Finance Act 2000

• (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

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

Higher level contributions after cessation of actual relevant earnings: modification of section 646B

23

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

Appeals

24

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

Old transitional provisions

25

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

Benefits under approved pension arrangements not to be income of settlor

26

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

Conversion of certain approved retirement benefits schemes

27

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

Part II — Transitional provisions

Schemes approved before 6th April 2001 deemed to contain certain provisions

28

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

Deemed requisite evidence for the presumptions

29

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

Applications for approval

30

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

SCHEDULE 14

Part I — Introductory

Qualifying options

1

• (1) In this Schedule a “qualifying option” means an option—

• (a) in relation to which the requirements of this Schedule are met at the time the option is granted, and

• (b) of which notice is given to the Inland Revenue in accordance with paragraph 2.

• (2) The requirements of this Schedule are—

• (a) the general requirements in Part II of this Schedule,

• (b) that the company whose shares are the subject of the option is a qualifying company (see Part III of this Schedule),

• (c) that the individual to whom the option is granted is an eligible employee in relation to that company (see Part IV of this Schedule),

• (d) that the option is granted to the employee by reason of his employment—

• (i) with that company, or

• (ii) if that company is a parent company, with that company or another group company, and

• (e) the requirements of Part V of this Schedule as to the terms of the option, the circumstances in which it is granted and other matters.

• (3) In this Schedule, in relation to an option—

• (a) references to “the relevant company” are to the company whose shares are the subject of the option, and

• (b) references to “the employer company” are to the company by reference to which the requirement in sub-paragraph (2)(d) is met.

Notice of option to be given to Inland Revenue

2

• (1) For an option to be a qualifying option notice of the option must be given to the Inland Revenue within 30 days after the grant of the option.

• (2) The notice must—

• (a) be given by the employer company, and

• (b) be in a form required or authorised by the Inland Revenue.

• (3) The notice must contain, or be supported by, such information as the Inland Revenue may require for the purpose of determining whether the requirements of this Schedule are met.

• (4) The notice must also contain—

• (a) a declaration by a director, or the secretary, of the employer company—

• (i) that in his opinion the requirements of this Schedule are met in relation to the option, and

• (ii) that the information provided is to the best of his knowledge correct and complete, and

• (b) a declaration by the individual to whom the option was granted that he meets the requirement of paragraph 29 (commitment of working time) in relation to the option.

Correction of notice by Revenue

3

• (1) The Inland Revenue may amend a notice given under paragraph 2 so as to correct obvious errors or omissions in the notice.

• (2) A correction under this paragraph is made by notice to the employer company.

• (3) No such correction may be made more than nine months after the day on which the notice under paragraph 2 was given to the Inland Revenue.

• (4) A correction under this paragraph is of no effect if the employer company within three months from the date of issue of the notice of correction gives notice rejecting the correction.

Notice of enquiry

4

• (1) The Inland Revenue may enquire into an option of which notice is given under paragraph 2 if they give notice to the employer company of their intention to do so in accordance with this paragraph.

• (2) Where notice is given under paragraph 2, the Inland Revenue may enquire into whether paragraph 29 (commitment of working time) is met by the individual to whom the option was granted if they give him notice of their intention to do so in accordance with this paragraph.

• (3) The Inland Revenue shall give a copy of any notice under sub-paragraph (2) to the employer company.

• (4) Notice of enquiry may be given at any time within the period of 12 months beginning with the end of the period of 30 days[92 days]mentioned in paragraph 2(1) (the period within which notice under that paragraph must be given).

• (5) Notice of enquiry may be given at any time if the Inland Revenue discover that any of the information provided in or in connection with the notice under paragraph 2 was false or misleading in a material particular.

• (6) An option that has been the subject of one notice of enquiry under sub-paragraph (1) or (2) may not be the subject of another notice under the same sub-paragraph, unless it is given by virtue of sub-paragraph (5).

Completion of enquiry

5

• (1) An enquiry under paragraph 4(1) is completed when the Inland Revenue by notice inform the employer company that they have completed their enquiry and state their decision whether the requirements of this Schedule are met in relation to the option.

• (2) If the Inland Revenue conclude that the requirements of this Schedule are not met, they must also give notice of that decision to the individual to whom the option was granted.

• (3) An enquiry under paragraph 4(2) is completed when the Inland Revenue by notice inform the individual concerned and the employer company that they have completed their enquiry and state their decision whether the requirement of paragraph 29 (commitment of working time) is met by that individual in relation to the option.

