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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: Holding partnership share money

A Schedule 2 SIP must include certain provisions for dealing with and holding partnership share money (paragraph 49):

  • It must require the constituent companies to pay to the trustees as soon as practicable all deductions of partnership share money,
  • The trustees must hold the money in an account with a regulated bank, building society or equivalent European deposit-taker, which may or may not be interest-bearing, and
  • If interest arises the trustees must account for it to the employee to whom it belongs.

If the account is interest-bearing, that interest will belong to the employee, and he or she will be subject to tax which will be deducted at source by the bank or building society. Higher rate taxpayers must account for tax on this interest through their Self Assessment tax return.

It is not possible for interest to be added to partnership share money in order to buy additional shares. Interest can be used to meet part of the administration costs of the Schedule 2 SIP if the individual participant agrees but the interest will remain part of the taxable income of each employee, and will mean that the employees will be taxed on amounts of interest that they never receive.