Finance Act 2000

• (1) The amount applied by the trustees in acquiring dividend shares on behalf of a participant is not treated as income of the participant for any tax purposes.

• (2) The participant has no entitlement to a tax credit in respect of the amounts of dividends so applied.

• (3) Sub-paragraphs (1) and (2) do not affect—

• (a) any charge under paragraph 93(1) (charge on dividend shares ceasing to be subject to plan), or

• (b) any entitlement to a tax credit in respect of the amount so charged.

• (4) Section 234A(4) of the Taxes Act 1988 (information relating to distributions to be provided by nominee) shall not apply in relation to any amount applied by the trustees in acquiring dividend shares on behalf of a participant.

This is subject to paragraph 93(4).

Repayment of excess cash dividend

90

Section 234A(4) to (11) of the Taxes Act 1988 (information relating to distributions to be provided by nominee) shall apply in relation to the balance of any cash dividend paid over to the participant under paragraph 54(3) as if it were a payment to which subsection (4)(b) of that section applies.

Treatment of cash dividend retained for reinvestment

91

• (1) An amount retained under paragraph 58(1) (amount of cash dividend not reinvested) shall not be treated as income of the participant for any tax purposes.

• (2) The participant has no entitlement to a tax credit in respect of any such amount.

• (3) This paragraph does not affect any charge—

• (a) under paragraph 92 (treatment of cash dividend retained and then later paid out), or

• (b) paragraph 93 (charge on dividend shares ceasing to be subject to plan),

or any tax credit in respect of an amount so charged.

Treatment of cash dividend retained and then later paid out

92

• (1) Where a cash dividend is paid over to a participant under paragraph 58(2) (cash dividend paid over if not reinvested), the participant is chargeable to tax on that amount—

• (a) under Schedule F, or

• (b) to the extent that the dividend is a foreign cash dividend, under Case V of Schedule D,

for the tax year in which the dividend is paid over to him.

• (2) For the purposes of determining the tax credit (if any) to which the participant is entitled under section 231 of the Taxes Act 1988 (tax credits for certain recipients of qualifying distributions), the reference in subsection (1) of that section to the tax credit fraction in force when the distribution is made shall be read as a reference to the fraction in force when the dividend is paid over to him.

• (3) Section 234A(4) to (11) of the Taxes Act 1988 (information relating to distributions to be provided by nominee) shall apply in relation to an amount paid under paragraph 58(2) as if—

• (a) it were a payment to which subsection (4)(b) of that section applies, and

• (b) the cash dividend had been paid when the payment was paid over to the participant under paragraph 58(2).

Charge on dividend shares ceasing to be subject to plan

93

• (1) If dividend shares cease to be subject to the plan before the end of the period of three years beginning with the date on which the shares were acquired on his behalf, the participant is chargeable to tax on the amount of the relevant dividend—

• (a) under Schedule F, or

• (b) to the extent that the amount represents a foreign cash dividend, under Case V of Schedule D,

for the tax year in which the shares cease to be subject to the plan.

For this purpose “the relevant dividend" is the cash dividend applied to acquire those shares on the participant’s behalf.

• (2) For the purposes of determining the tax credit (if any) to which the participant is entitled under section 231 of the Taxes Act 1988 (tax credits for certain recipients of qualifying distributions), the reference in subsection (1) of that section to the tax credit fraction in force when the distribution is made shall be read as a reference to the fraction in force[when the shares cease to be subject to the plan].

• (3) Where the participant is charged to tax under this paragraph the tax due shall be reduced by the amount or aggregate amount of any tax paid on any capital receipts within paragraph 79 in respect of those shares.

For this purpose “the tax due” means the amount of tax due after deduction of the tax credit determined under sub-paragraph (2).

• (4) Section 234A(4) to (11) of the Taxes Act 1988 (information relating to distributions to be provided by nominee) shall apply in relation to the relevant dividend as if it were a payment to which subsection (4)(b) of that section applies.

• (5) This paragraph has effect subject to paragraph 87 (circumstances in which there is no charge on shares ceasing to be subject to plan).

• (6) Except as provided by this paragraph there is no charge to tax on dividend shares ceasing to be subject to the plan.

PAYE: shares ceasing to be subject to plan

94

Where as a result of shares ceasing to be subject to the plan a participant is chargeable to tax under this Part of this Schedule

• (a) section 203F of the Taxes Act 1988 (PAYE: readily convertible assets) shall have effect as if the participant were being provided with assessable income in the form of those shares—

• (i) at the time the shares cease to be subject to the plan, and

• (ii) in respect of the relevant employment in which the participant is employed at that time (or, if he is not employed in relevant employment at that time, the relevant employment in which he was last employed before that time), and

• (b) subsection (3) of that section

shall have effect as if the reference in that subsection to the amount of income likely to be chargeable to tax under Schedule E in respect of the provision of the asset were a reference to the amount on which tax is likely to be chargeable under this Part of this Schedule by virtue of the shares ceasing to be subject to the plan.

PAYE: shares ceasing to be subject to the plan

95

• (1) Sub-paragraphs (2) to (5) apply where as a result of any shares (“the relevant shares”) ceasing to be subject to the plan—

• (a) a participant is chargeable to income tax under Schedule E in accordance with this Part of this Schedule, and

• (b) an obligation to make a PAYE deduction arises in respect of that charge.

• (2) The trustees must pay to the employer company a sum which is sufficient to enable the employer company to discharge that obligation.

This is subject to sub-paragraphs (3) and (7).

• (3) Sub-paragraph (2) only applies where, or to the extent that, the plan does not require the participant to pay the employer company a sum that is sufficient to discharge the obligation mentioned in sub-paragraph (1)(b).

• (4) Section 203J(1) of the Taxes Act 1988 (sections 203B to 203I: accounting for tax) shall have effect as if it required the deduction of income tax to be made from any sum or sums received by the employer—

• (a) from the trustees under sub-paragraph (2), or

• (b) from the participant in accordance with the plan, as mentioned in sub-paragraph (3).

• (5) After making the necessary PAYE deduction from the sum or sums received as mentioned in sub-paragraph (4), the employer company shall pay any remaining amounts to the participant.

• (6) For the purposes of this paragraph “the employer company” means the company which employs the participant in relevant employment at the time when the shares cease to be subject to the plan (or, if the participant is not employed in relevant employment at that time, the company which last employed him in relevant employment before that time), provided that that company is one to whom the PAYE regulations (within the meaning of section 203L(3) of the Taxes Act 1988) at that time apply.

• (7) Where, as a result of any shares ceasing to be subject to the plan, a participant is chargeable to income tax under Schedule E in accordance with this Part and either—

• (a) there is no company which falls within sub-paragraph (6), or

• (b) the Inland Revenue are of the opinion that it is impracticable for the company which falls within that sub-paragraph to make a PAYE deduction and accordingly direct that this sub-paragraph shall apply,

then sub-paragraph (2) shall not apply and the trustees shall make a PAYE deduction in respect of an amount equal to that on which income tax is payable as if the participant were a former employee of the trustees.

• (8) In a case where sub-paragraph (7) applies, section 203C of the Taxes Act 1988 (PAYE: employee of non-UK employer) does not apply.

• (9) Where—

• (a) a participant disposes of his beneficial interest in any of his plan shares to the trustees, and

• (b) the trustees are deemed by virtue of paragraph 74 to have disposed of the shares in question,

this paragraph shall apply as if the consideration payable by the trustees to the participant on the disposal had been received by the trustees as the proceeds of disposal of plan shares.

• (10) For the purposes of this paragraph “PAYE deduction” means a deduction required by regulations under section 203 of the Taxes Act 1988.

PAYE: capital receipts

96

• (1) Where the trustees receive a sum of money which constitutes (or forms part of) a capital receipt in respect of which a participant is chargeable to income tax under Schedule E, in accordance with this Part of this Schedule, when it is received by him—

• (a) the trustees shall pay out of that sum of money to the employer company an amount equal to that on which income tax is so payable, and

• (b) the employer company shall then pay over that amount to the participant, but in so doing shall make a PAYE deduction.

