Share Incentive Plan (SIP)
Share Incentive Plans are government sponsored employee incentive plans which allow companies to offer their staff the opportunity to acquire company shares on very advantageous terms.
All employees must be offered the chance to participate in Share Incentive Plans, subject to certain qualifying service periods. The value of individual awards can vary in proportion to salary, length of service and hours worked.
Download our free Share Incentive Plan fact sheet
An effective employee incentive
This share incentive scheme can work in several ways. Firstly, employees can be gifted up to £3,000-worth of company shares each year in trust, free of charge (“Free Shares”) creating incentives for employees. They can also have the opportunity to purchase shares (“Partnership Shares”) from gross salary, before tax deductions. If they do they can receive additional free Matching Shares.
Through this incentive plan, employees can acquire shares worth up to £7,500 per year (more, if the Share Incentive Plan dividends are re-invested).
The shares used in a Share Incentive Plan must be the normal ordinary shares of the company, although non-voting shares can be used. The value of shares in a private company is established by negotiation with HM Revenue & Customs. See our free factsheet Company Share Valuation for further details.
Employee trust
The shares in a Share Incentive Plan are normally held in trust for at least three years. After this time, the shares can normally be removed from trust and all gains in their value are tax free. After five years, the whole value of the shares are free of all taxes. If a person leaves while the shares are still in trust, they can be required to offer the shares back to the company. This provides a loyalty aspect to the employee incentive. If an employee is a “bad leaver”, the company can require that any free shares are forfeited.
You may download our free factsheets on this or other employee incentives, view our online Directors’ Guide or ask for a free consultation to discuss the alternative share incentive schemes available.
Essential Information
This section will provide links to important scheme-related articles, including up to the minute legislation changes and beneficial information regarding this option.
