About share plans

The Share Incentive Plan (also known as ‘SIP’) came into existence with the Finance Act of 2000. It is one of two all-employee tax-advantaged share plans in the UK, the other being Save As You Earn or ‘SAYE’ (see our separate factsheet for details). 

SIP in a nutshell

The Share Incentive Plan is a tax-advantaged plan that offers Income Tax and National Insurance advantages for employees and companies, provided the plan meets the requirements of Schedule 2 of the Income Taxes (Earnings & Pensions) Act 2003 and is also registered and reported via HMRC’s ERS Online filing service. Introduced in the Finance Act 2000 after an intensive consultation process, it is a broad-based plan designed to encourage more companies to offer shares to all their employees on a tax-efficient basis.

The SIP legislation provides for four types of Plan shares to be used:

• Free Shares – employers can give each employee Free Shares worth up to £3,600 each year, free of Income Tax and National Insurance.
• Partnership Shares – employees can use up to £1,800 a year from pre-tax and pre-National Insurance salary to buy Partnership Shares. An annual limit means that employees can top up their contributions in months where they receive a bonus, for example
• Matching Shares – employers can give Matching Shares at a ratio of up to two Matching Shares for each Partnership Share bought by the employee.

Various combinations of types of Plan shares can be used, for example Free Shares only, or Partnership with or without Matching Shares, to suit the business needs of the company. As well as being able to choose between the above types of plan shares to build a plan that suits its business needs, employers can also include other optional features, such as:

• Eligibility criteria – companies may prescribe a period of up to 18 month employment before employees become eligible to participate in a SIP.
• Performance-related awards – companies may link the award of Free Shares to performance measures.
• Dividend Reinvestment Plans (DRIPs) – companies may allow employees to use their dividends to purchase further Plan shares instead of receiving cash. These are called Dividend Shares. The company can choose to offer the DRIP on an optional or compulsory basis.
• Forfeiture – companies may make employees give up some or all of their Free or Matching Shares if they leave, for certain reasons, within three years of the award date.
• Holding periods – Free and Matching Shares must stay in the plan for three years but companies can require employees to hold these in the plan for up to five years. Dividend Shares need only be held for three years.

Compliance

Companies offering a SIP will need to register their scheme and certify that it meets the requirements of all relevant legislation via HMRC’s ERS Online service. They must also complete an annual share scheme return. More information may be found here:Register your employment related securities scheme

Further information on compliance requirements may be found in HMRC’s share schemes manual here: ETASSUM20000 - Schedule 2 Share Incentive Plan (SIP) - HMRC internal manual

HMRC’s specimen SIP rules may be found here:etassum28220_sip_rules

HMRC’s specimen trust deed may be found here: etassum28230_specimen_trust_deed

Key stakeholders involved in running a SIP

At the plan issuer company: HR, Finance, Company Secretariat, Payroll, Internal Communications.

External stakeholders: legal and tax advisers to the company, plan administrator, trustee, design and/or communication consultants. 

Sources of help and support

If you and your team are new to running EMI or share schemes of any kind or if you wish to extend or refresh existing knowledge, ProShare can help!

• We run regular training sessions for in-house teams and individuals. 
• We can help you benchmark existing share schemes.
• We can help you find a plan administrator or advisor. 

Do get in touch with us at team@proshare.org 

Enterprise Management Incentive schemes (also known as ‘EMI’) came into existence with the Finance Act of 2000. It is one of four tax advantaged share plans in the UK, the others being the Share Incentive Plan or ‘SIP’, Save As You Earn or ‘SAYE’ and the Company Share Option Plan or ‘CSOP’ (see our separate factsheets for details). 

EMI in a nutshell

EMI options can be granted to key employees by independent trading companies with gross assets not exceeding £30 million. Options over shares with an unrestricted market value (UMV) at the date of grant up to £250,000 (including any amount granted under a Schedule 4 CSOP) can be granted. There will normally be no income tax or NICs when the options are exercised. 

There is no approval process or clearance mechanism for EMI, but a requirement for companies to notify HMRC within 92 days of when an EMI option is granted. In addition there is also an annual reporting requirement.