This is subject to sub-paragraph (3).

• (2) For the purposes of this paragraph “the employer company” means the company which employs the participant in relevant employment at the time the trustees receive the sum of money referred to in sub-paragraph (1) (or, if the participant is not employed in relevant employment at that time, the company which last employed him in relevant employment before that time), provided that that company is one to whom the PAYE regulations (within the meaning of section 203L(3) of the Taxes Act 1988) at that time apply

• (3) Where the trustees receive a sum of money to which sub-paragraph (1) applies but—

• (a) there is no company which falls within sub-paragraph (2), or

• (b) the Inland Revenue are of the opinion that it is impracticable for the company which falls within that sub-paragraph to make a PAYE deduction and accordingly direct that this sub-paragraph shall apply,

then, in paying over to the participant the capital receipt, the trustees shall make a PAYE deduction in respect of an amount equal to that on which income tax is payable as mentioned in sub-paragraph (1) as if the participant were a former employee of the trustees.

• (4) In a case where sub-paragraph (3) applies, section 203C of the Taxes Act 1988 (PAYE: employee of non-UK employer) does not apply.

• (5) For the purposes of this paragraph “PAYE deduction” means a deduction required by regulations under section 203 of the Taxes Act 1988.

Part XI — Capital gains tax

Introduction

97

The provisions of this Part apply for capital gains tax purposes in relation to an approved employee share ownership plan.

Gains accruing to trustees

98

• (1) Any gain accruing to the trustees is not a chargeable gain if the shares—

• (a) are shares in relation to which the requirements of Part VIII are met, and

• (b) are awarded to employees, or acquired on their behalf as dividend shares, in accordance with the plan within the relevant period.

• (2) If the shares are readily convertible assets at the time they are acquired by the trustees, the relevant period is the period of two years beginning with the date on which the shares are acquired by the trustees.

• (3) If at the time of their acquisition by the trustees the shares are not readily convertible assets, the relevant period is—

• (a) the period of five years beginning with the date on which the shares were acquired, or

• (b) if within that period the shares in question become readily convertible assets, the period of two years beginning with the date on which they did so,

whichever ends first.

• (4) For the purposes of determining whether shares are awarded to employees within the relevant period, shares acquired by the trustees at an earlier time are taken to be awarded to employees before shares of the same class acquired by the trustees at a later time.

This is subject to paragraph 76(1) (treatment of shares acquired from an employee share ownership trust).

Participant absolutely entitled as against trustees

99

• (1) A participant is treated for capital gains tax purposes as absolutely entitled as against the trustees to any shares awarded to him under the plan.

• (2) This applies notwithstanding anything in the plan or the trust instrument.

Different classes of shares

100

• (1) For the purposes of Chapter I of Part IV of the Taxation of Chargeable Gains Act 1992 (identification of shares etc.) a participant’s plan shares are treated, so long as they are subject to the plan, as of a different class from any shares (which would otherwise be treated as of the same class) that are not plan shares.

• (2) For the purposes of that Chapter, any shares transferred to the trustees of the plan trust by a qualifying transfer that have not been awarded to participants under the plan shall (notwithstanding that they would otherwise fall to be treated as of the same class) be treated as of a different class from any shares held by the trustees that were not transferred to them by a qualifying transfer.

• (3) In sub-paragraph (2) “qualifying transfer” has the meaning given in paragraph 76 (acquisition by trustees of shares from employee share ownership trust).

No chargeable gain on shares ceasing to be subject to the plan

101

• (1) Shares which cease to be subject to the plan are treated as having been disposed of and immediately reacquired by the participant at market value.

• (2) Any gain accruing on that disposal is not a chargeable gain.

Treatment of forfeited shares

102

• (1) If any of the participant’s plan shares are forfeited, they are treated as having been disposed of by the participant and acquired by the trustees at market value at the date of forfeiture.

• (2) Any gain accruing on that disposal is not a chargeable gain.

Acquisition by trustees of shares from profit sharing scheme

103

• (1) Where the trustees acquire shares from the trustees of an approved profit sharing scheme, the disposal and the acquisition by the trustees are treated as being made for such consideration as to secure that neither a gain nor a loss accrues on the disposal.

• (2) In such a case the relevant period for the purposes of paragraph 98 is determined as if the shares had been acquired by the trustees at the time they were acquired by the trustees of the other trust.

This does not affect the date on which the trustees are treated as acquiring the shares for the purposes of taper relief.

Disposal of rights under rights issue

104

• (1) Any gain accruing on the disposal of rights under paragraph 72 (power of trustees to raise funds to subscribe for rights issue) is not a chargeable gain.

• (2) Sub-paragraph (1) does not apply to a disposal of rights unless similar rights are conferred in respect of all ordinary shares in the company.

Part XII — Corporation tax deductions

Introduction

105

References in this Part of this Schedule to deductions are to deductions by a company in calculating for the purposes of corporation tax the profits of a trade carried on by it.

Deduction for providing free or matching shares

106

• (1) Where, under an approved employee share ownership plan, shares are awarded to employees as free or matching shares by reason of their employment with a company, a deduction is allowed under this paragraph to that company.

• (2) Any such deduction—

• (a) is of an amount equal to the market value of the shares at the time they are acquired by the trustees, and

• (b) must be made for the period of account in which the shares are awarded to employees in accordance with the plan.

• (3) Except as provided by sub-paragraph (1), no deduction may be made by that company or any associated company in respect of the provision of those shares.

This is subject to paragraphs 111 (deduction for costs of setting up the plan) and 112 (deductions for contributions to running expenses of plan).

• (4) Where the shares are awarded under a group plan, the market value of the shares at the time they are acquired by the trustees shall for the purposes of this paragraph be taken to be the relevant proportion of the total market value of the shares included in the award.

For this purpose “the relevant proportion” means the proportion that the number of shares in the award awarded to the employees of the company concerned bears to the total number of shares in the award.

• (5) In determining the market value of any shares for the purposes of this paragraph, if shares have been acquired by the trustees on different days it shall be assumed that those acquired on an earlier day are awarded to employees under the plan before those acquired by the trustees on a later day.

• (6) If a deduction is made under this paragraph by a company, no deduction may be made by any other company under this paragraph in respect of the provision of the shares.

• (7) This paragraph has effect subject to paragraph 108 (cases in which no deduction is allowed).

Deduction for additional expenses in providing partnership shares

107

• (1) Where under an approved employee share ownership plan—

• (a) partnership shares are awarded to employees by reason of their employment with a company, and

• (b) the market value of those shares at the time they are acquired by the trustees exceeds the partnership share money paid by the participants to acquire those shares,

a deduction is allowed under this paragraph to that company.

• (2) Any such deduction—

• (a) is of an amount equal to the amount of the excess referred to in sub-paragraph (1)(b), and

• (b) must be made for the period of account in which the shares are awarded to employees in accordance with the plan.

• (3) Except as provided by sub-paragraph (1), no deduction may be made by that company or any associated company in respect of the provision of those shares.

This is subject to paragraphs 111 (deduction for costs of setting up the plan) and 112 (deductions for contributions to running expenses of plan).

• (4) If a deduction is made under this paragraph by a company, no deduction may be made by any other company under this paragraph in respect of the provision of the shares.

• (5) This paragraph has effect subject to paragraph 108 (cases in which no deduction is allowed).

Cases in which no deduction is allowed

108

• (1) No deduction is allowed under paragraph 106 or 107 in the following cases.

• (2) No deduction is allowed in respect of shares awarded to an individual who is not a Schedule E taxpayer at the date the shares are awarded to him under the plan.

A “Schedule E taxpayer” means an individual who—

• (a) is chargeable to tax under Schedule E in respect of emoluments from the employment by reference to which he is eligible to participate in the award, or

• (b) would be so chargeable if any such emoluments were remitted to the United Kingdom.

