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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 2 share incentive plan (SIP): Types of award: Partnership shares: Maximum deduction of partnership share money

Maximum deductions

The amount of partnership share money deducted from an employee’s salary (see ETASSUM24330) in any tax year must not exceed the lower of:

  • £1800, and
  • 10 per cent of the employee’s salary for that year.

Both limits must be applied by the rules of a Schedule 2 SIP and the employer must calculate deductions of partnership share money to ensure that they are not breached (paragraph 45(5)).

A company can choose to specify a lower maximum, either for a particular award or more generally in the rules of its Schedule 2 SIP. Instead of specifying a lower total or percentage deduction this can take the form of excluding earnings of a particular description from the calculation. For example, some companies exclude commission and other types of non-standard remuneration, preferring to apply the limits only to basic salary or wages. In all such cases, however, care must be taken not to infringe the ‘same terms’ and ‘discouraging features’ requirements (ETASSUM21070 and ETASSUM21060).

These limits apply with effect from 6 April 2014 by virtue of changes arising in the 2014 Finance Act . 

SIPs containing the earlier version of the limits must be operated in accordance with their rules. Of course it is open for a company to amend its SIP (further guidance regarding amendments can be found at ETASSUM27140). 


If amounts are deducted from salary, which exceed the limits set for that award, the excess amount must be repaid to the employee as soon as practicable (paragraph 46(5)). When this is repaid however will depend on the circumstances of the company; it may be either the next pay day or the one after that if the payroll input deadline has been missed. If this is as soon as practicable for that company, it will meet the requirements of the legislation.

If a further deduction is being made from the employee’s salary the following month, the previous over-deduction can be taken into account by deducting less on this deduction to correct the situation.

Repayments to employees of partnership share money must be subject to PAYE and NICs deductions (section 503 ITEPA 2003).

If an employee leaves the company, and his or her deductions are in excess of 10% of salary from the start of the tax year to the date of leaving, the excess deduction (over and above the 10% salary limit) must be returned to the employee through the payroll (and must therefore be subjected to PAYE and NICs).