What does paragraph 31 of Schedule 2 ITEPA 2003 require regarding SIP share voting rights?

Paragraph 31 requires that shares held within a Share Incentive Plan must carry voting rights comparable to those of other ordinary shares of the same class held outside the plan. SIP participants must not be placed at a disadvantage relative to other shareholders of the same class, ensuring equal treatment in respect of voting power.

Can SIP shares with no voting rights still qualify under paragraph 31?

Yes. SIP shares that carry no voting rights are not automatically disqualified. If the company has other ordinary shares of the same class that also carry no voting rights, the SIP shares satisfy paragraph 31. The key test is whether employees are treated less favourably than other holders of shares in the same class.

How is the voting rights comparison made when a company has multiple share classes?

The comparison under paragraph 31 is made within the relevant class of ordinary share rather than across all classes. When setting up or reviewing a SIP, employers must check the company's share capital structure to confirm that SIP shares of the chosen class have voting rights no lesser than those of the same class held outside the plan.

What happens if a company strips voting rights from SIP shares only?

If a company uses shares of a class that normally carries voting rights but removes those rights solely from the SIP shares, the shares fail the paragraph 31 condition. Employees would have lesser voting rights than other shareholders of the same class, disqualifying the shares from use in the Share Incentive Plan.

Income Tax (Earnings and Pensions) Act 2003 Schedule 2 paragraph 31

Permitted restrictions: voting rights

Paragraph 31 of Schedule 2 sets out the rules on whether restrictions on voting rights attached to SIP shares are permissible without disqualifying the shares from the plan.

SIP shares must carry voting rights that are comparable to those of other ordinary shares in the company.
Shares in a SIP are not disqualified merely because they carry no voting rights, provided the company also has other ordinary shares of the same class that likewise carry no voting rights.
Where shares of the same class exist outside the plan that do carry voting rights, the SIP shares must not have lesser voting rights than those shares.
The rule ensures that SIP participants are not placed at a disadvantage compared to other holders of ordinary shares of the same class.

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