Share incentive plans

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Share incentive plans
  • Summary
  • Key considerations
  • Disqualifying events
  • Self-certification of a Schedule 2 SIP
  • HMRC enquiries
  • Tax implications for the individual
  • Tax implications for the company
  • Tax implications for the SIP trust


The share incentive plan (SIP) is a tax-advantaged employee incentive plan, which provides employees with the opportunity to obtain a continuing stake in the employing company through the acquisition of shares (not share options). Provided qualifying conditions are met, the SIP attracts income tax and national insurance contribution (NIC) advantages for participants.

The plan must be open to all UK resident employees, although a qualifying period of up to 18 months can be imposed. The terms must be the same for every employee who wishes to participate, and no preferential treatment can be given for directors or senior employees.

The SIP must be operated via a UK resident trust. The SIP trust holds shares on behalf of employees.

As a result of a review into tax-advantaged employee share schemes by the Office of Tax Simplification (OTS) in 2012, a number of changes were made to the SIP rules by FA 2013 and FA 2014 to simplify the administration of the scheme and harmonise some of the rules with that of other tax-advantaged schemes. One of these changes means that from 6 April 2014 a qualifying SIP is known as a ‘Schedule 2 SIP’.

Key considerations
Eligible employees

All UK resident eligible employees must be able to participate in the plan, and must be invited to do so.

ITEPA 2003, Sch 2, para 8

An employee is regarded as an ‘eligible’ employee if:

  • he is an employee of the company or a constituent company, and (ITEPA 2003, Sch 2, para 15)
  • he does not participate in any other Schedule 2 SIP established by the company or a connected company simultaneously (ITEPA 2003, Sch 2, paras 18, 18A; ETASSUM22150, ETASSUM22160)


New employees

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