Introduction Details of the Schedule Part 1: Share Incentive Plans
5.Paragraph 1 introduces amendments to Chapter 6 of Part 7 of ITEPA, which provides for income tax advantages to be available in connection with shares obtained under SIP.
6.Paragraphs 2-12 make various changes to Chapter 6 to reflect the replacement of the present arrangements for HMRC approval of SIPs with self certification of plans by employers. In particular the paragraphs remove legislative references to 'approved SIPs'. Instead the concept is introduced of SIPs that meet the conditions being certified by employers as 'Schedule 2 SIPs'.
7.Paragraph 8 modifies the current rules in Chapter 7 for determining the value of partnership shares (and the amount that counts as employment income of the participant) upon the shares ceasing to be subject to the plan within five years of their acquisition by the participant. This includes special rules that apply in certain circumstances where shares are required to be offered for sale by the participant.
8.Paragraphs 13-32 set out amendments to Schedule 2 ITEPA. Many of these are consequential changes caused by the shift from HMRC approval of SIPs to self certification by employers, and there are new powers for HMRC to determine that a plan is no longer to be a Schedule 2 SIP, and to make enquiries into the running of a SIP.
9.Paragraph 16 amends the introductory provision for the SIP rules in paragraph 1 Schedule 2, taking account of the new self certification arrangements and HMRC powers to enquire into plans and decide that certain plans should not be Schedule 2 SIPs.
10.Paragraph 19 amends paragraph 7 Schedule 2 to introduce a new purpose test to be met by Schedule 2 SIPs. In addition to the current requirement that the purpose of a SIP must be to provide shares that give employees a continuing stake in the company, key new conditions are that SIPs must not provide benefits other than in accordance with Schedule 2 (unless the benefits are the same as the employee would have received had the shares been acquired outside the SIP), and in particular must not provide participants with cash as an alternative to shares.
11.Paragraph 23 amends paragraph 43 Schedule 2 to make clear that a plan may require an employee who has purchased SIP partnership shares to offer the shares for sale in certain circumstances, and provides conditions in relation to the price at which the shares are to be offered for sale.
12.Paragraph 25 amends the provisions in paragraph 56 Schedule 2 concerning the repayment of partnership share money to employees. It concerns cases in which HMRC give notice that the plan is not to be a Schedule 2 SIP, and takes account of the right of companies to appeal against such a notice.
13.Paragraph 26 amends paragraph 65 Schedule 2 to make clear that a plan may require an employee who has acquired SIP dividend shares offer them for sale in certain circumstances, and provides conditions in relation to the price at which the shares are to be offered for sale.
14.Paragraph 28 inserts a new Part 10 in Schedule 2, setting out rules for notification of SIPs, annual returns and HMRC enquiries. The new provisions reflect the shift to self certification of plans and online filing of returns. They include HMRC powers to apply penalties, determine that a plan is not to be a Schedule 2 SIP and make enquiries into the running of a SIP, as well as appeal rights in respect of these powers.
15.New paragraph 81A of Schedule 2 provides new rules concerning notification of SIPs to HMRC. For a plan to be a Schedule 2 SIP and qualify for favourable tax treatment, the company must give notice to HMRC and make a declaration that the plan meets and, where the declaration is made after the first award of shares, has met the relevant conditions of Schedule 2. The notice should be given by 6 July following the tax year in which the first award of shares is made under the scheme, and sub-paragraph (5) explains when the plan will be a Schedule 2 SIP in cases when this deadline is missed.
16.New paragraph 81B obliges companies to make annual returns to HMRC in respect of SIPs for which notice has been given under paragraph 81A, containing the information required by HMRC. Returns must give details of any alterations made to a key feature of the SIP or the plan trust in the tax year in question and contain a declaration by the employer. Returns must be made not later than 6 July following the end of the tax year to which they relate, and must be in the form required by HMRC. The requirement to make an annual return to HMRC applies for each year prior to and including the year of the termination of a plan. If companies become aware of errors or inaccuracies in returns, they must provide amended returns correcting the position without delay.
17.New paragraph 81C lays down the penalties to which companies may be liable for failure to deliver annual returns by the specified deadline. An exception is allowed where companies have a 'reasonable excuse' for the failure.
18.New paragraph 81D provides that notification of SIPs and annual SIP returns must be delivered in electronic form in a manner prescribed by HMRC, unless a company has been specifically allowed by HMRC to use some other form. The Commissioners for HMRC must prescribe how the notices and returns must be submitted.
19.New paragraph 81E sets out the penalties that may apply where returns are not delivered in the form required by HMRC; or where they contain material inaccuracies that are careless or deliberate, or are not corrected by the company.
20.New paragraph 81F empowers HMRC to make enquiries into a SIP after giving notice to a company of their intention to do so, and sets out time periods for providing this notice. This is allowed in specified circumstances, including where HMRC have reasonable grounds for believing the requirements of Schedule 2 are not or have not been met in relation to the plan.
21.New paragraph 81G provides the rules for closure of HMRC enquiries, the decision that may be included within an HMRC closure notice, the right of companies to apply to tribunals to direct that closure notices be given and the requirement on the tribunal to provide such a direction in certain circumstances.
