shareholders identified otherwise than by reference to their employment or their participation in an approved employee share ownership plan.

Part V — Partnership shares

Introduction

33

If the plan provides for partnership shares it must comply with the requirements of this Part of this Schedule.

Partnership share agreements

34

The plan must provide for qualifying employees to enter into agreements with the company (“partnership share agreements”) under which—

• (a) the employee authorises the company to deduct part of his salary for the purchase of partnership shares, and

• (b) the company undertakes to arrange for partnership shares to be awarded to the employee in accordance with the plan.

Deductions from salary

35

• (1) The plan must provide for a partnership share agreement to be given effect by deductions from the employee’s salary.

Amounts so deducted are referred to in this Part of this Schedule as “partnership share money".

• (2) The partnership share agreement must specify—

• (a) what amounts are to be deducted, and

• (b) at what intervals.

This does not prevent the employee and the company agreeing to vary those amounts or intervals.

• (3) For the purposes of sub-paragraph (2)(a) the agreement may specify a percentage of the employee’s salary.

• (4) The plan must require the employer company to calculate the amounts and intervals having regard to the provisions of paragraph 36 (maximum amount of deductions from salary).

For this purpose “the employer company" is the company by reference to which the employee meets the requirement of paragraph 14 (the employment requirement) in relation to the plan.

Maximum amount of deductions

36

• (1) The amount of partnership share money deducted from an employee’s salary must not exceed—

• (a) £125 in any month, or

• (b) where the salary is not paid at monthly intervals, such amount as bears to £125 the same proportion as the pay interval in question bears to one month.

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

This means—

• (a) if the plan does not provide for an accumulation period, 10% of the salary payment from which the deduction is made;

• (b) if the plan provides for an accumulation period, 10% of the total of the employee’s salary payments over that period.

• (3) The plan may authorise the company to specify lower limits than those specified in sub-paragraphs (1) and (2).

Different limits may be specified in relation to different awards of shares.

• (4) 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.

Minimum amount of deductions

37

• (1) The plan may provide that the amount to be deducted in pursuance of a partnership share agreement in any month must not be less than a minimum amount specified in the plan.

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

• (3) Sub-paragraphs (1) and (2) apply whatever the intervals at which the employee is paid.

Notice of possible effect of deductions on benefit entitlement

38

• (1) The plan must provide that the company may not enter into a partnership share agreement with an employee unless the agreement contains a notice under this paragraph.

• (2) A notice under this paragraph is a notice in a prescribed form containing prescribed information as to the possible effect of deductions on an employee’s entitlement to social security benefits, statutory sick pay and statutory maternity pay.

• (3) In this paragraph “prescribed” means prescribed by regulations made by the Board.

Partnership share money held for employee

39

• (1) The plan must provide that partnership share money deducted in accordance with 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.

This is subject to paragraphs 40(4)(b) and 42(5)(b) and (6) (obligations to pay money to employee).

• (2) References in this Schedule to the trustees acquiring partnership shares on behalf of an employee include their appropriating to an employee shares already held by them.

• (3) The plan must provide for the trustees to keep any money required to be held by them under this paragraph in an account (interest bearing or otherwise) with—

• (a) a person falling within section 840A(1)(b) of the Taxes Act 1988,

• (b) a building society, or

• (c) a firm falling within section 840A(1)(c) of that Act,

• (4) If the partnership share money held on behalf of an employee is held in an interest bearing account the plan must provide for the trustees to account to the employee for the interest.

Plan with no accumulation period

40

• (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) For this purpose “the acquisition date” means the date set by the trustees in relation to the award of partnership shares, being a date within 30 days after the last date on which the partnership share money to be applied in acquiring the shares was deducted.

• (3) The number of shares awarded to each employee must be determined in accordance with the market value of the shares on the acquisition date.

• (4) 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.

• (5) This paragraph is subject to paragraph 43 (restriction imposed on number of shares awarded).

Plan with accumulation period

41

• (1) The plan may provide for accumulation periods not exceeding twelve months.

• (2) Where it does so—

• (a) the partnership share agreement must specify when each accumulation period begins and ends (the beginning of the first period being not later than the date on which the first deduction is made), and

• (b) the accumulation period which applies in relation to each award of partnership shares must be the same for all individuals who are eligible to participate in the award.

• (3) The partnership share agreement may specify that an accumulation period comes to an end on the occurrence of a specified event.

This is subject to sub-paragraph (2)(b).

• (4) Where the plan provides for accumulation periods, it 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 gives his consent for the purposes of this sub-paragraph,

the partnership share agreement shall have effect after the time of that transaction as if it were an agreement for the purchase of shares comprised in the new holding.

Application of money deducted in accumulation period

42

• (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 period to be applied by the trustees in acquiring partnership shares on behalf of the employee on the acquisition date.

This is subject to sub-paragraphs (6) and (7).

• (3) In sub-paragraph (2) “the acquisition date” means the date set by the trustees in relation to the award of partnership shares, being a date within 30 days after the end of the accumulation period which applies in relation to the award.

• (4) The number of shares awarded to each employee must be determined in accordance with the lower of—

• (a) the market value of the shares at the beginning of the accumulation period, and

• (b) the market value of the shares on the acquisition date.

• (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 to the next accumulation period, and

• (b) in any other case must be paid over to the employee as soon as practicable.

• (6) The plan must provide that where—

• (a) partnership share money has been deducted in an accumulation period, and

• (b) the employee ceases to be in relevant employment during that period,

the partnership share money is paid over to the individual as soon as practicable.

• (7) 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.

• (8) This paragraph is subject to paragraph 43 (restriction imposed on number of shares awarded).

Restriction imposed on number of shares awarded

43

• (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.

A different number may be specified in relation to different awards.