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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): General requirements: SIP as part of flexible benefits arrangement

Free Shares can be part of a flexible benefits arrangement

Some companies operate flexible benefits arrangements as part of their remuneration and reward package, where employees may choose from a menu of alternative benefits within certain limits.  Such benefits typically include additional holiday entitlement, pension contributions, critical illness and other insurance etc. It is acceptable to include an award of free shares under a Schedule 2 SIP as one such benefit provided that:

  • there is no facility or requirement for employees to forego cash remuneration in order to receive plan shares (“salary sacrifice” cannot be used in conjunction with a Schedule 2 SIP),
  • employees do not have the right to enhance their cash earnings by choosing not to participate in any aspect of the arrangements, or by opting out altogether,
  • tax or NICs avoidance is not the main purpose or one of the main purposes of the arrangements.

An award of free shares as part of such an arrangement must satisfy all other requirements of the SIP Code, including the “same terms” requirement (see ETASSUM21070).