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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 2 share incentive plan (SIP): Notification & Enquiries: Termination of the plan

If a company wishes to terminate its Schedule 2 SIP before the term of the plan trust has expired it may do so if:

  • the trust deed and rules allow under any circumstances specified in the plan (paragraph 89(1)),
  • it issues a plan termination notice (as required by paragraph 89), and
  • it follows the requirements of paragraph 90 (see below).

There is no prescribed format for a plan termination notice but it must be given by the company, normally following a resolution of the board of directors, and in writing (paragraph 89(2)).

A copy of the notice must be given, without delay, to:

  • the trustees,
  • each individual with shares in the plan, and
  • each individual who has entered into a partnership share agreement and which is still in force (paragraph 89).

The immediate effect of the notice is that no further shares may be awarded under the Schedule 2 SIP.

The trustees must remove plan shares from the Schedule 2 SIP:

  • by the end of the 3 month notice period (paragraph 90(4)), or
  • if later, the first date on which the shares may be removed from the Schedule 2 SIP without giving rise to an income tax charge (paragraph 90(3)).

In this context, plan shares are removed from the Schedule 2 SIP by means of a sale or transfer in accordance with the participant’s directions (general or specific) but in the absence of any such direction the plan may include for the participants to allow the trustees to use their discretion.

The shares may be removed earlier with the consent of the individual participant but such consent can validly be given only when the participant has received a copy of the termination notice (paragraphs 90(5) & (6)). Income Tax and NICs may arise on early withdrawals.