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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

From
HM Revenue & Customs
Updated
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Schedule 2 share incentive plan (SIP): Taxation: Paying income tax or national insurance contributions (NICs)

Where shares cease to be subject to a Schedule 2 SIP and there is an amount that counts as employment income of the participant if the shares can be readily converted into cash (for example – if they are listed on a recognised stock exchange (Section 702 ITEPA 2003 and EIM11900)) then the employer will deduct the income tax and NIC under PAYE. If the shares are not readily convertible assets, there will be no NICs to pay, but the employee may still have income tax to pay and should report the details about the shares in their Self Assessment tax return. If the employee does not usually receive a Self Assessment tax return, they will need to contact HMRC to let them know about the shares by 5 October after the end of the tax year in which they were withdrawn from the SIP. HMRC will then calculate any amount of tax owing and how this will be recovered.

Whilst the employer will normally deduct any income tax and national insurance contributions (NICs) arising in respect of plan shares under PAYE, if the employee leaves the company and is a higher rate taxpayer, it is likely that the employer will have deducted the tax applying code 0T and the employee will therefore need to provide details of the shares and any tax deducted in their Self Assessment tax return in order for any tax due at the higher rate to be calculated and recovered.

Dividend shares are not subject to NICs. If dividend shares are removed from the SIP after 3 years or withdrawn due to “good leaver” circumstances (ETASSUM28160), income tax will not be due. If the shares are withdrawn for any other reason less than 3 years after they went into the plan, tax will be due on the value of the original dividend. Further tax will be due if the employee is a higher rate taxpayer and the employer should provide the employee with the details that will required on the employees Self Assessment tax return.