• (4) References in this Part to a “closure notice" are to a notice under sub-paragraph (1) or (3).

• (5) A closure notice takes effect when it is issued.

• (6) An application may be made by—

• (a) the employer company, or

• (b) in a case within paragraph 4(2), the individual concerned,

for a direction that the Inland Revenue give a closure notice within a specified period.

• (7) An application under sub-paragraph (6) must be made to the General Commissioners or, if the applicant so elects (in accordance with section 46(1) of the Taxes Management Act 1970), to the Special Commissioners.

• (8) Any such application shall be heard and determined in the same way as an appeal.

• (9) The Commissioners hearing the application shall give a direction unless they are satisfied that the Inland Revenue have reasonable grounds for not giving a closure notice within a specified period.

Effect of enquiry

6

• (1) If the Inland Revenue do not give notice of enquiry, the requirements of this Schedule are taken to be met in relation to the option.

• (2) If the Inland Revenue do give notice of enquiry, their decision stated in the closure notice is conclusive as to whether the requirements of this Schedule are met in relation to the option, subject—

• (a) if their decision is that the requirements are not met, to the outcome of any appeal against that decision;

• (b) if their decision is that the requirements are met, to the outcome of any further enquiry under paragraph 4(5) (enquiry arising from discovery of false or misleading information).

• (3) This paragraph does not affect the provisions of paragraphs 47 to 53 (which relate to disqualifying events).

Appeals

7

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

• (a) that notice of the grant of the option was not given in accordance with paragraph 2, or

• (b) that the requirements of this Schedule are not met in relation to the option.

• (2) An individual may appeal against a decision of the Inland Revenue that he does not meet the requirement of paragraph 29 (commitment of working time).

• (3) Notice of the appeal must be given to the Inland Revenue within 30 days after the closure notice is given to the employer company or individual.

• (4) The appeal lies to the General Commissioners or, if the employer company or individual so elects (in accordance with section 46(1) of the Taxes Management Act 1970), to the Special Commissioners.

Part II — General requirements

Introduction

8

An option is not a qualifying option unless the requirements of this Part of this Schedule are met as to—

• (a) the purpose for which the option is granted (see paragraph 9),

• (b) the maximum entitlement of an employee (see paragraph 10), and

• (c) the maximum value of the relevant company’s shares in respect of which unexercised options can exist (see paragraph 11).

Purpose of granting the option

9

An option is a qualifying option only if it is granted for commercial reasons in order to recruit or retain[an]employee in a company, and not as part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax.

Maximum entitlement of employee

10

• (1) An employee may not hold unexercised qualifying options which—

• (a) are in respect of shares with a total value of more than £100,000, and

• (b) were granted by reason of his employment—

• (i) with one company, or

• (ii) with two or more companies which are members of the same group.

• (2) An option is not a qualifying option if the limit in sub-paragraph (1) is already exceeded at the time it is granted.

• (3) If the grant of an option causes that limit to be exceeded, the option is not a qualifying option so far as it relates to the excess.

• (4) Where by reason of his employment with one company, an employee has been granted qualifying options in respect of shares with a total value of £100,000 (whether or not they have been exercised or released), any further option granted by reason of his employment with—

• (a) that company, or

• (b) if it is a member of a group, any company that is a member of that group,

within three years of the date of the grant of the last qualifying option is not a qualifying option.

• (5) Where, by reason of his employment with two or more companies which are members of the same group, an employee has been granted qualifying options in respect of shares with a total value of £100,000 (whether or not they have been exercised or released), any further option granted, by reason of his employment with any member of that group, within three years of the date of the grant of the last qualifying option is not a qualifying option.

• (6) Where, at the time an option is granted to an employee, he holds unexercised CSOP options granted by reason of his employment with—

• (a) the employer company, or

• (b) if that company is a member of a group, any member of that group,

those options shall be treated for the purposes of this paragraph as if they were unexercised qualifying options.

For this purpose a “CSOP option" is an option to acquire shares under a scheme approved under Schedule 9 to the Taxes Act 1988 by reference to the requirements of Part IV of that Schedule (non-savings-related share option schemes).

• (7) For the purposes of this paragraph—

• (a) the value of shares means the market value at the time the option is granted of shares of the same class as those that may be acquired by exercise of the option; and

• (b) an option is treated as granted in respect of the maximum number of shares that may be acquired under it.

• (8) 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.

Number of employees who may hold qualifying options

11

• (1) The total value of shares in the relevant company in respect of which unexercised qualifying options exist must not exceed £3 million.