• (3) No deduction is allowed in respect of shares that are liable to depreciate substantially in value for reasons that do not apply generally to shares in the company.

• (4) No deduction is allowed if a deduction has been made—

• (a) by the company, or

• (b) by an associated company of the company,

in respect of the provision of the same shares for this or another trust.

This applies whatever the nature or purpose of the other trust and whatever the basis on which the deduction was made.

• (5) For the purposes of determining whether the same shares have been provided to more than one trust, if shares have been acquired by the trustees of the plan trust on different days it shall be assumed that those acquired on an earlier day are awarded under the plan before those acquired by the trustees on a later day.

No deduction for expenses in providing dividend shares

109

• (1) No deduction is allowed for expenses in providing shares that are acquired on behalf of individuals under an approved employee share ownership plan as dividend shares.

• (2) This is subject to paragraph 112 (deductions for contributions to running expenses of plan).

Treatment of forfeited shares

110

If any of a participant’s plan shares are forfeited—

• (a) the shares are treated for the purposes of this Part as acquired by the trustees—

• (i) when the forfeiture occurs, and

• (ii) for no consideration, and

• (b) no deduction is allowed under paragraph 106 or 107 in respect of any subsequent award of those shares under the plan.

Deduction for costs of setting up the plan

111

• (1) A deduction is allowed under this paragraph for expenses incurred by a company in establishing an employee share ownership plan which is approved by the Inland Revenue.

• (2) No deduction may be made under this paragraph if—

• (a) any employee acquires rights under the plan, or

• (b) the trustees acquire any shares for the purposes of the plan,

before the Inland Revenue approve the plan.

• (3) If Inland Revenue approval of the plan is given more than nine months after the end of that period of account in which the expenses are incurred, the expenses are treated for the purposes of this paragraph as incurred in the period in which the approval is given.

• (4) No other deduction is allowed in respect of expenses for which a deduction is allowed under this paragraph.

Deductions for contributions to running expenses of plan

112

• (1) Nothing in this Part of this Schedule affects any deduction for expenses incurred by a company in contributing to the expenses of the trustees in operating an approved employee share ownership plan.

• (2) For this purpose the expenses of the trustees in operating the plan—

• (a) do not include expenses in acquiring shares for the purposes of the trust, other than incidental acquisition costs, but

• (b) do include the payment of interest on money borrowed by them for that purpose.

• (3) In sub-paragraph (2)(a) “incidental acquisition costs” means any fees, commission, stamp duty and similar incidental costs attributable to the acquisition of the shares.

Withdrawal of deductions on withdrawal of approval

113

• (1) If approval of an employee share ownership plan is withdrawn the Inland Revenue may by notice to a company direct that the benefit of any deductions under paragraph 106 (deduction for providing free or matching shares) or 107 (deduction for contributing to additional expenses in providing partnership shares) in relation to the plan is also withdrawn.

• (2) The effect of the direction is that the aggregate amount of the deductions is treated as a trading receipt of that company for the period of account in which the Inland Revenue give notice of the withdrawal of approval.

Application of provisions to expenses of management of investment companies etc.

114

• (1) The provisions of this Part apply in relation to—

• (a) investment companies, and

• (b) companies to which section 75 of the Taxes Act 1988 (management expenses) applies by virtue of section 76 of that Act (insurance companies),

in accordance with the following provisions.

• (2) The provisions of this Part which allow a deduction in calculating the profits of a trade apply to treat amounts as disbursed as expenses of management.

• (3) Paragraph 113(2) (effect of direction as to withdrawal of deductions) applies as if the reference to a trading receipt for the period of account in which the Inland Revenue give notice of the withdrawal of approval were a reference to profits or gains chargeable to tax under Case VI of Schedule D arising when the Inland Revenue give notice of the withdrawal.

Part XIII — Supplementary provisions

Company reconstructions

115

• (1) This paragraph applies where there occurs in relation to any of the participant’s plan shares (“the original holding”)—

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

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

other than a transaction within sub-paragraph (2).

A transaction in relation to which this paragraph applies is referred to below as a “company reconstruction".

• (2) Where an issue of shares of any of the following descriptions (in respect of which a charge to income tax arises) is made as part of a company reconstruction, those shares shall be treated for the purposes of this paragraph as not forming part of the new holding—

• (a) redeemable shares or securities issued as mentioned in section 209(2)(c) of the Taxes Act 1988;

• (b) share capital issued in circumstances such that section 210(1) of that Act applies;

• (c) share capital to which section 249 of that Act applies.

• (3) In this paragraph—

• “corresponding shares”, in relation to any new shares, means the shares in respect of which the new shares are issued or which the new shares otherwise represent;

• “new shares” means shares comprised in the new holding which were issued in respect of, or otherwise represent, shares comprised in the original holding;

• “original holding” has the meaning given by sub-paragraph (1).

• (4) Subject to the following provisions of this paragraph, in relation to an employee share ownership plan, references in this Schedule to a participant’s plan shares shall be construed, after the time of the company reconstruction, as being or, as the case may be, as including references to any new shares.

• (5) For the purposes of this Schedule—

• (a) a company reconstruction shall be treated as not involving a disposal of shares comprised in the original holding,

• (b) the date on which any new shares are to be treated as having been awarded to the participant shall be that on which the corresponding shares were awarded,

• (c) the conditions in Part VIII shall be treated as fulfilled with respect to any new shares if they were (or were treated as) fulfilled with respect to the corresponding shares, and

• (d) the provisions of Part X (income tax) and Part XI (capital gains tax) shall apply in relation to the new shares as they would have applied to the corresponding shares.

Where the corresponding shares were dividend shares, the reference in paragraph (b) to the shares being awarded shall be read as a reference to the shares being acquired on behalf of the participant.

• (6) Sub-paragraphs (4) and (5) are subject to paragraph 116 (treatment of shares acquired under rights issue).

• (7) For the purposes of this Schedule if, as part of a company reconstruction, trustees become entitled to a capital receipt, their entitlement to the capital receipt shall be taken to arise before the new holding comes into being.

• (8) In the context of a new holding, any reference in this Schedule to shares includes securities and rights of any description which form part of the new holding for the purposes of Chapter II of Part IV of the Taxation of Chargeable Gains Act 1992.

Treatment of shares acquired under rights issue

116

• (1) Where the trustees exercise rights under a rights issue conferred in respect of a participant’s plan shares, any shares or securities or rights allotted as a result shall be treated for the purposes of this Schedule as if they were plan shares—

• (a) identical to the shares in respect of which the rights were conferred, and

• (b) appropriated to, or acquired on behalf of, the participant under the plan in the same way and at the same time as those shares.

This is subject to sub-paragraphs (2) to (4).

• (2) Where the funds used by the trustees to exercise rights under a rights issue are provided otherwise than by virtue of the exercise by the trustees of their powers under paragraph 72 (power of trustees to raise funds to subscribe for rights issue)—

• (a) any shares, securities or rights allotted are not plan shares, and

• (b) sections 127 to 130 of the Taxation of Chargeable Gains Act 1992 shall not apply in relation to them.

• (3) Sub-paragraph (1) does not apply in relation to rights arising under a rights issue unless similar rights are conferred in respect of all ordinary shares in the company.

• (4) Where sub-paragraph (1) does not apply by virtue of sub-paragraph (3)—

• (a) any shares, securities or rights allotted are not plan shares, and

• (b) sections 127 to 130 of the Taxation of Chargeable Gains Act 1992 shall not apply in relation to them.

• (5) In this paragraph references to rights arising under a rights issue are to be construed in accordance with paragraph 72(2).

Power to require information

117

• (1) The Inland Revenue may by notice require any person to provide them with such information as they reasonably require for the performance of their functions under this Schedule and as the person to whom the notice is addressed has or can reasonably obtain.

