HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

ETASSUM24410 - Schedule 2 share incentive plan (SIP): Types of award: Partnership shares: Repayment of partnership share money

Partnership share money must be returned to the employee and not used to acquire partnership shares if:

  • the employee leaves during an accumulation period and before the final deduction has been made from his or her salary (paragraph 52(7)),
  • the employee gives notice to withdraw from the partnership share agreement (paragraph 55(3)),
  • the plan ceases to be a Schedule 2 SIP (paragraph 56(1)),
  • the company issues a plan termination notice (paragraph 56(3)), or
  • there is partnership share money brought forward from a previous award with no accumulation period (see ETASSUM24370) and the employee leaves before any further deduction is made.

In each of these circumstances the money must be repaid to the employee as soon as practicable and is subject to PAYE and NICs (Section 503 (2) ITEPA 2003). In most cases the trustees should route the repayment through the employer’s payroll – see ETASSUM26150.

Where HMRC decides that the plan is no longer a Schedule 2 SIP (ETASSUM27150) and the company appeals against that decision, the money must be repaid to the employee as soon as practicable after the appeal is determined (if appropriate) or withdrawn. If the company does not appeal against the decision, the money must be repaid as soon as practicable after the end of the 30 day appeal period (paragraph 56(2)).

The SIP Code contains no authority for employers to retain any of the partnership share money in the circumstances listed above nor do the PAYE regulations exempt any amount, however small, from PAYE. However, the issue of whether minor amounts should be subject to PAYE/NIC should be discussed between the employer or administrator and the PAYE office of HMRC that deals with the payroll operations of the company. HMRC has not set a limit on what is a minor amount, and that remains a matter for the PAYE office.