ETASSUM26120 - Schedule 2 Share Incentive Plan (SIP): Requirements relating to the trust and trustees of a Schedule 2 SIP: Notification requirements

The trust deed must require the trustees to give various notices to participants as soon as practicable. How regularly notification is given will depend on the trustees’ individual circumstances. HMRC regards notification on a six monthly or annual basis as consistent with legislative requirement. Any period longer than 12 months before notification is given is unlikely to be consistent with this requirement. Trust Deeds and Rules which qualify the statutory language to specify that notification will be given less frequently than monthly are consistent with the legislative requirement, but Trust Deeds and Rules which omit or substitute the statutory wording altogether are not.

The notice must contain specific information depending on the type of award;

Free or matching shares

  • the number and description of the shares,
  • if the shares are subject to any restriction, details of the restriction,
  • their market value on the award date, and
  • the holding period applicable to them (paragraph 75(2)).

Partnership shares

  • the number and description of the shares,
  • the amount of partnership share money used to buy those shares,
  • if shares are subject to any restriction, details of the restriction, and
  • the market value of the shares on the date used in determining the number of shares acquired (i.e. where there is an accumulation period, either the MV at the start of the accumulation period, the MV on the acquisition date at the end of the accumulation period or the lower of these values depending on which approach was specified in the partnership share agreement (paragraph75(3)).

Dividend shares

  • the number and description of the shares,
  • their market value on the day the shares were acquired (paragraph 66(4)),
  • if shares are subject to any restriction, details of the restriction,
  • the holding period applicable to the shares, and
  • details of the amount, if any, not reinvested and carried forward (paragraph 75(4)).

The award must state whether or not the plan shares are subject to any restriction and if they are, details of the restriction must be stated in the trustees notice (paragraph 75(2) & (3)(aa)). This means that the restrictions must be identified for participants and it is not sufficient for the company to refer generally to its articles of association or a shareholder agreement, for example.

Dividends

General

See ETASSUM26150 for details of the information which the trustees must provide in relation to UK company dividends paid over to participants.

Foreign cash dividends

Where the trustees receive a cash dividend on plan shares in a company which is not resident in the UK, they must notify participants of the amount of any foreign tax which has been deducted from the dividend before it was paid to them (paragraph 75(5) & (6)). This provides the participant with the information they need to enter on his or her tax return and to claim any double taxation relief which may be due.

Participant’s tax liability

Paragraph 80(3) states that the trust deed must require the trustees to inform a participant of “any facts relevant” to determining his or her liability under ITEPA 2003 or Chapter 3 or 4 of Part 4 ITTOIA 2005 “by reason of the occurrence of any event”. Liability is likely to arise on employment income under ITEPA, whereas Part 4 of ITTOIA imposes tax on dividends received from companies that are UK-resident (Chapter 3) or non-resident (Chapter 4).

As the trustees may not have details of a participants’ personal income and circumstances beyond their participation in the Schedule 2 SIP, a provision which limits the paragraph 80(3) requirement to tax liabilities arising from that participation is acceptable. It is not acceptable however, to limit the scope of the provision to information “known to the trustees” or “in their possession” (for example); the trustees can reasonably be expected to make enquiries of the constituent companies by whom participants are employed in order to establish relevant facts for this purpose.