Why use a share incentive plan (SIP)?

Produced by Tolley in association with

Employment Tax

Guidance

Background

Share Incentive Plans (SIPs) were originally known as ‘All Employee Share Ownership Plans’ and were first introduced over 20 years ago. Under a SIP, four types of share awards can be made to employees.

Employees can buy shares using their gross salary (partnership shares), the employer can make free awards of shares with or without the employee being required to buy shares first (free shares and matching shares), and dividends due on SIP shares can be paid in further awards of shares (dividend shares).

SIP shares are held in a separate SIP trust whilst they reside in the SIP plan. Due to the most advantageous tax treatment generally taking five years to achieve, SIPs can be an excellent employee retention tool.

Current limits

Different limits attach to each of the four types of SIP share award:

•
free shares ― £3,600 per year
•
partnership shares ― the lower of £1,800 or 10% of annual salary
•
matching shares ― two matching shares per one partnership share

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Helen Wood

Founder, HLN WD TX , Employment Tax

Helen Wood is the founder of HLN WD TX, a share schemes and employee incentives advisory business.She qualified as a CA with ICAS in 2009 and has worked as a specialist reward and incentives advisor for 17 years, spending 13 of those at KPMG followed by 3 ½ years as an Associate Director at RSM. Helen has worked with businesses ranging from start-ups to fully listed companies, spanning owner-managed businesses, private equity portfolio companies, and AIM listed businesses.She advises on a wide range of employee share schemes and employment related securities matters including the design and implementation of effective management and employee incentives; tax valuation of employment related securities, buy and sell side transaction support, HMRC compliance, tax due diligence and employee ownership trust transactions.

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