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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): Requirements relating to the trust and trustees of a Schedule 2 SIP: Duties of the trustees

The duties and obligations of the trustees must be set out in the trust deed and Part 9 Schedule 2 specifies what is to be included. The deed must require the trustees to:

  • acquire shares and appropriate (that is, designate or allocate) them to employees as free or matching shares,
  • apply partnership share money in buying partnership shares for employees, and
  • apply cash dividends in acquiring dividend shares (paragraph 71(2)).

A Schedule 2 SIP does not need to operate all four types of share awards (see ETASSUM20130) but the trustees cannot use participants’ money for other purposes, such as paying cash bonuses to employees or meeting their own fees or expenses. Nor can the trust be used for purposes which are not directly related to the Schedule 2 SIP, such as a general employee benefit trust.

Duties in relation to Schedule 2 SIP shares

Having appropriated shares or acquired them on behalf of participants, the trustees are subject to further requirements under Part 9. The Trustee’s duties are as follows: -

1.To deal with rights and disposals in accordance with participant’s directions

The trust deed must require the trustees to:

  • dispose of Schedule 2 SIP shares, and
  • deal with any right conferred on Schedule 2 SIP shares, to be allotted other shares, securities or rights,

only in accordance with a direction given by or on behalf of the participant (paragraph 72(1)).

See ETASSUM25150 for further information on the trustees’ obligations in relation to rights issues and rights offers.

2.A duty not to dispose of Schedule 2 SIP shares during holding period

The trust deed must prevent the trustees from disposing of free shares, matching shares or dividend shares while they are subject to a holding period unless the participant has ceased to be in relevant employment (see ETASSUM28130) (paragraph 73). The requirement is subject to certain exceptions including the sale of shares to meet a PAYE obligation when plan shares cease to be subject to the Schedule 2 SIP. See ETASSUM24130 for further information on holding periods.

3.A duty to make payments to participants

The trust deed must require the trustees to pay over to a participant, as soon as practicable, any money or money’s worth they receive in respect of or by reference to any of the participant’s shares (paragraph 74(1)). Money’s worth in the form of new shares received as a result of a company reconstruction and which can be held as Schedule 2 SIP shares are excluded from this requirement.  There are also exceptions in paragraph 74(2) for:

  • cash dividends and dividend shares,
  • the trustees’ obligations under sections 510 to 514 (when shares cease to be subject to the Schedule 2 SIP and on capital receipts), and
  • the trustees’ PAYE obligations (also on shares ceasing and capital receipts).

Paragraph 74 requirement relates to any of the participant’s shares and not merely Schedule 2 SIP shares. So, if the trustees happened to receive a payment (e.g. for lapsed rights) in respect of non-plan shares which they are holding on a bare trust pending their distribution to participants, they must distribute that payment as well as the underlying shares as soon as they are able to.

4.Further duties

The trustees’ further obligations are set out separately at: