The Share Incentive Plan (SIP) is an all-employee share gifting or share purchase scheme.
The SIP was introduced in the Finance Act 2000, alongside the Enterprise Management Incentive.
According to HMRC statistics, 800 UK companies operated SIPs in 2015–16.
The Share Incentive Plan has four modules – free shares, partnership shares, matching shares and dividend shares. Companies choose which they offer.
Under free shares, companies can gift up to £3,600 of shares to each employee every year. Under partnership shares employees can buy up to £1,800 of shares from their pre-tax salary each year. For each partnership share the employee buys, the company may give an additional two free shares using the matching shares module. Dividends from past years can be used to buy additional shares each year.
With all modules the shares must be held in a trust for a period of between three and five years before they are transferred into the employee’s ownership, free of income tax & NICs. However, as the employee has the rights to ownership from the beginning, there is some risk involved as the share price can fluctuate.