In this blog we will delve into Share Incentive Plans (SIP) – what are they, what are the cost implications and are there any tax or legal considerations you need to make. Read on to find out everything you need to know about SIP. 

What are Share Incentive Plans? 

A SIP is a type of employee share scheme introduced in the UK in 2000. It offers employers a convenient and adaptable method to provide shares in their company to employees, promoting employee ownership and participation. 

These plans are essentially employee benefit schemes and are designed to align the interests of employees with the long-term success of the company, allowing them to typically acquire shares through different mechanisms like share purchases, free shares, or partnership shares. 

What are the cost implications? 

The cost implications of implementing a SIP can vary depending on factors such as the size of the company, the number of employees participating, and the specific features of the plan. 

Costs may include administrative expenses, costs related to share purchases or allocations, legal and consulting fees, and ongoing compliance requirements. It is essential for employers to consider the financial implications and ensure they have a clear budget in place. 

Are there any tax and legal issues? 

While each of the four share types within a share incentive plan have distinct definitions, their tax implications are generally similar. 

Employers have the option to provide each employee with free shares annually, with a maximum value of £3,600 (increased from £3,000 in 2001 to £3,600 in 2013/14). When distributing free shares, it is common practice to ensure that all employees receive an equal number of shares or that the allocation is based on factors such as length of service, remuneration, or hours worked. 

It comes as no surprise that this choice is highly popular, with over 90 percent of employees opting for it. On average, each employee received a free share award of slightly over £788 in the 2021. 

There are some tax situations to consider: 

• When employees acquire shares, no income tax or National Insurance Contributions (NICs) are levied on the free shares value they receive. 
• Employees are obligated to pay income tax on the current free shares’ market value at the time of leaving if they quit their position within a three-year period of receiving the shares. 
• In the case of employees leaving between three and five years after receiving the shares, they will be liable to pay income tax on the lesser of two amounts: the market value at the date of departure or the free shares’ market value at the time first received. 

• In the event that employees depart for a designated ‘good leaver’ reason at any given time, they will be exempt from income tax and National Insurance Contributions (NICs) when they withdraw the free shares from the SIP trust. 
• Finally, when employees take shares from the plan after a period of five years from the grant date, no NICs or income tax are imposed on the free shares value. 

What are the current market trends or developments? 

The SIP market has seen some notable trends and developments. These include an increased focus on promoting employee ownership and participation, the introduction of more flexible and customisable plan designs, the use of technology to streamline administration and communication, and an emphasis on sustainability and environmental, social, and governance factors in share plans. These trends are expected to continue until at least 2028 according to experts. 

Who are the main providers and what types of schemes do they offer? 

There are several providers offering SIP solutions and a variety of scheme types to suit different company needs. 

Some prominent providers include Equiniti, Link Group, Computershare, and Ledgy. These providers offer a range of SIP schemes, such as All-Employee Share Plans, Save As You Earn (SAYE) Plans, Share Incentive Plans, and more. 

Employers should consider their specific requirements and consult with a professional advisor to determine the most suitable provider and scheme type for their organisation. 

About Counting King 

Counting King is a national tax and funding practice that helps companies with their cash flow by sourcing grants, utilising government tax incentives or finance options such as business loans and more to help them scale and grow! 

We focus on innovative companies who are seeking to expand and disrupt their respective industries which in turn will help the UK become a global leader and strengthen our economy. 

If you would like advice from one of our specialists, please contact us via email at info@countingking.co.uk or call us on 0800 8100 030.