Jonathan Fletcher Rogers
Jonathan is the head of Addleshaw Goddard's Employee Incentives and Remuneration practice, and advises UK and multinational clients on the design and implementation of share and cash-based employee incentive plans. He also advises quoted companies on corporate governance and disclosure issues in relation to remuneration. Jonathan is a regular speaker at conferences on executive remuneration and share plans more generally and has been recognised as a leading individual in employee incentives in Chambers and Partners.
Practice Areas
Panels
- Consulting Editorial Board
- Contributing Author
21 Contributions by Jonathan Fletcher Rogers
PRACTICE NOTES
HMRC self-certification, ERS registration, enquiries, penalties and annual returns for SIP and SAYE schemes under ITEPA 2003, plus SIP trust registration under MLR 2017 (UK)
For further general information on share incentive plans (SIPs), see Practice Note: What is a share incentive plan? For more background on save as you earn (SAYE) schemes, see Practice Note: How SAYE schemes work and key features.
Legislation governing SIPs and SAYE schemes—self-certification, registration and filing requirements
The statutory framework for SIPs and SAYE schemes is set out in separate schedules to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), with ITEPA 2003, Sch 2 applying to SIPs and ITEPA 2003, Sch 3 applying to SAYE schemes. Throughout this Practice Note, these are referred to as ‘Schedule 2’ or ‘Schedule 3’, as relevant—or as ‘the applicable schedule of ITEPA 2003’.
The rules governing self-certification, registration and filing for SIPs and SAYE are located in:
ITEPA 2003, Sch 2 Pt 10, paras 81A–81K, for SIPs, and
ITEPA 2003, Sch 3 Pt 8, paras 40A–45, for SAYE schemes
The self-certification and registration regime
Until 6 April 2014, to obtain favourable tax treatment as a SIP or SAYE scheme, a plan was required to be examined and approved by HMRC...
Share Incentives
PRACTICE NOTES
Share Incentive Plans (SIPs) under ITEPA 2003: Award Types, Eligibility, Trust and Trustee Requirements, Documentation, Self‑Certification, Reporting, Tax Reliefs and Reconstructions (UK)
This Practice Note offers an introduction to the HMRC tax-advantaged Share Incentive Plan (SIP). It summarises:
the categories of award available under a SIP
the principal requirements that must be met to operate a SIP
the documentation likely to be needed in relation to a SIP, and
the tax treatment for both the employee and the employer
Background to a SIP
The SIP enables employees to obtain shares in their employer, or a parent company of the employer, in a tax-efficient manner. The legislative framework for the SIP is primarily set out in:
Schedule 2 to the Income tax (Earnings and Pensions) Act 2003 (ITEPA 2003), which explains how a SIP may operate and the key conditions that must be met for it to qualify as a ‘Schedule 2 SIP’
ITEPA 2003, Pt 7 Ch 6 (ITEPA 2003, ss 488–515), which details how shares acquired under a SIP are treated for income tax purposes
One of the SIP’s major advantages is its flexibility. Schedule 2 allows three distinct types of award to be made (with the additional ability for...
Share Incentives
PRACTICE NOTES
UK HMRC ERS annual return obligations for SIPs and SAYE schemes: registration, deadlines, variations, amendments, penalties, appeals and trustee filing
For broader guidance on share incentive plans (SIPs), see Practice Note: What is a SIP? For an overview of save as you earn (SAYE) schemes, see Practice Note: How SAYE schemes work and key features.
Legislation governing SIPs and SAYEs—registration and filing requirements
The statutory requirements for SIPs and SAYE schemes are set out in separate schedules to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003): ITEPA 2003, Sch 2 applies to SIPs and ITEPA 2003, Sch 3 applies to SAYE schemes. In this Practice Note, these are termed ‘Schedule 2’ or ‘Schedule 3’, as appropriate—or ‘the applicable schedule of ITEPA 2003’.
The provisions dealing with registration and filing are found as follows:
for SIPs, in ITEPA 2003, Sch 2 Pt 10, paras 81A–81K, and
for SAYE schemes, in ITEPA 2003, Sch 3 Pt 8, paras 40A–45
The HMRC registration process
Before an annual return can be filed with HMRC for a SIP or SAYE scheme, the scheme must first be registered with HMRC as part of HMRC’s online registration...
