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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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HM Revenue & Customs
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Schedule 2 share incentive plan (SIP): Shares that may be awarded: Control of the company establishing the plan

The eligible shares may be in:

  • the company which is establishing the plan (in paragraph 2(2) called “the company”, but referred to in this manual as “the establishing company”) - see below,
  • a company which controls the establishing company - see below, or
  • a consortium company (see ETASSUM23230).

If the establishing company is under the control of another company it can use its own shares in the plan only if:

  • they are listed on a recognised stock exchange (ETASSUM23240) (paragraph 27(1)(a)), or
  • the controlling company’s shares are listed on a recognised stock exchange and that company is not a close company, or would not be a close company if it were resident in the UK  (paragraph 27(1)(c)). For the purposes of this section, a company is not a close company if it is subject to an employee-ownership trust (paragraph 27(3) - (6).

Eligible shares can be shares in a company which is subject to an employee-ownership trust (paragraph 27(1)(ba)). The eligible shares may be in a company which controls the establishing company. “Control” for this purpose is defined as having the meaning given in Section 719 ITEPA.  This refers to the definition in Section 995 ITA 2007, where “control” means having the power to secure that the affairs of the establishing company are conducted in accordance with its wishes.

Control in terms of Section 995 will not necessarily result simply because of the size of a share holding in the establishing company. Shareholders cannot ordinarily dictate to or overrule the board of directors in respect of matters of management entrusted to them. So a necessary element of control is the ability (by voting powers or other powers) to determine the composition of the board or, failing that, to appoint directors who have the power to impose their decisions on directors appointed by any other shareholder. Further information about Control is at: http://www.hmrc.gov.uk/manuals/ctmanual/CTM60210.htm

If the company which controls the establishing company is itself under the control of another company, the shares in the intermediate or ultimate parent companies may be used as eligible shares, provided that the company whose shares are to be used “controls” the establishing company, within the meaning of Section 995 ITA 2007. Shareholdings and voting rights in any company and also powers conferred by documents regulating any company may have to be considered for this purpose.