Annex 1: Minor changes in the law made by the Act: Change 126: Interest under employees’ share schemes: participants in the scheme: section 752
This change extends the exemption from tax to interest received from any participant in an employees’ share scheme (and not just from company employees and salaried directors).
The origin of section 688 of ICTA is paragraph 9 of Schedule 4 to FA 1970. In 1970 the exception from the prohibition on financial assistance for employees’ share schemes was in terms of the employees of the company (section 54(1) of the Companies Act 1948). It was specifically provided that “employees” included directors holding a salaried employment or office in the company.
The current exception (section 153(4)(b) of the Companies Act 1985) refers to “the provision by a company, in good faith in the interest of the company, of financial assistance for the purposes of an employees’ share scheme”. Section 743 of the Companies Act 1985 explains what is meant by an “employees’ share scheme”. Such a scheme may, among other things, encourage the holding of shares by former employees and the spouses and children of employees and former employees.
Consequently, although former employees and spouses and children can benefit from schemes that are set up to comply with section 153(4)(b) of the Companies Act 1985, any payments of interest by them do not benefit from the exemption in section 688 of ICTA.
Section 752 extends the exemption to interest received by trustees from any participant in the scheme.
This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.