Share Incentives
PRACTICE NOTES
UK Schedule 2 SIPs: income tax, NICs and PAYE on awards, holding periods, exits and takeovers; RCAs, dividends, capital receipts and trustee obligations
Summary of tax treatment
The tax advantages available under a ‘Schedule 2 share incentive plan (SIP)’ are substantial indeed for both employees and employers. Staff who buy partnership shares through a SIP can avoid income tax and National Insurance contributions (NICs) at their combined marginal rate, and may enjoy tax-free increases in the value of those shares. In addition, free, matching and dividend shares can, in some cases, be obtained and disposed of without any liability to income tax, NICs or capital gains tax (CGT). Employers can reduce employer NICs and the apprenticeship levy, which can amount to a meaningful saving where many employees take part in the SIP. Shares obtained via a SIP must usually be retained for at least five years (dividend shares for three) to secure full income tax and NICs relief, which can itself operate as a strong retention tool. That said, across numerous sectors, five years exceeds the period many employees anticipate remaining with an employer, which may lessen the appeal of a SIP. This timing requirement, while useful for retention, may therefore diminish a SIP’s attractiveness in sectors with higher turnover and shorter average service than the five-year period. For broader guidance on SIPs, see Practice Note: What...
Share Incentives
PRACTICE NOTES
UK Share Incentive Plans (SIPs): assessing suitability, key tax and design issues for listed/unlisted companies and overseas groups, with employee risks, EMI comparison, dividends and NICs/Apprenticeship Levy considerations
Are SIPs always appropriate?
Because a share incentive plan (SIP) can deliver several kinds of award, it can suit a wide range of businesses and circumstances. Certain employers simply wish to allow staff to buy shares through the plan, whereas others aim to recognise performance by allocating free shares to employees. Another approach is to motivate take‑up by offering matching shares tied to the quantity employees acquire, linked to the number of shares purchased by each participant. Consequently, where an organisation is looking to broaden employee share ownership across its workforce, a SIP can be a sensible route, not least in light of possible tax benefits available under the plan. That said, the regime has tight rules and requires ongoing administration, so a SIP will not be the right fit for every business or situation...
Share Incentives
PRACTICE NOTES
UK Share Incentive Plans (SIPs): CGT treatment for trustees and participants, and corporation tax reliefs/deductions for employers, including ISA/pension transfers, disposals into SIP, rights issues and share identification
SIP
As the sole tax‑favoured share plan, a SIP allows participants to potentially realise unlimited growth in their shares without incurring income tax, National Insurance contributions (NICs) or capital gains tax (CGT). For all other tax‑advantaged arrangements—enterprise management incentives (EMI), save as you earn (SAYE) and company share option plans (CSOPs)—CGT can arise on the increase in share value from the date the options were granted. By contrast, where an individual keeps their SIP shares within the plan until disposal, no CGT is payable on that disposal. Do note that if a disqualifying event occurs in respect of a SIP, the preferential tax treatment for SIPs will not apply to any awards made after that point. For more information, see Practice Note: SIPs—qualifying companies and type of shares—Restrictions on shares and disqualifying events for SIPs. The tax outcomes described in this Practice Note apply to individuals who are at all times resident in the UK for CGT purposes. For the income tax and NICs position for SIP participants, see Practice Note: Share...
Share Incentives
PRACTICE NOTES
UK Share Incentive Plans: Corporate Actions—Reconstructions, Takeovers, Demergers and Rights Issues—Trustee Actions and Income Tax/NICs, CGT and HMRC Treatment
The impact of capital reorganisations, takeovers and demergers on awards made under a share incentive plan (SIP)
SIPs are more intricate than other tax-advantaged arrangements when capital reorganisations, takeovers or demergers occur, because participants own shares through SIP trustees rather than holding options. By contrast, for option schemes a share capital reorganisation that does not involve a takeover typically has little or no effect on outstanding options, as any movement in the company’s share price is slight, or participants’ economic position can be protected by adjusting the number of option shares and the exercise price. With SIP awards, the trustees will generally need to take steps, and they may require directions from participants. There are also defined rules about which assets may sit within the SIP after a reorganisation, so choices made can influence a participant’s tax position. The treatment of SIP awards on a takeover depends on how the deal is structured and on the award terms. Following recommendations from the Office of Tax Simplification, the Finance Act 2013 introduced provisions extending tax relief for SIP awards on certain cash takeovers. Accordingly, trustee action and participant instructions can prove key, as holdings must comply with SIP rules. For further...
