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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

HM Revenue & Customs
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Schedule 2 share incentive plan (SIP): General requirements: Discouraging features

The plan must not contain any feature which has or is likely to have the effect of discouraging any description of qualifying employees from taking part in the SIP, as all qualifying employees must be invited to participate in the SIP (paragraph 8(3)).

For example, it would not be acceptable for a plan to stipulate that employees can only participate in a SIP if they purchase shares outside of the plan and that they cannot participate if they decline to do so.

Similarly it would not be acceptable for a company to decide to issue invitations to participate only by means of posters which require all applications to be made within 7 days of the posters first appearing. This would not be acceptable as this would be likely to discourage employees who:

  1. Are on holiday or absent due to sickness, or
  2. Regularly work away from the company’s premises

Both groups of employees may be unlikely to see the invitation or, if they do see it, they may have very little time to consider it. For this reason a Schedule 2 SIP which provides for invitation periods of less than 14 days would be considered to contain a discouraging feature.

  1. For similar reasons HMRC expects a company to allow employees a period of no less than 25 days in which to ‘opt-out’ (where the company has used an ‘opt-out’ for awards of free shares) of the award. A period of 25 days is considered sufficient time to allow the employee to consider their options and to seek professional advice if required, before making a decision. Anything less than 25 days would be considered to be a discouraging feature. HMRC expect all qualifying employees to be invited to participate in every award a company makes regardless of whether an employee has opted out of a previous award (paragraph 8).
  2. If an invitation is aimed at specific groups of employees (no matter how described), this would be a discouraging feature. An invitation should be aimed at all qualifying employees.
  3. Companies must not do anything to discourage participation and must ensure that invitations are sent to all ‘qualifying employees’ with no barriers included to discourage participation, it must be a real invitation to participate.