A Share Incentive Plan, provided that it is approved by the HM Revenue & Customs,
can provide tax advantages to both the employees and the company directors.
One of the obligations to get your share incentive plan approved is to invite all of your employees.
The Share Incentive Plan legislation provides for three main types of plan shares to be used. They are:
- free shares - employers can give each employee free shares worth up to £3,000
- partnership shares - employees can use up to £1,500 per year out of pre-tax and pre-National Insurance Contributions (NICs) pay to buy partnership shares
- matching shares - employers can give matching shares at a ratio of up to two matching shares for each partnership share bought by the employee
- dividend shares - employees may be allowed to use up to £1,500 of dividends from their plan shares each year to buy further shares in the company through the plan
£9,000 each year - A tax free investment as shares should be very encouraging!
All an employee needs to do is to keep the shares in the plan as long as possible (usually 5 years) to pay less tax and NICs when he finally takes them out.
Please refer to IFS ProShare's briefing on SIPs for more information.