• (2) The power conferred by this paragraph extends, in particular, to—

• (a) information to enable the Inland Revenue—

• (i) to decide whether to approve an employee share ownership plan or withdraw an approval already given, or

• (ii) to determine the liability to tax, including capital gains tax, of any person who has participated in a plan; and

• (b) information about the administration of a plan and any proposed alteration of the terms of a plan.

• (3) The notice must require the information to be provided within a specified time, which must not be less than three months.

• (4) In section 98 of the Taxes Management Act 1970 (penalties in connection with returns, etc.), in the first column of the table, after the final entry insert— “ paragraph 117 of Schedule 8 to the Finance Act 2000 ”.

Withdrawal of approval

118

• (1) If any disqualifying event occurs in relation to an approved employee share ownership plan, the Inland Revenue may by notice to the company withdraw the approval with effect from the time at which the disqualifying event occurred or such later time as the Inland Revenue may specify.

• (2) The following are disqualifying events—

• (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) any alteration being made in a key feature of the plan, or in the terms of the plan trust, without the approval of the Inland Revenue;

• (c) if the plan provides for performance allowances in accordance with paragraph 30 (method two), the setting, in respect of an award of shares, of performance targets that, at the time they are set in accordance with the plan, cannot reasonably be viewed as being comparable;

• (d) any alteration being made in the share capital of the company whose shares are the subject of the plan, or in the rights attaching to any shares of that company, that materially affects the value of participants’ plan shares;

• (e) shares of a class of which shares have been awarded to participants receiving different treatment in any respect from the other shares of that class;

• (f) the trustees, the company or, in the case of a group plan, a company which is or has been a participating company failing to furnish any information which they are or it is required to furnish under paragraph 117.

• (3) For the purposes of sub-paragraph (2)(b)—

• (a) an alteration is an alteration of a “key feature" of the plan if it relates to a provision that is necessary in order to meet the requirements of this Schedule; and

• (b) the Inland Revenue shall not withhold their approval unless it appears to them that the plan as proposed to be altered would not now be approved on an application under paragraph 4.

• (4) For the purposes of sub-paragraph (2)(c) performance targets are comparable if they are comparable in terms of the likelihood of their being met by the performance units to which they apply.

• (5) Sub-paragraph (2)(e) applies, in particular, to different treatment in respect of—

• (a) the dividend payable;

• (b) repayment;

• (c) the restrictions attaching to the shares; or

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

This is subject to sub-paragraph (6).

• (6) Sub-paragraph (2)(e) does not apply—

• (a) where the difference in treatment arises from—

• (i) a key feature of the plan, or

• (ii) any of the participants’ shares being subject to provision for forfeiture, or

• (b) on the ground only 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.

• (7) The withdrawal of approval of an employee share ownership plan does not affect the operation of this Schedule in relation to shares awarded to participants in the plan before the time with effect from which approval was withdrawn.

References in this Schedule to an approved employee share ownership plan in relation to such shares are to a plan that was approved at the time the shares were awarded.

Appeal against withdrawal of approval

119

• (1) The company may appeal against a decision of the Inland Revenue—

• (a) to withdraw approval of an employee share ownership plan, or

• (b) to give a direction under paragraph 113 (withdrawal of corporation tax deductions on withdrawal of approval), or

• (c) to refuse approval under paragraph 118(2)(b) (approval of alteration of plan or plan trust).

• (2) The appeal lies to the Special Commissioners.

• (3) Notice of appeal must be given to the Inland Revenue within 30 days after notice of their decision is given to the company.

Termination of plan

120

• (1) The plan may provide for the company to issue a plan termination notice in respect of the plan in such circumstances as are specified in the plan.

• (2) The plan must provide that, where a plan termination notice is issued, a copy of the notice is to be given, without delay, to—

• (a) the Inland Revenue,

• (b) the trustees, and

• (c) each individual—

• (i) who has plan shares, or

• (ii) who has entered a partnership share agreement which was in force immediately before the notice was issued.

Effect of plan termination notice

121

• (1) This paragraph applies where the company has issued a plan termination notice under paragraph 120.

• (2) No further shares may be awarded to individuals under the plan.

• (3) The trustees must remove the plan shares from the plan as soon as practicable after—

• (a) the end of the notice period, or

• (b) if later, the first date on which the shares may be removed from the plan without giving rise to a charge to income tax under Part X of this Schedule on the participant on whose behalf they are held.

Paragraph 46 (repayment of partnership share money) and paragraph 58(2) (cash dividend paid over if not reinvested) provide for the payment to employees of money held on their behalf.

• (4) In sub-paragraph (3) “the notice period” means the period of three months beginning with the date on which the requirements imposed by the plan in accordance with paragraph 120(2) (copy of termination notice to Inland Revenue, participants etc.) are met in respect of the plan termination notice.

• (5) The trustees may remove the participant’s shares from the plan at an earlier date with the participant’s consent.

• (6) Any consent given by the participant before he receives a copy of the plan termination notice shall be disregarded for this purpose.

• (7) The trustees must as soon as practicable after the plan termination notice is issued pay to an individual any money held on his behalf.

• (8) In this paragraph references to the trustees removing the plan shares from the plan are to their—

• (a) transferring the shares to the participant on behalf of whom they are held, or to another person, at his direction, or

• (b) disposing of the shares and accounting (or holding themselves ready to account) for the proceeds to the participant or to another person at his direction.

• (9) Where the participant has died, the references in sub-paragraph (8) to the participant shall be read as references to his personal representatives.

Meaning of shares being withdrawn from or ceasing to be subject to plan

122

• (1) For the purposes of this Schedule shares are withdrawn from the plan when—

• (a) they are transferred by the trustees to the participant, or another person, on the direction of the participant,

• (b) the participant assigns, charges or otherwise disposes of his beneficial interest in the shares, or

• (c) they are disposed of by the trustees, on the direction of the participant, in circumstances where the trustees account (or hold themselves ready to account) for the proceeds to the participant or to another person.

• (2) Where the participant has died, the references in sub-paragraph (1) to the participant shall be read as references to his personal representatives.

• (3) For the purposes of this Schedule plan shares cease to be subject to the plan when—

• (a) they are withdrawn from the plan,

• (b) the participant to whom the shares were awarded ceases to be in relevant employment at a time when the shares are subject to the plan, or

• (c) the trustees dispose of the shares under provision made in accordance with paragraph 73 (meeting PAYE obligations).

• (4) Where an individual participates in an award of partnership shares, if he ceases to be in relevant employment at any time during the acquisition period relating to that award, he shall be treated for the purposes of sub-paragraphs (3) and (7) as ceasing to be in such employment immediately after the shares are awarded to him.

• (5) In sub-paragraph (4) “the acquisition period” in relation to an award means—

• (a) where there was no accumulation period, the period beginning with the deduction of the partnership share money and ending with the acquisition date (within the meaning of paragraph 40(2)); and

• (b) where there was an accumulation period, the period beginning with the end of that period and ending immediately before the acquisition date (within the meaning of paragraph 42(3)).

• (6) For the purposes of determining the charge to income tax (if any) arising on any of the participant’s shares ceasing to be subject to the plan—

• (a) shares shall be taken to cease to be subject to the plan in the order in which they were awarded to the participant under the plan,

• (b) where shares are awarded to the participant on the same day, the shares shall be treated as ceasing to be subject to the plan in the order which gives rise to the lowest charge to income tax on the participant.

• (7) Where a participant ceases to be in relevant employment his plan shares shall be treated as ceasing to be subject to the plan on the date of leaving.

Meaning of participant ceasing to be in relevant employment

123

• (1) This paragraph explains what is meant by a participant ceasing to be in relevant employment.

• (2) Relevant employment means employment by the company or any associated company.

• (3) A participant does not cease to be in relevant employment if he remains in the employment of the company or any associated company.

Exercise of functions conferred on “the Inland Revenue"

124

References in this Schedule to “the Inland Revenue" are to any officer of the Board.