Share Incentives
PRACTICE NOTES
UK Share Incentive Plans: Partnership, Matching, Free and Dividend Awards - Eligibility, Limits, Holding Periods, Restrictions, Performance and Valuation under ITEPA 2003
Schedule 2 to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)
In Schedule 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), the term ‘award of shares’ denotes shares that are either allocated to employees or acquired on their behalf on a particular occasion. Consequently, where a number of employees receive shares at the same time under a common invitation, each employee is regarded as having taken part in the same award of shares. A company that sets up a share incentive plan (SIP) enabling the acquisition of partnership shares has no duty to provide free shares, and the reverse also applies. An SIP may specify a qualifying period of employment, and this requirement must be identical for all participants in the plan. The maximum length of any such qualifying period will vary according to the form of award involved and whether an accumulation period applies. For further details, see Practice Note: SIPs—who can be granted an award?...
Share Incentives
PRACTICE NOTES
UK SIP Trusts: Trustee Qualifications, Trust Instrument Terms, Duties, Tax Compliance (ITEPA 2003), Powers and Trust Registration
The statutory rules for share incentive plans (SIPs) set out strict parameters for the type of trust that must run alongside a SIP and for what trustees may and may not do. Accordingly, when a new SIP is brought in, it will almost always require a fresh trust to be set up at the same time to support it. This Practice Note explains the requirements that govern SIP trusts, together with the duties and limitations placed on the trustees of those trusts.
Requirement for trustees
The trust sits at the heart of a SIP. To operate, a SIP must appoint a trustee body made up of UK‑resident persons. Consequently, every trustee—individual or corporate—has to be UK‑resident. Many listed companies opt for a single professional corporate trustee; alternatively, trustees may comprise a group of at least two individuals or a company subsidiary. Whether a natural person or a corporate body, this residence condition must be satisfied.
Requirement for a trust and trust instrument
The trustees’ functions in relation to shares in their custody must be governed by a trust set up under the law of part of...
Share Incentives
PRACTICE NOTES
UK tax-advantaged Share Incentive Plans: Eligibility, 'Same Terms' and Participation Rules under ITEPA 2003
Terminology
Under the SIP code—the legislation that governs the terms and requirements of Share Incentive Plans (SIPs) and sets out the available tax reliefs—the expression ‘award of shares’ describes shares that are either allocated to employees or acquired on their behalf on a particular occasion. Accordingly, when multiple employees receive shares at the same time pursuant to the same invitation, each individual is regarded as having taken part in the same award of shares. As dividend shares are not, in strict terms, ‘awarded’, they are excluded from the meaning of an ‘award of shares’ in paragraph 5, Part 1 of Schedule 2 to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), and therefore the eligibility requirements do not extend to dividend shares.
All-employee nature of the SIP
It is a fundamental principle of a SIP that it is operated on an all-employee basis. This all-employee requirement is fundamental to how a SIP must run...
Share Incentives
PRACTICE NOTES
UK tax-advantaged Share Incentive Plans: qualifying companies, group eligibility, ordinary share capital and listing/control requirements, restrictions and disqualifying events
The company establishing a SIP
The company setting up a share incentive plan (SIP) does not need to be the same entity whose shares are allocated. However, both:
the shares to be granted, and
the connection between the SIP-establishing entity and the company whose shares are issued
must satisfy the relevant legislative conditions.
A SIP can be created either:
solely for employees of the company that establishes it; or
for those employees and for employees of other companies it controls (a group plan)—see Constituent companies below.
In a group where the parent company’s shares are to be awarded, there are two options:
the parent company may establish the SIP and extend it to the appropriate subsidiaries; or
each subsidiary may establish its own SIP, provided the other statutory requirements concerning the shares under award are met—see Requirements for the shares.
The advantage of each subsidiary operating its own SIP is the flexibility to tailor award terms to its particular circumstances. Where the SIP is extended by the parent company to its...
Share Incentives
PRACTICE NOTES
UK–US employee share schemes compared: ESPP, SAYE, SIP, ISO, CSOP, EMI; unapproved awards; UK tax, limits and HMRC compliance; operating and adapting US plans for UK employees
Companies in the US and the UK have long allowed their workforces to hold equity stakes, and each country has offered tax reliefs and introduced other policies and mechanisms to foster employee share ownership across organisations. While the schemes used in the US and UK have evolved along different paths, they still share numerous similarities. Despite differing development over time, many core aspects remain aligned between the two jurisdictions. Accordingly, comparisons should be drawn with those common elements in mind carefully.
This Practice Note compares the UK and US across:
tax-advantaged, all-employee arrangements
discretionary share schemes, and
non tax-advantaged share schemes
The tables that follow are merely summaries and ought to be read alongside the further Practice Notes suggested.
