Myth

Share Incentive Plan myths busted

RM2 has currently completed share plan annual returns for all our clients, including those who run the Share Incentive Plan (SIP)..  RM2 provides a full administrative and trustee service for private and smaller listed companies that operate this fantastically tax efficient all employee share plane, including offering an online portal to deliver seamless employee access.

We get a lot of queries about how a Share Incentive Plan works, some of which arise out of some common misunderstandings about the plan. Here are some of the main questions we get asked:

The assumptions

FACT OR FICTION?

The SIP is only for listed companies
FICTION. We advise and administer many SIP’s for private companies. In fact, the SIP can be really useful in a private company because they can provide a market for shares, especially when employees leave. They can also help in succession planning for Founders.
The SIP is only for big companies
FICTION. RM2 run and administer SIP’s for some companies with only around 40 employees – you don’t need to have hundreds of employees for it to work.
You can’t value private company shares
FICTION. You can agree a valuation with HMRC for SIP in advance of making awards under a SIP. You can send in the letter to HRMC yourself, or your accountant/adviser can do it.  RM2 offer this service and are well versed with what HMRC expect to see in a valuation.
I’ll need to give the same number of shares to all my employees
FICTION. You can make a Free Share award based on salary, hours worked and length of service.
If I give away shares I’ll lose control of my business
FICTION. The directors get to choose when they make awards, and how many shares they’re going to use. You can even use non voting shares in a SIP.
The SIP Trustees will make more awards without my knowing
FICTION. The SIP Trustees must always act in the interests of the employees, but they’ll only make awards if directed to by the Company.
It’s really expensive
FICTION. Unsurprisingly, the more complex the plan, and the more participants, the more expensive it gets. But if you simply offer free shares to your employees, either on a one off basis, or annually, you can really keep the costs down. — In any case, balance this against the potential tax savings and you may find you’re onto a winner.

If you want help setting up a new SIP in your company, or just want help with the administration of the scheme, call us on 0208 949 5522 or email enquiries@rm2.co.uk