Determination of market value

125

• (1) For the purposes of this Schedule the “market value” of shares has the same meaning as, for the purposes of the Taxation of Chargeable Gains Act 1992, it has by virtue of Part VIII of that Act.

This is subject to paragraph 24(3) (determination of value of shares subject to restriction or risk of forfeiture).

• (2) Where for the purposes of this Schedule the market value of shares on any date falls to be determined, the Inland Revenue and the trustees may agree that it shall be determined by reference to such date or dates, or to an average of the values on a number of dates, as may be provided in the agreement.

Meaning of “associated company"

126

• (1) For the purposes of this Schedule one company is an “associated company” of another company if—

• (a) one has control of the other, or

• (b) both are under the control of the same person or persons.

• (2) For the purposes of this paragraph the question of whether a person controls a company shall be determined in accordance with section 416(2) to (6) of the Taxes Act 1988.

• (3) This paragraph is subject to paragraph 67(3).

Jointly owned companies

127

• (1) For the purposes of the provisions of this Schedule relating to group plans, each joint owner of a jointly owned company is treated as controlling—

• (a) the jointly owned company, and

• (b) any company controlled by that company.

This paragraph does not apply for the purposes of paragraph 61(b) (requirement that plan shares are in a company not under another company’s control).

• (2) A “jointly owned company” means a company—

• (a) of which 50% of the issued share capital is owned by one person and 50% by another, and

• (b) which is not controlled by any one person.

• (3) A jointly owned company may not be a participating company in more than one group plan.

• (4) A company controlled by a jointly owned company may not—

• (a) be a participating company in more than one group plan, or

• (b) if the jointly owned company or any other company controlled by it is a participating company in a group plan, be a participating company in a different group plan.

Meaning of “readily convertible asset"

128

• (1) For the purposes of this Schedule “readily convertible asset” has the same meaning as in section 203F of the Taxes Act 1988 (PAYE: tradeable assets).

This is subject to sub-paragraph (2).

• (2) In determining for the purposes of this Schedule (and that section in its application in relation to shares which cease to be subject to a plan) whether shares are readily convertible assets any market for the shares that—

• (a) is created by virtue of the trustees acquiring shares for the purposes of the plan, and

• (b) exists solely for the purposes of the plan,

shall be disregarded.

Minor definitions

129

• (1) In this Schedule—

• “approved employee share ownership plan” means an employee share ownership plan approved under this Schedule;

• “approved profit sharing scheme” means a profit sharing scheme approved under Schedule 9 to the Taxes Act 1988;

• “articles of association”, in relation to a company, includes any other written agreement between the shareholders of the company;

• “company” means a body corporate;

• “control”, unless otherwise indicated, has the same meaning as in section 840 of the Taxes Act 1988;

• “foreign cash dividend” means a cash dividend paid in respect of plan shares in a company not resident in the United Kingdom;

• “group of companies” means a company and any other companies of which it has control, and “group company” has a corresponding meaning;

• “ordinary share capital” has the meaning given in section 832(1) of the Taxes Act 1988;

• “participant’s plan shares”, in relation to an employee share ownership plan, means plan shares that have been awarded to an individual participant;

• “PAYE obligations” means obligations of any person under—sections 203 to 203L of the Taxes Act 1988, orregulations under section 203 of that Act;

• “plan shares”, in relation to a plan, means—free, partnership or matching shares that have been awarded to participants under the plan,dividend shares that have been acquired on behalf of participants under the plan, andshares in relation to which paragraph 115(5) applies (company reconstructions: new shares)),that remain subject to the plan;

• “qualifying corporate bond” has the meaning given by section 117 of the Taxation of Chargeable Gains Act 1992;

• “tax year” means a year of assessment.

• (2) Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this Schedule.

• (3) For the purposes of this Schedule references to “shares” include fractions of shares forming part of the share capital of a company registered in a foreign country the law of which recognises such fractions.

• (4) For the purposes of this Schedule a company is a member of a consortium owning another company if it is one of a number of companies—

• (a) which between them beneficially own not less than three-quarters of the other company’s ordinary share capital, and

• (b) each of which beneficially owns not less than one-twentieth of that capital.

Index of defined expressions

130

In this Schedule the following expressions are defined or otherwise explained by the provisions indicated—

SCHEDULE 9

The Schedule inserted after Schedule 7B to the Taxation of Chargeable Gains Act 1992 is as follows—

SCHEDULE 10

Introduction

1

Chapter II of Part V of the Taxes Act 1988 (provisions relating to the Schedule E charge: benefits in kind, etc.) is amended as follows.

Accommodation, supplies or services used in performing duties of employment

2

• (1) After section 155 (exceptions from the general charge) insert—

(155ZA) (1) Section 154 does not apply to a benefit consisting in the provision of accommodation, supplies or services used by the employee in performing the duties of his employment if the following conditions are met. (2) Where the benefit is provided on premises occupied by the employer or other person providing it, the only condition is that any use of it for private purposes by the employee or members of his family or household is not significant. (3) Where the benefit is provided otherwise than on premises occupied by the employer or other person providing it, the conditions are— (a) that the sole purpose of providing the benefit is to enable the employee to perform the duties of his employment, (b) that any use of it for private purposes is not significant, and (c) that it is not an excluded benefit. (4) The Treasury may make provision by regulations as to what is an excluded benefit for the purposes of subsection (3)(c) above. The regulations may provide that a benefit is an excluded benefit only if such conditions as may be prescribed are met as to the terms on which, and persons to whom, it is provided. (5) Subject to any such regulations, the provision of any of the following is an excluded benefit (whatever the terms and whoever it is provided to)— (a) a motor vehicle, boat or aircraft; (b) a benefit that involves— (i) the extension, conversion or alteration of any living accommodation, or (ii) the construction, extension, conversion or alteration of a building or other structure on land adjacent to and enjoyed with such accommodation. (6) For the purposes of this section— (a) use “for private purposes” means any use that is not use in performing the duties of the employee’s employment; and (b) use that is at the same time use in performing the duties of an employee’s employment and use for private purposes counts as use for private purposes.

.

• (2) In section 154(2) and (3), after “155" insert “ , 155ZA ”.

Power to provide by regulations for exemption of minor benefits

3

• (1) After section 155ZA (inserted by paragraph 2(1) above), insert—

(155ZB) (1) The Treasury may make provision by regulations for exempting from section 154 such minor benefits as may be specified in the regulations. (2) Any exemption conferred by regulations under this section is conditional on the benefit being made available to the employer’s employees generally on similar terms.

.

• (2) In section 154(2), after “155ZA," (inserted by paragraph 2(2) above) insert “ 155ZB, ”.

Beneficial loans: exception of loan where whole of interest qualifies for relief

4

• (1) After section 161 (exceptions from the charge to tax on beneficial loan arrangements), insert—

(161A) (1) In this Chapter a “qualifying loan" means a loan made to a person where, assuming interest is paid on the loan (whether or not it is in fact paid), the whole or part of the interest paid on it for the year— (a) is eligible for relief under section 353 or would be so eligible but for subsection (2) of that section, or (b) is deductible in computing the amount of the profits to be charged— (i) under Case I or II of Schedule D in respect of a trade, profession or vocation carried on by him, or (ii) under Schedule A in respect of a Schedule A business carried on by him. (2) Section 160(1) does not apply to a loan in any year in which, on the assumption mentioned in subsection (1) above, the whole of the interest paid on it is eligible for relief or deductible as mentioned in that subsection.

.

• (2) In section 160—

• (a) subsection (1C) shall cease to have effect, and

• (b) in subsection (5), after “161" insert “ , 161A ”.

Beneficial loans: loans on ordinary commercial terms

5

• (1) After section 161A (inserted by paragraph 4(1) above) insert—

(161B) (1) Section 160(1) does not apply to a loan on ordinary commercial terms. (2) Schedule 7A to this Act has effect as to what is meant by a loan on ordinary commercial terms.