Tax advantaged share plans—UK and US comparison
All employee plans
The following table compares the US tax-qualified employee stock purchase plan (ESPP) with two tax-advantaged UK all-employee arrangements—the save as you earn or savings-related share option plan (SAYE) and the share incentive plan (SIP).
The ESPP, SAYE and SIP are each schemes that must operate on an all-employee basis.
For more on ESPPs, SAYE arrangements and SIPs generally, see Practice Notes: Qualified US Employee Stock Purchase Plans—design and compliance, How SAYE...
Share Incentives
PRECEDENTS
Board minutes: adoption of UK Schedule 2 Share Incentive Plan, establishment and funding of SIP trust, HMRC valuation, and employee invitations for partnership, matching and free share awards
[ Insert name of company adopting the SIP ] (the Company)—[ insert Company number ]
Minutes of a meeting of the [ remuneration committee of the ] board of directors of the Company convened at [ insert place of meeting ] on [ insert date of meeting ] at [ insert time of meeting ].
Present
[ insert name of director to be Chair ] (the Chair)
[ insert names of directors present ]
In attendance
[ insert names of those in attendance ]
Apologies
[ insert names of directors who are unable to attend meeting ]
1 Notice and quorum
[ insert name of Chair ] took the chair for the meeting. It was noted that due notice had been given in line with the Company’s articles of association (the Articles) and that the meeting was quorate. Accordingly, the Chair declared the meeting open...
Share Incentives
PRECEDENTS
Precedent employee invitation letter for award of free shares under UK Share Incentive Plan (SIP): eligibility, acceptance/opt-out, leaver treatment, share rights and tax
Award of free shares under the [ insert name of company ] Share Incentive Plan (SIP)
We are delighted to confirm that you qualify to receive an allocation of free shares through the [ insert name of company ] Share Incentive Plan (SIP). The [ value OR number ] of free shares due to you is [ insert number or value of free shares ] [ subject to a maximum value of free shares of £3,600. ]. Full particulars of your free share award will be shared with you after the award has been finalised, and you will receive the relevant information about your free shares in due course. [ Insert any details of any criteria used to determine the entitlement to free shares (remuneration, length or service or hours worked. ] [ Insert details of any applicable performance allowances ] [ If you want to accept your free shares, you should follow the instructions below. The deadline for accepting the free shares is [ date ]. OR If you want to accept your free shares you don’t have to do anything as they will automatically be awarded to you ]...
Share Incentives
PRECEDENTS
Precedent Employee Invitation Letter: UK Share Incentive Plan (SIP) Partnership and Matching Shares—Eligibility, Contributions, Purchase Timing, Leaver Treatment, Rights and Tax
Invitation to buy partnership [ and receive matching ] shares under the [ insert name of company ] Share Incentive Plan
We’re delighted to confirm you qualify to join the [ insert name of company ] share incentive plan now. Through this plan, you can acquire [ insert name of company ] shares by way of regular monthly deductions taken from your pre-tax salary, making participation straightforward and convenient. [ As added benefit, you will also receive [ insert number of matching shares ] extra share [ s ] for every [ insert number of partnership shares ] share [ s ] you purchase (these are called matching shares) ] .
To participate, simply follow the steps set out below when you are ready. [ There is no deadline for applications – you can choose to take part at any time. OR The deadline for applications is [ insert date of deadline ] ] ....
Share Incentives
PRECEDENTS
Share Incentive Plan (SIP) Free Shares Participation Agreement: Trustee, Dividend Reinvestment, Holding Period, Forfeiture, Data Protection, PAYE and NICs
This agreement is between:
Parties
Participant
Name: [ insert name of participant ]
Home Address: [ insert address of participant ]
Payroll Number: [ insert payroll number of participant ]
Company
Name: [ insert name of company ]
Registered Address: [ insert registered address of company ]
Registered Number: [ insert registered number of company ]
Trustee
Name: [ insert name of trustee ]
Registered Address: [ insert registered address of trustee ]
This agreement explains the basis on which the Participant agrees to participate in Awards of Free Shares in accordance with the Plan. The definitions contained in the Plan Rules apply to this agreement. Should any inconsistency arise between this agreement and the Rules, the terms of the Trust Deed or any relevant legislation, the Rules, the Trust Deed or the relevant legislation (as appropriate) will take precedence...
