The Share Incentive Plan ("SIP") is a tax advantaged employee share scheme that must be offered to all eligible employees of a company on the same terms.
About the Share Incentive Plan
Under a Share Incentive Plan, shares can be awarded to employees through one (or a combination) of the following methods; Free Share, Partnership Shares and Matching Shares.
Free shares can be given to participants without any tax charge (usually, an employee who is gifted shares will be subject to income tax and, potentially, National Insurance Contributions, on the value of the shares s/he has received).
Partnership Shares can be bought by employees out of pre tax salary. For each Partnership Share bought, an employee can receive up to two further free (Matching) Shares.
Each participant can receive shares worth up to £9,000 p.a. under the SIP.
Once awarded, the shares are then held on behalf of the participants within a Share Incentive Plan Trust. After a five year period, the shares can be sold and no Income Tax or National Insurance Contributions (NICs) will be due. For as long as the shares are held in the trust, they will also be free of Capital Gains Tax.
Benefits of a Share Incentive Plan
The Share Incentive Plan is one of the most flexible and tax-advantaged share schemes currently available in the UK.
Since its introduction, the RM2 team has helped numerous companies to:
- Motivate participants to work beyond short-term goals
- Reward participants on a tax-advantaged basis
- Promote long-term retention of employees
- Encourage growth by aligning the goals within the organisation
- Attract top candidates to companies
- Minimise risk for participants
For more detailed infomation on the benefits and limitations of a Share Incentive Plan, please download our fact sheet or call 020 8949 5522.
How RM2 help you
At RM2, we believe in taking a consultative approach to building employee share plans and finding out precisely what our clients are looking to achieve. This approach helps us to deliver a professional and effective service, helping clients meet their goals and plan for the future. Our highly experienced team are well positioned to guide your company through every stage of the employee share plan process, including:
The design will flow from your objectives, so the more precise you are the better. What is your business plan, and what you need from your employees to execute this plan successfully? Do you want to focus people on an exit? Do you want to reward all employees as a team? Do you have just one key recruit in mind? We will ask you lots of questions to tease out your objectives.
At this stage you will need to decide on any rights and conditions to attach to shares, such as performance conditions and leaver provisions. Don’t worry: we’ll recommend features for you. A key decision is the amount of equity you want to set aside for share schemes. We’ll help you with an indicative valuation and some equity modelling.
Once the design and modelling are complete, we will work through your company structure and identify what changes need to approved by shareholders. We will then prepare resolutions to be passed and work with you to obtain approval from shareholders.
The core of a share scheme is the set of rights and restrictions attaching to shares, and these are set out in the articles of association. We will prepare amendments so that these rights and restrictions strike the right balance between delivering value to employees and protecting the interests of other shareholders.
The share valuation can have an enormous impact on how employees are motivated and the tax treatment of the shares. We will prepare a valuation and agree this with HMRC. Just as importantly, we can help understand the meaning and implications of that valuation, and how you should adapt your strategy according to the result.
Communicating information about your share scheme to all the participants is vital its success. As standard, we will provide all clients with easy-to-follow notes explaining your scheme. We can provide further help and guidance on how to effectively promote your scheme if you wish.
Once your scheme is implemented it will need to be administered to ensure it remains compliant. We have the most experienced Operations team for share schemes in the UK, so you can be confident that your scheme is in capable hands.
We try to be as proactive as possible when it comes to monitoring your scheme’s performance. We can help improve any equity-based arrangements. You and we are always learning.
Once an employee share plan is implemented, it is vital that it is administered effectively to ensure that:
- your share plans remain compliant
- all relevant documents are filed online with HMRC
- the intended tax benefits are achieved
- employees are kept aware of their awards and the benefits
- your share plan remains relevant
We have successfully designed, implemented and administered over 1,150 share plans across a range of sectors, so you can rest assured your plan will be in the best possible hands.
If you would like to find out more about how a Share Incentive Plan can help your business, why not call a member of our team directly on 020 8949 5522, or download our fact sheet or send an email to firstname.lastname@example.org.
Senior Client Manager
Over 12 years' experience in the employee share plan sector. Becky has managed the implementation of over 300 share plans.
Download SIP Fact Sheet
Click here to download the SIP fact sheet for more information