Share incentive plans

Produced by Tolley
Share incentive plans

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

  • Share incentive plans
  • Summary
  • Key considerations
  • Eligible employees
  • Companies which may establish a Schedule 2 SIP
  • Types of shares that may be awarded
  • Free shares
  • Partnership shares
  • Matching shares
  • Dividends and dividend shares
  • More...

Summary

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.

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.

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

  1. they are an employee of the company or a constituent company, and

  2. they do not participate in any other Schedule 2 SIP established by the company or a connected company simultaneously

New employees may be ineligible to participate, as it is possible for plan rules to exclude employees who have not been employed by the company for the whole of a fixed ‘qualifying’ period that can be set at anything up to 18 months.

The material interest condition was repealed with effect from 17 July 2013.

Before that date employees or directors could not take part in the scheme if they had a material interest (over 25% of the ordinary share capital or assets at winding up) in a close company which was either the issuing company or an owner of

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