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1. This clause prevents the approval of profit sharing schemes where loans are provided to employees in any of the arrangements for the scheme or its operation. It also provides for approval to be withdrawn from such schemes. It applies from 21 March 2000 (Budget day).(*Rev3)

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DETAILS OF THE CLAUSE

2. Subsection (1) prevents approval of profit sharing schemes which provide for loans to employees or are associated with such loans, or where the operation of such a scheme is in any way associated with such loans.

3. Subsection (2) allows approval to be withdrawn if the Inland Revenue discover the existence of such arrangements.

4. Subsection (3) applies the new rules from 21 March 2000 (Budget day).

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BACKGROUND NOTE

 

5. Recently companies have been setting up arrangements to replicate the effects of the Profit Related Pay (PRP). Tax free PRP is no longer available for any PRP profit periods starting on or after 1 January 2000. Arrangements were devised seeking to provide employees with tax free cash through the use of loan arrangements associated with tax free shares through an approved profit sharing scheme.

6. Because of the wide variety of ways in which loans could be linked or associated with approved schemes, the rules preventing this in clause 53 are correspondingly wide, preventing approval of a profit sharing scheme where loans are linked in any way with the shares provided by the scheme.

7. Clause 52 prevents an alternative way of replicating the effect of PRP relief by the use shares with unusually restricted rights and shares in employer companies.

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