Schedule 2 share incentive plan (SIP): Supplementary and defined terms: Market value
Under a Schedule 2 SIP, the market value (‘MV’) of the shares must be determined at various times so that the plan limits and plan requirements are adhered to and tax and NICs can be correctly calculated and accounted for.
A company will need to establish the MV of shares being used in a Schedule 2 SIP if there is:
- an award of free or matching shares,
- an acquisition of partnership shares,
- dividend reinvestment,
- a participant who ceases employment within five years of an award of free, partnership or matching shares (three years for dividend shares),
- a withdrawal of free, partnership or matching shares from the plan within five years of award (three years for dividend shares), or
- an acquisition of shares by the trustees - in order to quantify the corporation tax deduction to be claimed.
Date of determination of Market Value
For the purposes of awards or acquisitions of shares under a Schedule 2 SIP, their market value must be determined on:
- free shares or matching shares*: the date of award (paragraph 35(2)),
- partnership shares with no accumulation period*: the acquisition date (paragraph 50(2)),
- partnership shares with an accumulation period*: the start of the accumulation period or the acquisition date, (following the end of the accumulation period) or the lower of the two values, (depending which option was chosen by the company and specified on the partnership share agreement (paragraph 52(2A)); *For this purpose matching shares and any linked partnership shares awarded by reference to the market value on the date of acquisition (paragraph 50(2) or 52(3)(b)) are treated as one award (paragraph 59(b)), and
- dividend shares: the value at the date of acquisition (paragraph 66(3)).
In the remainder of this section of guidance, “award date” is taken to include the date of acquisition for partnership and dividend shares.
Paragraph 92(3) of Schedule 2 states that, where the market value of shares has to be determined for the purposes of the SIP Code, “an officer of Revenue & Customs and the trustees [of the plan] may agree that it is to be determined by reference to:
(a) a date or dates, or
(b) to an average of values on a number of dates,
as stated in the agreement”.
In practice, this agreement is reflected in the definition of market value in the plan rules.
Where shares are listed on a recognised stock exchange and the market value is determined in accordance with the guidance included at ETASSUM28180, then it will not be necessary to obtain HMRC agreement on the value.