.

• (2) After Schedule 7 insert—

SCHEDULE 7A (1) For the purposes of section 161B(1) a loan “on ordinary commercial terms” means a loan— (a) made by a person (“the lender”) in the ordinary course of a business carried on by him which includes— (i) the lending of money, or (ii) the supplying of goods or services on credit, and (b) in relation to which the requirements of paragraph 2, 3 or 4 below are met. (2) (1) This paragraph applies to any loan and the relevant time for the purposes of this paragraph is the time the loan was made. (2) The requirements of this paragraph are— (a) that at the relevant time comparable loans were available to all those who might be expected to avail themselves of the services provided by the lender in the course of his business; (b) that a substantial proportion of the relevant loans were made to members of the public; (c) that the loan in question and comparable loans generally made by the lender at or about the relevant time to members of the public are held on the same terms; and (d) that if those terms differ from those applicable immediately after the relevant time they were imposed in the ordinary course of the lender’s business. (3) For the purposes of this paragraph a loan is comparable to another loan if it is made for the same or similar purposes and on the same terms and conditions. (4) The relevant loans for the purposes of sub-paragraph (2)(b) are— (a) the loan in question, and (b) comparable loans made by the lender at or about the relevant time. (5) In determining for the purposes of this paragraph whether any loans made by any person before 1st June 1994 are made on the same terms or conditions, or held on the same terms, there shall be left out of account any amounts, by way of fees, commission or other incidental expenses, incurred for the purpose of obtaining any of those loans by the persons to whom they are made. (3) (1) This paragraph applies to a loan that has been varied before 6th April 2000 and the relevant time for the purposes of this paragraph is the time of the variation. (2) The requirements of this paragraph are— (a) that a substantial proportion of the relevant loans were made to members of the public; (b) that the loan in question and relevant loans generally made by the lender at or about the relevant time to members of the public are held on the same terms; and (c) that if those terms differ from those applicable immediately after the relevant time they were imposed in the ordinary course of the lender’s business. (3) The relevant loans for the purposes of sub-paragraph (2)(a) are— (a) the loan in question; (b) any existing loans which were varied at or about the time of the variation of the loan in question so as to be held on the same terms as that loan after it was varied; (c) any new loans made by the lender, at or about that time, which are held on those terms. (4) (1) The requirements of this paragraph apply to a loan that has been varied on or after 6th April 2000 and the relevant time for the purposes of this paragraph is the time of the variation. (2) The first requirement is that at the relevant time members of the public that had loans from the lender for similar purposes had a right to vary their loans on the same terms and conditions as applied in relation to the variation of the loan in question. (3) The second requirement is that any existing loans so varied and the loan in question as varied are held on the same terms. (4) The third requirement is that if those terms differ from the terms applicable immediately after the relevant time, they were imposed in the ordinary course of the lender’s business. (5) The fourth requirement is that a substantial proportion of the relevant loans were made to members of the public. (6) The relevant loans for the purposes of sub-paragraph (5) are— (a) the loan in question; (b) any existing loans which were varied at or about the time of the variation of the loan in question so as to be held on the same terms as that loan after it was varied; (c) any new loans made by the lender, at or about that time, which are held on those terms. (5) Amounts incurred by the person to whom a loan is made— (a) on penalties or interest or similar amounts incurred as a result of varying the loan, and (b) on fees, commission or other incidental expenses, incurred for the purpose of obtaining the loan, shall be left out of account in determining for the purposes of paragraph 3 or 4 whether rights to vary loans are exercisable on the same terms and conditions or loans are held on the same terms. (6) For the purposes of this Schedule a “member of the public” means a member of the public at large with whom the lender deals at arm’s length.

.

• (3) In section 160(5)—

• (a) after “161A" (inserted by paragraph 4(2)) insert “ , 161B ”, and

• (b) for “Schedule 7" substitute “ Schedules 7 and 7A ”.

• (4) In section 161, subsections (1A) and (1B) shall cease to have effect.

Beneficial loans: apportionment of benefit in case of joint loan etc.

6

In Schedule 7 to the Taxes Act 1988 (taxation of benefit from loans obtained by reason of employment), after paragraph 5 insert—

(5A) (1) Where in any year there are two or more employees chargeable to tax in respect of the same loan— (a) the cash equivalent of the benefit of the loan (determined in accordance with this Schedule) shall be apportioned between them in a fair and reasonable manner, and (b) the portion allocated to each employee shall be treated as the cash equivalent of the benefit of the loan so far as he is concerned. (2) For the purposes of determining the cash equivalent in such a case, the references in paragraph 5 above to the employee shall be construed as references to all the chargeable employees.

.

SCHEDULE 11

1

• (1) Schedule 6 to the Taxes Act 1988 (taxation of directors and others in respect of cars) is amended as follows.

• (2) For paragraphs 1 to 5 (which make provision for determining the cash equivalent of the benefit) substitute—

(1) (1) The cash equivalent of the benefit is the appropriate percentage for the year of the price of the car as regards the year. (2) This is subject to paragraphs 6 and 7 below (reductions for periods when car unavailable and payments for use of car). (2) The appropriate percentage for the year is determined in accordance with paragraphs 3 to 5G below. (3) (1) This paragraph applies where— (a) the car— (i) is first registered on or after 1st January 1998 but before 1st October 1999, and (ii) when so registered conformed to a vehicle type with an EC type-approval certificate, or had a UK approval certificate, that specifies a CO₂ emissions figure in terms of grams per kilometre driven, or (b) the car— (i) is first registered on or after 1st October 1999, and (ii) is so registered on the basis of an EC certificate of conformity or UK approval certificate that specifies a CO₂ emissions figures in terms of grams per kilometre driven. (2) In this paragraph references to “the applicable CO₂ emissions figure” are— (a) if the car is within sub-paragraph (1)(a) above, to the figure mentioned in paragraph (ii) of that sub-paragraph, and (b) if the car is within sub-paragraph (1)(b) above— (i) where the EC certificate of conformity or UK approval certificate specifies only one CO₂ emissions figure, that figure, and (ii) where it specifies more than one, the figure specified as the CO₂ emissions (combined) figure. This is subject to paragraph 5 (bi-fuel cars) and paragraph 5A (disabled drivers). (3) Where the applicable CO₂ emissions figure does not exceed the lower threshold for the year the appropriate percentage for the year is 15% (“the basic percentage”). (4) Where the applicable CO₂ emissions figure exceeds the lower threshold for the year, the appropriate percentage for the year is whichever is the smaller of— (a) the basic percentage increased by 1% for each 5 grams per kilometre by which the applicable CO₂ emissions figure exceeds the lower threshold for the year, and (b) 35%. (5) This paragraph is subject to paragraph 5D (diesel car supplement) and any regulations under paragraph 5E (power to provide for discounts). (4) (1) For the purposes of paragraph 3 above the lower threshold is ascertained from the following Table—

Year of assessment	Lower threshold (in g/km)
2002-03	165
2003-04	155
2004-05 and subsequent years of assessment	145