22.New paragraph 81H sets out the action HMRC may take where a SIP does not meet or has not met the conditions of Schedule 2. If the breach of the SIP rules is considered serious enough to warrant it, HMRC may decide that a plan is not to be a Schedule 2 SIP either from the time of the closure notice or such time as is specified in the notice, and the company is liable for a penalty. This will not affect the operation of the SIP rules (and any tax advantages available) in relation to shares awarded prior to the time in question.
23.New paragraph 81I sets out the action HMRC may take in cases where a breach of the SIP rules is not considered serious enough for the plan not to be a Schedule 2 SIP. HMRC will require the company to put right any failure within a specified period, and the company is liable for a penalty. Where the breach is not put right within the specified period, HMRC may provide by a 'default notice' that a plan is not to be a Schedule 2 SIP either from the time of the notice or such time as is specified in the notice, and the company is liable for a further penalty. This will not affect the operation of the SIP rules (and tax advantages available) in relation to shares awarded prior to the time in question.
24.New paragraph 81J sets out procedures for the assessment and enforcement of penalties by HMRC, including time limits as to when penalties may be imposed and when payment must be made.
25.New paragraph 81K provides rights for companies to appeal against decisions of HMRC, for example that a plan is not to be a Schedule 2 SIP and on imposition of penalties, and lays down time limits for appeals, rules for the handling of appeals and the action tribunals may take in response to an appeal.
26.Paragraph 30 confirms that shares appropriated to, or acquired on behalf of, a SIP participant may not be awarded under a plan following its termination. This makes clear that the paragraph 90 Schedule 2 prohibition on the award of further shares after termination of a plan applies to SIP dividend shares as well as other types of SIP shares.
27.Paragraph 31 amends HMRC's powers in paragraph 93 Schedule 2 to require information concerning a SIP. In particular HMRC are empowered to require information needed to check details supplied by companies in their notification of a SIP or annual SIP returns, or to determine the liability to tax of any relevant person.
28.Paragraphs 33-43 make amendments to various provisions of Taxation of Chargeable Gains Act 1992 (TCGA) arising from the replacement of HMRC approval of SIPs with self certification.
29.Paragraphs 44-52 make amendments to various provisions of ITEPA and           Finance Act 2004 (FA 2004).
30.Paragraphs 53-67 make amendments to various provisions of Income Tax (Trading and Other Income) Act 2005 (ITTOIA).
31.Paragraphs 57 and 63 introduce modifications to the rules that apply to determine for income tax purposes the amount of distribution treated as made to the SIP participant, and the amount of dividend treated as paid to the participant, where dividend shares cease to be subject to a Schedule 2 SIP within three years of their acquisition on the participant's behalf where shares are required to be offered for sale by a SIP participant.
32.Paragraphs 68-73 make amendments to various provisions of Income Tax Act 2007 (ITA 2007).
33.Paragraphs 74-83 make amendments to various provisions of Corporation Tax Act 2009 (CTA 2009). These amendments arise from the replacement of HMRC approval of SIPs with self certification, and include in paragraph 83 an amendment to section 998 CTA 2009 to enable an officer of HMRC to direct that a deduction made under section 987 CTA 2009 for the costs of setting up a SIP is withdrawn where a plan ceases to be a Schedule 2 SIP.
34.Paragraphs 84-87 make amendments to the Individual Savings Account Regulations 1998.
35.Paragraph 88 revokes the Employee Share Schemes (Electronic Communications of Returns and Information) Regulations 2007, which are superseded by the provisions of this Schedule.
36.Paragraph 89 provides that the new rules for SIPs come into force on 6 April 2014, and paragraph 90 introduces transitional provisions for SIPs approved by HMRC before that date.
37.Paragraph 91 provides that in the case of SIPs approved immediately before                6 April 2014, any provisions of the plan which require HMRC approval for any purpose will have effect from that date without the requirement for approval (except where approval is expressly required under Schedule 2).
38.Paragraph 92 provides that for these existing approved SIPs the new purpose test introduced by paragraph 19 of this Schedule only applies from such time as there is alteration to a key feature of the SIP or the plan trust.
39.Paragraph 93 provides that these existing approved SIPs have effect from                    6 April 2014 as if the SIP and plan trust include various modifications made by Part 1 of this Schedule.
40.Paragraph 94 modifies arrangements for the notification of these plans under self certification (including the declaration required within the notice), as well as HMRC's powers of enquiry. In the case of shares acquired or appropriated under a SIP before 6 April 2014, the SIP code (and tax advantages where appropriate) will still apply in relation to these shares, whether or not the plan is notified to HMRC. HMRC's ability to determine that a scheme is not a Schedule 2 SIP applies in relation to breaches of the SIP rules that occurred prior to 6 April 2014. An annual return is required in relation to the schemes even if the scheme has not been notified to HMRC.
41.Paragraph 95 ensures that the availability of certain corporation tax deductions in relation to set up costs for a SIP approved by HMRC before 6 April 2014 is not affected by any changes in Part 1 of the Schedule.