ETASSUM24530 - Schedule 2 share incentive plan (SIP): Types of award: Matching shares: The matching ratio
The partnership share agreement must specify the ratio of matching shares to partnership shares “for the time being offered by the company” (paragraph 60(1)). Paragraph 60(1) also requires that the circumstances and manner in which the ratio may be varied is stated in the agreement but in practice it is very difficult for companies to predict these matters. HMRC accepts, therefore, that an agreement which allows the ratio to be changed will satisfy this requirement provided that it requires participants to be notified of the change before the award of partnership shares under the varied terms is made. This notification requirement is in any case a separate requirement of the SIP Code (paragraph 60(3)).
The maximum ratio is 2:1, that is, two matching shares for each partnership share (paragraph 60(2)) and must by applied by reference to the number of shares. This means that a ratio specified in terms of share value or another monetary measure will not meet the requirement.
A company can provide for a match up to a fixed level of partnership shares bought, with the balance of partnership shares not attracting a match, e.g. 1:1 on partnership shares bought with the first £100 per month (or in total, cumulatively, if preferred). Alternatively, stepped ratios may be offered (e.g. 2:1 on the first £50, 3:2 on the next £50) but it is not acceptable for the ratio to improve as more shares are bought; that would favour higher-paid employees contrary to paragraph 10(1). It is also not possible to award a fraction of a share, therefore if the award ratio does not result in a full share, the award should be rounded down to the nearest whole share and HMRC allow any fraction of a share balance to be carried forward to be added to the next award. Although the legislation (paragraph 59(1)(b)) requires matching shares to be awarded on the same day as the partnership shares to which they relate, HMRC has accepted wording in the SIP rules such as “If the partnership shares acquired on the day referred to in ‘Rule ?’ are not sufficient to produce a whole matching share, the match shall be made when sufficient partnership shares have been acquired to allow at least one matching share to be appropriated”.