(2) The Treasury may by order provide for a lower threshold different from that provided for in the Table in sub-paragraph (1) above to apply for years of assessment beginning on or after 6th April 2005 or such later date as may be specified in the order. (3) For the purposes of paragraph 3 above the applicable CO₂ emissions figure (if it is not a multiple of five) is rounded down to the nearest multiple of five. (5) Where the car— (a) is first registered on or after 1st January 2000, and (b) is so registered on the basis of an EC certificate of conformity, or UK approval certificate, that specifies separate CO₂ emissions figures in terms of grams per kilometre driven for different fuels, then, for the purposes of paragraph 3 above, “the applicable CO₂ emissions figure” is the lowest figure specified or, if there is more than one figure specified in relation to each fuel, the lowest CO₂ emissions (combined) figure specified. (5A) (1) Sub-paragraph (2) below applies where— (a) paragraph 3 above (car with CO₂ emissions figure) applies to the car, (b) the car has automatic transmission, (c) at any time in the year when the car is available to the employee, he holds a disabled person’s badge, and (d) by reason of his disability he must, if he wants to drive a car, drive a car that has automatic transmission. For this purpose the car is not at any time available to the employee by reason only of its being made available to a member of his family or household. (2) If the applicable CO₂ figure for the car (“the relevant car”) is more than it would have been if the car had been an equivalent manual car, paragraph 3 above shall have effect as if the applicable CO₂ emissions figure in relation to the relevant car were the same as that in relation to an equivalent manual car. (3) For this purpose “an equivalent manual car” means a car that— (a) is first registered at or about the same time as the relevant car, and (b) does not have automatic transmission, but otherwise is the closest variant available of the make and model of the relevant car. (4) For the purposes of this paragraph a car has automatic transmission if— (a) the driver of the car is not provided with any means whereby he may vary the gear ratio between the engine and the road wheels independently of the accelerator and the brakes, or (b) he is provided with such means, but they do not include a clutch pedal or lever that he may operate manually. (5) In this paragraph— - “the applicable CO₂ emissions figure” has the same meaning as in paragraph 3 above; and - “disabled person’s badge” has the meaning given in section 168AA(3). (5B) In this Schedule— - “EC certificate of conformity” means a certificate of conformity issued by a manufacturer under any provision of the law of a Member State implementing Article 6 of Council Directive 70/156/EEC, as amended; - “EC type-approval certificate” means a type-approval certificate issued under any provision of the law of a Member State implementing Council Directive 70/156/EEC, as amended; and - “UK approval certificate” means a certificate issued under— 1. section 58(1) or (4) of the Road Traffic Act 1988, or 2. Article 31A(4) or (5) of the Road Traffic (Northern Ireland) Order 1981. (5C) (1) This paragraph applies where— (a) the car is first registered on or after 1st January 1998, and (b) paragraph 3 above does not apply. (2) If the car has an internal combustion engine with one or more reciprocating pistons, the appropriate percentage for the year is ascertained from the following Table—

Cylinder capacity of car in cubic centimetres	Appropriate percentage
1,400 or less	15%
More than 1,400 but not more than 2,000	25%
More than 2,000	35%

For this purpose a car’s cylinder capacity is the capacity of its engine calculated as for the purposes of the Vehicle Excise and Registration Act 1994.

(3) If sub-paragraph (2) above does not apply the appropriate percentage for the year is— (a) 15%, if the car is an electrically propelled vehicle, and (b) 35%, in any other case. (4) This paragraph is subject to paragraph 5D (diesel car supplement) and any regulations under paragraph 5E (power to provide for discounts) below. (5D) (1) This paragraph applies where the car— (a) is propelled solely by diesel, and (b) is first registered on or after 1st January 1998. (2) The appropriate percentage for the year is whichever is the smaller of— (a) the percentage which is 3% greater than the appropriate percentage for the year ascertained in accordance with paragraphs 2 to 5C above, and (b) 35%. (3) In sub-paragraph (1) “diesel” means any diesel fuel within the definition in Article 2 of Directive 98/70/EC of the European Parliament and of the Council. (4) This paragraph is subject to any regulations under paragraph 5E below (power to provide for discounts). (5E) The Treasury may by regulations provide for the value of the appropriate percentage as determined in accordance with paragraphs 2 to 5D above to be reduced by such amount as may be prescribed in the regulations, in such circumstances and subject to such conditions as may be so prescribed. (5F) (1) This paragraph applies where the car was first registered before 1st January 1998. (2) Where the car has an internal combustion engine with one or more reciprocating pistons, the appropriate percentage for the year is ascertained from the following Table—

Cylinder capacity of car in cubic centimetres	Appropriate percentage
1,400 or less	15%
More than 1,400 but not more than 2,000	22%
More than 2,000	32%

For this purpose a car’s cylinder capacity is the capacity of its engine calculated as for the purposes of the Vehicle Excise and Registration Act 1994.

(3) Where sub-paragraph (2) above does not apply, the appropriate percentage for the year is— (a) 15%, if the car is an electrically propelled vehicle, and (b) 32%, in any other case. (5G) For the purposes of this Schedule, a vehicle is not an electrically propelled vehicle unless— (a) it is propelled solely by electrical power, and (b) that power is derived from— (i) a source external to the vehicle, or (ii) an electrical storage battery which is not connected to any source of power when the vehicle is in motion.

• (3) In paragraph 6 (reduction for periods when car is unavailable) for the words from “(“the full"" to the end substitute—

multiplied by the fraction— $$AB$where—A is the number of days in the year on which the car is available; andB is the number of days in the year.$

.

• (4) At the end of paragraph 10 (general interpretation) add—

This is subject to paragraph 5A(1) above.

The appropriate percentage

2

The appropriate percentage for the year is determined in accordance with paragraphs 3 to 5G below.

Car with CO2 emissions figure

3

• (1) This paragraph applies where—

• (a) the car—

• (i) is first registered on or after 1st January 1998 but before 1st October 1999, and

• (ii) when so registered conformed to a vehicle type with an EC type-approval certificate, or had a UK approval certificate, that specifies a CO₂ emissions figure in terms of grams per kilometre driven, or

• (b) the car—

• (i) is first registered on or after 1st October 1999, and

• (ii) is so registered on the basis of an EC certificate of conformity or UK approval certificate that specifies a CO₂ emissions figures in terms of grams per kilometre driven.

• (2) In this paragraph references to “the applicable CO₂ emissions figure” are—

• (a) if the car is within sub-paragraph (1)(a) above, to the figure mentioned in paragraph (ii) of that sub-paragraph, and

• (b) if the car is within sub-paragraph (1)(b) above—

• (i) where the EC certificate of conformity or UK approval certificate specifies only one CO₂ emissions figure, that figure, and

• (ii) where it specifies more than one, the figure specified as the CO₂ emissions (combined) figure.

This is subject to paragraph 5 (bi-fuel cars) and paragraph 5A (disabled drivers).

• (3) Where the applicable CO₂ emissions figure does not exceed the lower threshold for the year the appropriate percentage for the year is 15% (“the basic percentage”).

• (4) Where the applicable CO₂ emissions figure exceeds the lower threshold for the year, the appropriate percentage for the year is whichever is the smaller of—

• (a) the basic percentage increased by 1% for each 5 grams per kilometre by which the applicable CO₂ emissions figure exceeds the lower threshold for the year, and

• (b) 35%.

• (5) This paragraph is subject to paragraph 5D (diesel car supplement) and any regulations under paragraph 5E (power to provide for discounts).

The lower threshold

4

• (1) For the purposes of paragraph 3 above the lower threshold is ascertained from the following Table—

Year of assessment	Lower threshold (in g/km)
2002-03	165
2003-04	155
2004-05 and subsequent years of assessment	145

• (2) The Treasury may by order provide for a lower threshold different from that provided for in the Table in sub-paragraph (1) above to apply for years of assessment beginning on or after 6th April 2005 or such later date as may be specified in the order.

• (3) For the purposes of paragraph 3 above the applicable CO₂ emissions figure (if it is not a multiple of five) is rounded down to the nearest multiple of five.

Bi-fuel cars

5

Where the car—

• (a) is first registered on or after 1st January 2000, and

• (b) is so registered on the basis of an EC certificate of conformity, or UK approval certificate, that specifies separate CO₂ emissions figures in terms of grams per kilometre driven for different fuels,

then, for the purposes of paragraph 3 above, “the applicable CO₂ emissions figure” is the lowest figure specified or, if there is more than one figure specified in relation to each fuel, the lowest CO₂ emissions (combined) figure specified.

