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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): Types of award: Partnership shares: Acquisition and award of shares

A Schedule 2 SIP with partnership shares can be operated with or without accumulation periods.

Accumulation period

These are set periods over which deductions of partnership share money are made from salary. The company decides how long each accumulation period will be, subject to a maximum of 12 months (paragraph 51), and having decided, the same period applies for all participants in a particular award.

The partnership share agreement (PSA) may specify that an accumulation period must come to an end if a specified event occurs (paragraph 52(8)). For example, it is possible for the PSA to stipulate that it ends after 12 months or on a takeover, or reorganisation of the company, whichever is earlier. A decision by the directors to terminate the period does not qualify as a specified event.

The partnership share money deducted must be used by the trustee to acquire partnership shares within 30 days of the end of the accumulation period. The date on which the trustee awards the partnership shares is referred to in the SIP Code as ‘the acquisition date’, but this does not prevent the trustees from:

  • using shares which they (or their nominee) may already be holding,
  • purchasing shares in the market or subscribing for new shares at different times and at different prices.

If there is an accumulation period, the company offering the Schedule 2 SIP is able to choose the approach it takes in determining the number of shares awarded to each employee. This can be either:

  • the market value of the shares on the award date (following the end of the accumulation period),
  • the market value of the shares at the beginning of the accumulation period; or 
  • the lower of these prices.

Whichever approach is chosen, the company must specify this in their Schedule 2 SIP partnership share agreement and this will be the price used.

Market value will be defined by the rules of each Schedule 2 SIP – see ETASSUM28180.


In this example the company has chosen to use the lower of the MV of the shares at the start of the accumulation period or the MV on the award date, which has been specified in their Schedule 2 SIP Partnership Share Agreement.

Employee M has £100 per month deducted from his salary over a 12 month accumulation period.

At the start of this accumulation period the company’s share price is £5. During the 12 months there is a sharp upturn in technology shares and, by the award date at the end of the accumulation period, the company’s share price has reached £10.

Employee M’s salary deductions (totalling £1200) are used to buy shares at the market value of the shares at the beginning of the accumulation period (£5), so the employee will be awarded 240 shares. There is no income tax or NICs charge to the employee in respect of this ‘discount’ to current market value.

The company may have to make a payment to the trustees of the Schedule 2 SIP to cover this shortfall when partnership shares are awarded at a ‘discount’. Any such payment is allowable to the employer company in computing its taxable profits for Corporation Tax (Section 995 CTA 2009)

No accumulation period

If there is no accumulation period, the partnership share money must be used to acquire shares within 30 days of the last deduction from an employee (in that month or other pay period) (paragraph 50). This allows for the situation where participants in an award are paid at different intervals. For example, weekly paid employees will have four or five deductions in the same period that monthly employees have one. Although the trustee will need to accumulate the deductions of weekly-paid participants, there is no accumulation period within the meaning of the SIP Code; awards on a monthly basis within 30 days of the last deduction from both weekly- and monthly-paid employees will satisfy the requirement of paragraph 50(1).


Albert has £10 deducted from his weekly pay on each of 7th, 14th, 21st and 28th May. Vicky has £40 deducted from her monthly salary on 28th May. There is no accumulation period. The trustees decide to award partnership shares to all participants on the following 27th June.  This meets the requirement of paragraph 50(1) because it is within 30 days of 28th May – the date of the last deduction from both Albert (weekly-paid) and Vicky (monthly-paid).

The number of shares which the trustees award to each employee will be determined according to the market value of the shares on the acquisition date (i.e. the date of award, which in this example would be 27 June) (paragraph 50(2)). Market value will be defined by the rules of the Schedule 2 SIP – see ETASSUM28180.

Surplus partnership share money

Sometimes there will not be enough partnership share money to buy one share e.g. where the market value of one share is £45.50 and the partnership share money available is only £45.25. More commonly, the partnership share money will not buy a whole number of shares. In such cases any surplus partnership money after whole shares have been acquired by the trustees can be either:

  • carried forward and added to the amount of the next deduction (or the next accumulation period if there is to be one), with the employee’s agreement, or
  • paid over to the employee as soon as practicable, subject to PAYE and NICs.

Most companies and SIP administrators will find it impractical to consult employees and obtain their agreement at each and every award. Therefore, the partnership share agreement should state what is to happen and will normally specify that the employee agrees to the carry forward method unless he/she notifies the company to the contrary.

Participants who leave before an award

Paragraph 97 makes special provision for employees who have entered a partnership share agreement and had partnership share money deducted but who leave relevant employment (see ETASSUM28130) before the acquisition date.

A participant who leaves in the ‘acquisition period’ is to be awarded partnership shares as if they were still employed but is treated as leaving relevant employment immediately after the award. The ‘acquisition period’ means the period beginning with either:

  •  the deduction of the partnership share money (if there is no accumulation period), or
  •   the end of the accumulation period (if there is one),

and ending in either case with the acquisition date. Thus, shares are awarded and immediately cease to be subject to the plan (see ETASSUM28150). This does not change the date on which relevant employment ends for other SIP purposes or the date on which shares already held in the Schedule 2 SIP must be taken out.