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Share Incentive Plan (SIP)

A Share Incentive Plan (SIP) is an all-employee share scheme that gives staff the opportunity to become shareholders with valuable tax advantages. Because employees hold real shares from day one (usually for at least five years), a SIP is a good choice if you want their risks and rewards to align closely with other shareholders.

How it Works

Employees can receive shares in three ways:

  • Partnership Shares – bought out of gross pay, free of income tax and NICs
  • Free Shares – allocated at no cost to employees, without income tax or NICs
  • Matching Shares – up to two extra free shares for every Partnership Share purchased

In addition, dividends paid on any of these shares can be paid as additional shares (Dividend Shares), instead of cash and will be free of income tax.

Conditions

  • Open to all employees (can implement a service requirement of up to 18 months’)

  • Allocated shares are held in a SIP trust on each employees behalf, normally for five years, to preserve tax reliefs

  • Strict rules govern the type of shares used and prevent a SIP being used to allocate shares in a subsidiary

Benefits For Your Company

  • Through rewarding employees for growth, potential for positive impact on your company's performance
  • No employer NICs on Partnership Shares
  • Corporation tax relief on the cost of Free or Matching Shares
  • Free Shares can be linked to performance conditions either company wide or a particular business unit
  • Free or Matching Shares can be forfeited if an employee leaves within three years as “bad leavers” (dismissal or voluntary resignation)

Financial Limits (per employee, per year)

  • Partnership Shares – up to £1,800 or 10% of salary (whichever is lower)
  • Free Shares – up to £3,600
  • Matching Shares – up to twice the number of Partnership Shares
  • Dividend Shares – no limit

Is a SIP Right For You?

SIPs can encourage long-term commitment and retention, particularly where Free or Matching Shares are at risk of forfeiture. Linking awards to performance targets can also make them a powerful incentive tool.

If you want a straightforward way to reward, retain and motivate your whole team while giving them a real stake in your business, a SIP could be the perfect fit.

Get in touch with our expert team today and explore whether a SIP is right for your business and how we can help you set one up.