Automatic cars made available to disabled drivers

5A

• (1) Sub-paragraph (2) below applies where—

• (a) paragraph 3 above (car with CO₂ emissions figure) applies to the car,

• (b) the car has automatic transmission,

• (c) at any time in the year when the car is available to the employee, he holds a disabled person’s badge, and

• (d) by reason of his disability he must, if he wants to drive a car, drive a car that has automatic transmission.

For this purpose the car is not at any time available to the employee by reason only of its being made available to a member of his family or household.

• (2) If the applicable CO₂ figure for the car (“the relevant car”) is more than it would have been if the car had been an equivalent manual car, paragraph 3 above shall have effect as if the applicable CO₂ emissions figure in relation to the relevant car were the same as that in relation to an equivalent manual car.

• (3) For this purpose “an equivalent manual car” means a car that—

• (a) is first registered at or about the same time as the relevant car, and

• (b) does not have automatic transmission, but otherwise is the closest variant available of the make and model of the relevant car.

• (4) For the purposes of this paragraph a car has automatic transmission if—

• (a) the driver of the car is not provided with any means whereby he may vary the gear ratio between the engine and the road wheels independently of the accelerator and the brakes, or

• (b) he is provided with such means, but they do not include a clutch pedal or lever that he may operate manually.

• (5) In this paragraph—

• “the applicable CO₂ emissions figure” has the same meaning as in paragraph 3 above; and

• “disabled person’s badge” has the meaning given in section 168AA(3).

“EC certificate of conformity”, “EC type-approval certificate” and “UK approval certificate”

5B

In this Schedule—

• “EC certificate of conformity” means a certificate of conformity issued by a manufacturer under any provision of the law of a Member State implementing Article 6 of Council Directive 70/156/EEC, as amended;

• “EC type-approval certificate” means a type-approval certificate issued under any provision of the law of a Member State implementing Council Directive 70/156/EEC, as amended; and

• “UK approval certificate” means a certificate issued under— section 58(1) or (4) of the Road Traffic Act 1988, or Article 31A(4) or (5) of the Road Traffic (Northern Ireland) Order 1981.

Car with no CO2 emissions figure

5C

• (1) This paragraph applies where—

• (a) the car is first registered on or after 1st January 1998, and

• (b) paragraph 3 above does not apply.

• (2) If the car has an internal combustion engine with one or more reciprocating pistons, the appropriate percentage for the year is ascertained from the following Table—

Cylinder capacity of car in cubic centimetres	Appropriate percentage
1,400 or less	15%
More than 1,400 but not more than 2,000	25%
More than 2,000	35%

For this purpose a car’s cylinder capacity is the capacity of its engine calculated as for the purposes of the Vehicle Excise and Registration Act 1994.

• (3) If sub-paragraph (2) above does not apply the appropriate percentage for the year is—

• (a) 15%, if the car is an electrically propelled vehicle, and

• (b) 35%, in any other case.

• (4) This paragraph is subject to paragraph 5D (diesel car supplement) and any regulations under paragraph 5E (power to provide for discounts) below.

Diesel car supplement

5D

• (1) This paragraph applies where the car—

• (a) is propelled solely by diesel, and

• (b) is first registered on or after 1st January 1998.

• (2) The appropriate percentage for the year is whichever is the smaller of—

• (a) the percentage which is 3% greater than the appropriate percentage for the year ascertained in accordance with paragraphs 2 to 5C above, and

• (b) 35%.

• (3) In sub-paragraph (1) “diesel” means any diesel fuel within the definition in Article 2 of Directive 98/70/EC of the European Parliament and of the Council.

• (4) This paragraph is subject to any regulations under paragraph 5E below (power to provide for discounts).

Discounts

5E

The Treasury may by regulations provide for the value of the appropriate percentage as determined in accordance with paragraphs 2 to 5D above to be reduced by such amount as may be prescribed in the regulations, in such circumstances and subject to such conditions as may be so prescribed.

Car registered before 1st January 1998

5F

• (1) This paragraph applies where the car was first registered before 1st January 1998.

• (2) Where the car has an internal combustion engine with one or more reciprocating pistons, the appropriate percentage for the year is ascertained from the following Table—

Cylinder capacity of car in cubic centimetres	Appropriate percentage
1,400 or less	15%
More than 1,400 but not more than 2,000	22%
More than 2,000	32%

For this purpose a car’s cylinder capacity is the capacity of its engine calculated as for the purposes of the Vehicle Excise and Registration Act 1994.

• (3) Where sub-paragraph (2) above does not apply, the appropriate percentage for the year is—

• (a) 15%, if the car is an electrically propelled vehicle, and

• (b) 32%, in any other case.

Electrically propelled vehicle

5G

For the purposes of this Schedule, a vehicle is not an electrically propelled vehicle unless—

• (a) it is propelled solely by electrical power, and

• (b) that power is derived from—

• (i) a source external to the vehicle, or

• (ii) an electrical storage battery which is not connected to any source of power when the vehicle is in motion.

• (3) In paragraph 6 (reduction for periods when car is unavailable) for the words from “(“the full”” to the end substitute—

multiplied by the fraction— $$AB$ where— A is the number of days in the year on which the car is available; and B is the number of days in the year.$

.

• (4) At the end of paragraph 10 (general interpretation) add—

This is subject to paragraph 5A(1) above.

.

2

In section 168AB of the Taxes Act 1988 (equipment etc. to enable car to run on road fuel gas), after subsection (3) insert—

(4) This section does not apply in relation to cars to which paragraph 5 of Schedule 6 to this Act applies (bi-fuel cars taxed by reference to CO₂ emissions figure).

.

SCHEDULE 12

Part I — Application of this Schedule

Engagements to which this Schedule applies

1

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

Worker treated as receiving Schedule E income

2

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

Conditions of liability where intermediary is a company

3

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

Conditions of liability where intermediary is a partnership

4

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

Conditions of liability where intermediary is an individual

5

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

Exception of certain payments subject to deduction of tax

6

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

Part II — The deemed Schedule E payment

Calculation of deemed Schedule E payment

7

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

Treatment of payments made under construction industry scheme

8

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

Apportionments

9

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

Application of Schedule E rules

10

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

Application of Income Tax Acts in relation to deemed Schedule E payment

11

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

Part III — Supplementary provisions

Earlier date of deemed Schedule E payment in certain cases

12

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

Relief in case of distributions by intermediary

13

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

Provisions applicable to multiple intermediaries

14

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

Multiple intermediaries: avoidance of double-counting

15

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

Multiple intermediaries: joint and several liability for PAYE deductions

16

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

Calculation of profits of intermediary: deduction for deemed Schedule E payment

17

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

Calculation of profits of intermediary: special rules for partnerships

18

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

Meaning of “associate"

19

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

Meaning of “the Inland Revenue"

20

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

Interpretation

21

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

Transitional provisions: general

22

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

Transitional provisions: deemed discontinuance of business

23

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

Saving for provisions relating to agency workers

24

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

SCHEDULE 13

Part I — Amendments of the Taxes Act 1988

Introductory

1

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

Exception of certain life policies from chargeable events legislation

2

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

No charge to tax under section 591C on conversion under Schedule 23ZA

3

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

Definition of “retirement benefits scheme"

4

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

Interpretation of Chapter 4IV of Part XIV

5

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

Approval of personal pension schemes

6

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

Conversion of certain approved retirement benefits schemes

7

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

Eligibility to make contributions

8

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

Insurance against risks relating to non-payment of contributions

9

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

Income withdrawals: the relevant date

10

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

Income withdrawals: purchase of two or more annuities

11

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

Income withdrawals after death of member

12

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

Other restrictions on approval

13

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

Multiple pension dates Et ceteralaetc

14

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

Tax relief on member’s contributions

15

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

Maximum amount of deductions

16

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

Carry-back of contributions

17

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

Election for contributions to be treated as paid in previous year

18

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

Abolition of carry-forward of relief

19

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

Earnings from pensionable employment

20

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

Meaning of “net relevant earnings"

21

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

Presumption of same level of relevant earnings Et ceteralaetc for 5 years

22

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