Share Incentive Plan

The Share Incentive Plan (the ‘SIP’) was first introduced in the UK in 2000. SIP's are an HMRC (Her Majesty's Revenue & Customs) approved, tax efficient all employee plan, which provides companies with the flexibility to tailor the plan to meet their business needs. SIPs are becoming increasingly popular with companies that want to engage their workforce and recruit and retain key employees. From 6 April 2014, HMRC approval will no longer be required for a SIP to obtain tax benefits, instead an employer is required to self-certify that the SIP meets the requirements of the relevant legislation. Accordingly, from 6 April 2014, a SIP should no longer be referred to as an HMRC approved plan.

There are 4 main elements to the SIP from which companies can choose to use one or more of the following: Free Shares, Partnership Shares, Matching Shares, Dividend Shares.

Companies can give up to £3,600 of Free Shares to employees in each tax year (from 6 April 2014). A participating employee can only take their Free Shares out of the SIP in the 3-year period from the date of award if they leave the company. Income Tax and National Insurance may be payable on the market value of the shares at the date of removal, unless you leave due to injury or disability, redundancy, if the company or part of the business you work for is sold out of the group, retirement, or death.

If Free Shares are removed between 3 and 5 years from the date of award, then Income Tax and National Insurance will be due on the lower value of the Free Shares at the date of award and their market value on the date on which they are withdrawn from the SIP.

If the Free Shares remain in the SIP for more than 5 years, there will be no Income Tax or National Insurance liability when the shares are removed from the SIP. In certain circumstances, prescribed by HMRC, there will be no Income Tax or National Insurance liability when the employee leaves the company, no matter how long the shares have been held in the plan.

Employees can use their pre-tax salary to buy shares up to a maximum of £1,800 or 10% of salary (whichever is the lower) each year. Partnership Shares will be free of Income Tax and National Insurance at the date of purchase.

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Wikipedia