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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 2 share incentive plan (SIP): General requirements: Participation on same terms

Every employee who is invited to take part in a Schedule 2 SIP must be invited to do so on the same terms and every employee who does take part must do so on the same terms (paragraph 9(1)).

“Same terms” is not defined in the legislation and therefore takes its ordinary meaning. However, it does not mean that every participant must agree, for example, to the same level of deductions of partnership share money. Provided every eligible employee is offered an opportunity to choose the level of his or her deductions (subject to the statutory maximum and any minimum set by the company) the ‘same terms’ requirement will be met. Para 9(7) makes this clear. It also allows a company to set a lower percentage limit for deductions of partnership share money even if this results in deductions of different amounts or in the award of different numbers of partnership shares.

“Remuneration” is not defined in the SIP Code so, in principle,  the term would have its ordinary meaning of (all)  earnings from the employment by reference to which the employee is eligible to participate in the Schedule 2 SIP.

HMRC will accept, for the purposes of the SIP Code,  definitions of remuneration different from that stated directly above but only provided that  the definition of “ remuneration” used by an employer is not discriminatory so does not affect the “ same terms” principle.So for example it might be acceptable in some circumstances to restrict remuneration to basic pay and to exclude overtime.

Exceptionally, the rules of a Schedule 2 SIP can allow the company to exclude from invitations to participate those employees who have received notice of termination of their employment and/or those who have given notice (of whatever length and for whatever reason) and in each case the notice period will be running at the intended date of award.