Income Tax (Earnings and Pensions) Act 2003 section 553

Meaning of "appropriate percentage" for purposes of section 552

Section 553 sets out how to calculate the "appropriate percentage" of a company's ordinary share capital that is attributed to a beneficiary or associate under the employee benefit trust rules in section 552.

• The appropriate percentage is calculated using the formula (P × 100) / D, where P represents payments or distributions received and D represents average annual distributions made by the company
• P is generally the total payments received by the beneficiary (or associates) from the trust in the 12 months up to the payment date, but is capped at the level of distributions the company made to the trust over the preceding 3 years if that figure is lower
• D is calculated by adding up all distributions made by the company on its ordinary share capital over the 3 years up to the payment date, then dividing by the number of those years in which distributions were actually made
• If the company made no distributions at all during any of the three 12-month periods, D defaults to 1, which effectively makes the appropriate percentage equal to P × 100