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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 2 Share Incentive Plan (SIP): The Plan

A Schedule 2 SIP consists of any of the items below that are relevant to meeting the requirements of Parts 2-9 of Schedule 2 ITEPA:

  • the trust deed, the plan rules and the ancillary documents (free share agreement, partnership and matching share agreements) to be used in operating them;
  • the provisions in the company’s Articles of Association which regulate the shares and therefore affect the operation of the SIP;
  • the terms of any shareholders agreements to which shares acquired under the Schedule 2 SIP may be subject;
  • any arrangements made between the SIP administrator (or the company) and the participants;
  • invitation documents prepared in conjunction with the trustee or administrator.

If alterations are made to a ‘key feature’ of the plan, this will need to be notified in accordance with the legislation at paragraph 81B(5). Further guidance can be found at ETASSUM27140.

The company

Paragraph 2(2) defines ‘the company’ as the company which established the plan and it is that company which must notify HMRC of the Schedule 2 SIP even if the shares to be used are those of another company.

Group plans

Schedule 2 SIPs can be extended to include subsidiary companies of ‘the company’ which established the plan if those companies are under the control (within the meaning of Section 719 ITEPA 2003) of the company which established the plan. These are known as ‘group plans’. There is no statutory authority for extending a scheme to other companies. The company and nominated participating subsidiaries are referred to as ‘constituent companies’ (paragraph 4(3)).

A Schedule 2 SIP which is established by a company which is itself a subsidiary company cannot include as constituent companies its own parent company or fellow subsidiaries.

Details of the constituent companies should be notified in the SIP annual returns. A company’s introduction as a constituent company in a group plan cannot be backdated to a time before it was formally admitted in accordance with the Deed and rules of the Schedule 2 SIP.

‘Control’ has the meaning given in section 719 ITEPA 2003 and will normally include companies in which the company owns more than 50% of the shares.