Share Incentives
PRECEDENTS
Share Incentive Plan Rules (Schedule 2 ITEPA): Eligibility, Awards, Holding Periods, Forfeiture, Trustee and Corporate Actions (England and Wales)
1 Definitions and interpretation
1.1 The terms below shall be interpreted as follows:
Accumulation Period — with respect to Partnership Shares, the span during which the Trustee holds a Qualifying Employee’s Partnership Share Money before buying Partnership Shares or returning it to the employee;
Acquisition Date —
(a) for Partnership Shares where an Accumulation Period is in place, has the meaning given in paragraph 52(5) of Schedule 2;
(b) for Partnership Shares where no Accumulation Period is in place, has the meaning given in paragraph 50(4) of Schedule 2;
(c) for Dividend Shares, has the same meaning given by paragraph 66(4) of Schedule 2;
Associated Company — has the same meaning as in paragraph 94 of Schedule 2;
Award Date — in respect of Free Shares or Matching Shares, the date on which those Shares are granted;
Award —
(a) in respect of Free Shares and Matching Shares, the allocation of Free Shares and Matching Shares in accordance with the Plan; and
(b) in respect of Partnership Shares, the purchase of Partnership Shares on behalf of Qualifying Employees in accordance with the Plan;
Award Maximum — has the meaning assigned to that term in Rule 8.8;
Board — the board...
Share Incentives
PRECEDENTS
Share Incentive Plan Trust Deed (England and Wales): ITEPA 2003 Schedule 2 compliance, trustee powers, administration, PAYE, indemnities, amendments, termination, and deed of adherence
[ insert name of company ] Trust deed
[ insert name of company ] Share Incentive Plan
This Deed is dated and entered into BETWEEN
[ INSERT NAME OF COMPANY ], a company registered in England and Wales under number [ insert company number ] (the Company), whose registered office is at [ insert address of company ];
[ INSERT NAME OF TRUSTEE ], a company registered in England and Wales under number [ insert company number ] whose registered office is [ insert address of trustee ] (the Trustee).
Whereas:
The Company intends to establish a share incentive plan titled the [ insert name of company ] Share Incentive Plan (the Plan), which meets the requirements of Schedule 2 to the Income Tax (Earnings and Pensions) Act 2003.
The creation of the Plan was authorised by a resolution of the Board passed on [ insert date on which the board resolution was passed ].
The Trustee has agreed to act as the initial trustee of the Plan.
...
Share Incentives
PRECEDENTS
Shareholders' Resolution Approving UK Schedule 2 ITEPA 2003 Share Incentive Plan (SIP) and Authorising Directors to Implement and Establish Overseas Sub-Plans for a Listed Company
That:
the [ insert name of company ] Share Incentive Plan (SIP), together with the trust deed and rules summarised on pages [ insert page number ] to [ insert page number ] of this Notice of General Meeting, produced to the meeting and initialled by the Chair for identification, be and are hereby approved, and the directors are hereby authorised to adopt them (subject to any amendments they deem necessary or desirable to ensure the SIP complies with Schedule 2 to the Income Tax (Earnings & Pensions) Act 2003); and
the directors be and are hereby authorised to:
carry out all actions and matters they consider necessary or desirable to implement and give effect to the SIP; and
establish further plans derived from the SIP, adjusted for use in overseas jurisdictions to accommodate local tax, exchange control or securities laws, provided that any ordinary shares made available under such further plans are counted against any individual or overall limits applying to participation in the SIP...
Share Incentives
PRECEDENTS
UK Share Incentive Plan: Partnership Share Agreement with Matching and Dividend Shares (Template)
Parties
Participant
Name: [ insert name of participant ]
Residential Address: [ insert address of participant ]
Payroll Reference: [ insert payroll number of participant ]
Company
Name: [ insert name of company ]
Registered Address: [ insert registered address of company ]
Registered Number: [ insert registered number of company ]
Trustee
Name: [ insert name of trustee ]
Registered Address: [ insert registered address of trustee ]
Registered Number: [ insert registered number of trustee company ]
This agreement outlines the conditions under which the Participant commits to purchase Partnership Shares [and receive Matching Shares] in line with the Plan. The definitions set out in the Plan Rules shall apply to this agreement. Should any inconsistency arise between this agreement and the Rules, the terms of the Trust Deed or any relevant legislation, the Rules, the Trust Deed or the relevant legislation, as appropriate, shall take precedence.
Notice to participant about possible effect on benefits
Deductions taken from your salary to acquire Partnership Shares under this agreement may influence your entitlement to, or the amount of, certain contributory social security benefits, statutory maternity pay, statutory neonatal care pay and statutory sick pay...
Share Incentives
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