• (2) An option is not a qualifying option if the limit in sub-paragraph (1) is already exceeded at the time it is granted.

• (3) If the grant of an option causes that limit to be exceeded the option is not a qualifying option so far as it relates to the excess.

• (4) Where the grant of two or more options at the same time causes that limit to be exceeded, then, for the purpose of determining which part of each option relates to that excess, the amount of the excess shall be divided pro rata among the options according to the value of the shares in respect of which each option was granted.

• (5) Sub-paragraphs (7) and (8) of paragraph 10 (determination of value of shares) apply for the purposes of this paragraph as they apply for the purposes of that paragraph.

Part III — Qualifying companies

Introduction

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A qualifying company is a company in relation to which the requirements of this Part of this Schedule are met as to—

• (a) independence (see paragraph 13),

• (b) having only qualifying subsidiaries (see paragraph 14),

• (c) gross assets (see paragraph 16), and

• (d) trading activities (see paragraph 17).

The independence requirement

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• (1) The independence requirement is that the company is not—

• (a) a 51% subsidiary of another company, or

• (b) under the control of another company (or of another company and any other person connected with that other company), without being a 51% subsidiary of that other company,

and that no arrangements are in existence by virtue of which the company could become such a subsidiary or fall under such control.

• (2) For the purposes of this requirement arrangements with a view to a qualifying exchange of shares (within the meaning of paragraph 60) shall be disregarded.

• (3) In this paragraph “control” has the meaning given by section 840 of the Taxes Act 1988.

The qualifying subsidiaries requirement

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• (1) A company that has one or more subsidiaries is not a qualifying company unless every subsidiary of the company is a qualifying subsidiary.

• (2) For this purpose—

• (a) “subsidiary” means any company which the company controls, either on its own or together with any person connected with it, and

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

Meaning of “qualifying subsidiary"

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• (1) A company ( “the subsidiary”) is a qualifying subsidiary of another company ( “the company”) if the following conditions are met.

• (2) The conditions are—

• (a) that the company or another of its subsidiaries possesses not less than 75% of the issued share capital of, and not less than 75% of the voting power in, the subsidiary;

• (b) that the company or another of its subsidiaries would—

• (i) in the event of a winding up of the subsidiary, or

• (ii) in any other circumstances,

be beneficially entitled to receive not less than 75% of the assets of the subsidiary which would then be available for distribution to the shareholders of the subsidiary;

• (c) that the company or another of its subsidiaries is beneficially entitled to not less than 75% of any profits of the subsidiary which are available for distribution to the shareholders of the subsidiary;

• (d) that no person other than the company or another of its subsidiaries has control of the subsidiary within the meaning of section 840 of the Taxes Act 1988; and

• (e) that no arrangements are in existence by virtue of which the conditions in paragraphs (a) to (d) would cease to be met.

• (3) The subsidiary shall not be regarded, at a time when it or another company is being wound up, as having ceased on that account to be a company in relation to which the conditions in sub-paragraph (2) are met if—

• (a) the conditions in that sub-paragraph would be met apart from the winding up, and

• (b) the winding up is for commercial reasons and is not part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.

• (4) The subsidiary shall not be regarded, at any time when arrangements are in existence for the disposal by the company or (as the case may be) by another subsidiary of the company of all its interest in the subsidiary in question, as having ceased on that account to be a qualifying subsidiary if the disposal is to be for commercial reasons and not part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.

The gross assets requirement

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• (1) The gross assets requirement in the case of a single company is that the value of the company’s gross assets does not exceed £30 million .

• (2) The gross assets requirement in the case of a parent company is that the consolidated value of the group assets does not exceed £30 million .

• (3) The consolidated value of the group assets means the aggregate value of the gross assets of the group, disregarding any that consist in rights against, or shares in or securities of, another company in the group.

The trading activities requirement

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• (1) The trading activities requirement in the case of a single company is that the company—

• (a) disregarding any incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and

• (b) is carrying on a qualifying trade or preparing to do so.

• (2) The trading activities requirement in the case of a parent company is that—

• (a) the business of the group does not consist wholly or as to a substantial part in the carrying on of non-qualifying activities, and

• (b) at least one group company—

• (i) disregarding any incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and

• (ii) is carrying on a qualifying trade or preparing to do so.

• (3) The business of the group means what would be the business of the group if the activities of the group companies taken together were regarded as one business.

• (4) For the purposes of determining whether a company falls within sub-paragraph (1)(a) or (2)(b)(i), the purposes for which it exists shall be disregarded to the extent that they consist in the carrying on of the following activities—