EMI schemes need to meet the requirements of Schedule 5 Income Tax (Earnings and Pensions) Act  2003 in order to benefit from tax advantages. 

Compliance

Companies offering an EMI scheme (or their advisers) will need to register their scheme and certify that it meets the requirements of all relevant legislation via HMRC’s ERS Online service. They must also notify HMRC of EMI option grants within 92 days of the date of grant and submit annual share scheme returns. More information may be found here: Submit an Enterprise Management Incentives (EMI) notification

Privately held companies will need to apply to HMRC for a share valuation when they grant EMI options. Further information may be found here: Apply for a share valuation check for Enterprise Management Incentives (VAL231)

Further information on compliance requirements may be found in HMRC’s share schemes manual here: Tax and Employee Share Schemes: Enterprise Management Incentives (EMIs)

Sources of help and support

If you and your team are new to running EMI or share schemes of any kind or if you wish to extend or refresh existing knowledge, ProShare can help!

• We run regular training sessions for in-house teams and individuals. 
• We can help you benchmark existing share schemes.
• We can help you find a plan administrator or advisor. 

Do get in touch with us at team@proshare.org 

The Company Share Option Plan (also known as ‘CSOP’) came into existence with the Finance Act of 1992. It is one of four tax-advantaged share plans in the UK, the others being the Share Incentive Plan or ‘SIP’, Save As You Earn or ‘SAYE’ and the Enterprise Management Incentive scheme or ‘EMI’ (see our separate factsheets for details).

CSOP in a nutshell

CSOP is a discretionary scheme, meaning that the company can select the employees and directors it wishes to participate in the plan. The company grants eligible employees or directors an option to purchase the company’s shares in the future at a price set on the date of grant.

For example, a company may grant an option over 1000 shares at £2.50 per share. In 3 years’ time the market value of each share may be £6. The participant will be able to exercise the option by paying the company £2500 and the participant acquires shares that are worth (at the time of exercise) £6000.

There is no charge to income tax if the option is exercised in accordance with the provisions of the scheme at a time when the scheme is a Schedule 4 CSOP (see ETASSUM41130).

The company can only grant tax advantaged options if the company has self-certified to confirm the CSOP meets the requirements of Schedule 4 ITEPA 2003, (prior to 6 April 2014 a CSOP had to be approved by HMRC) (refer to ETASSUM41130). No participant can be granted tax advantaged options over shares with a value of more than £30,000 calculated at the date of grant (ETASSUM41180). Participation in the scheme is not open to people who own more than 30% of the company (this is known as the ‘material interest’ test).

Income tax is not chargeable when an option is granted and is not normally chargeable on the increase in value of the shares between grant of the option and the exercise of the option if the 
following conditions are satisfied:

• It is at least 3 and no more than 10 years between grant and exercise, and
• the scheme retains its tax advantaged status until the time the option is exercised , and
• the option is exercised in accordance with the rules.

Subsequent disposal of the shares acquired by the option will be chargeable to CGT. The base cost would be the price paid (the exercise price) for the shares plus any amount chargeable to income tax. The date of acquisition will normally be the date of exercise of the option. The normal annual exemption rules apply.

Compliance

Companies offering a CSOP will need to register their scheme and certify that it meets the requirements of all relevant legislation via HMRC’s ERS Online service. They must also submit annual share scheme returns. More information may be found here: Register your employment related securities scheme

HMRC’s specimen CSOP rules may be found here: etassum47200_specimen_4_csop_rules

Further information on compliance requirements may be found in HMRC’s share schemes manual here: ETASSUM40000 - Schedule 4 Company Share Option Plan (CSOP): contents - HMRC internal manual

Key stakeholders involved in running a CSOP At the plan issuer company: HR, Finance, Company Secretariat, Payroll, Internal Communications.

External stakeholders: legal and tax advisers to the company, plan administrator (if outsourcing record-keeping).

Sources of help and support

If you and your team are new to running CSOP or share schemes of any kind or if you wish to extend or refresh existing knowledge, ProShare can help!

• We run regular training sessions for in-house teams and individuals.
• We can help you benchmark existing share schemes.
• We can help you find a plan administrator or advisor.

Do get in touch with us at team@proshare.org