Share Incentive Plans

A SIP (Share Incentive Plan) is a tax-favoured employee share scheme which, unlike a Company Share Option Plan (CSOP) or EMI Option, is an all-employee plan. A SIP can sometimes be a useful incentive for improving employee performance and encouraging employees to take a long term interest in your business. They are relatively complex and other alternatives are usually more cost effective for owner-managed companies.

SIPs differ from CSOPs and EMI Options in that they provide employees with the opportunity to acquire shares in the employing company rather than share options. These shares are normally allocated to employees through a trust (for example an Employee Benefit Trust) and there are four different types of shares that can be allocated through a SIP:

• Free shares – these are awarded to employees at no cost (up to a maximum of £3,000 worth per employee in any tax year) and are sometimes linked to employee performance.

• Partnership shares– these are purchased by employees out of their income before tax up to a limit of £1,500 per year or 10% of pay if lower.

• Matching shares– these are additional free shares that the company awards to match the partnership shares that are purchased (up to a maximum ratio of 2 matching shares for every 1 partnership share).

• Dividend shares– these are shares purchased through the reinvestment of dividends paid on employee’s shares held in the SIP.

The income tax treatment of, and national insurance contributions attributable to shares acquired through a SIP depends upon the type of shares that are awarded/purchased. Capital gains tax will generally not arise on an onward sale of the SIP shares if these are sold directly from the SIP as opposed to being withdrawn by the employee and then sold onwards. As with a CSOP and EMI Option, there are complex statutory provisions that govern the eligibility of the company, the employees and the shares to be awarded. Everyman Legal can design and implement a SIP to suit both you and your company.