Applying for SIP

The Share Incentive Plan (SIP/plan) is a flexible, tax-efficient way for employees to hold shares in their company. The SIP may also be referred to by another name such as: shareBY; ShareBuy; Buy as You Earn etc. For further information, please refer to your plan brochure.

The plan is HM Revenue & Customs approved and is a tax efficient means of acquiring and holding your company's shares. It offers an opportunity to own shares in your company so that you can share in the success that you help create. Key benefits depend on the plan elements included in your company’s plan and may include:

• Tax efficient savings made from pre-tax and National Insurance Contributions deductions (Partnership shares)
• Additional shares if Free or Matching shares are given
• No income tax or National Insurance Contributions to pay on your investment if shares are held for 5 years
• Dividends (if paid by the company) on all your shares (which may be reinvested in Dividend shares if available)
• Benefit from any rise in the company share price (please note the price of shares may go down as well as up and as an investor you might not receive back the full amount of your investment).

Key considerations are:

• Terms and Conditions of the plan do apply
• The company reserves the right to, at its discretion, alter the Terms and Conditions or close the plan. If this happens participants will be sent updated information
• The future value of shares and dividends cannot be guaranteed. As for any shareholder, the value of the shares you receive through the plan may rise or fall. For example, when you decide to sell your shares, they may be worth less than you paid for them
• Investing in foreign shares carries exchange rate risk between sterling and the local currency

Purchasing Partnership shares will reduce the salary on which income tax and National Insurance are assessed. This may affect your and/or your spouse or civil partner’s entitlement to certain benefits including statutory maternity pay and statutory sick pay. This is important if your participation in the plan means that your earnings, on which National Insurance Contributions are due, fall below the lower earnings limit so that you are not paying any National Insurance Contributions. HM Revenue & Customs publish a guidance leaflet ‘Share Incentive Plans and your entitlement to benefits (IR177)' which you can view on their website .

Rather than purchasing shares on a monthly basis, some companies choose to accumulate contributions over a number of months and purchase the shares at the end. The period of time between the first and last contribution is known as the 'accumulation period' and cannot be longer than 12 months. The accumulated contributions are used within 30 days of the end of the period to buy Partnership shares. The shares will be bought at either the market price at the start of the accumulation period or the market price on the day of purchase, whichever is the lower.

There are certain features of plans that have accumulation periods that are different to plans where there is a regular monthly purchase of Partnership shares, so you should read your plan brochure in detail as these Questions and Answers may not always apply to your company's plan.

There are various elements (types of shares) that can be offered as part of a company's plan. Below is a description of the different types of shares that can be offered, but you will need to refer to your plan brochure for specific details relating to your Company's plan:

Partnership shares

• Employees can purchase Partnership shares at market value from gross salary. This means that you do not pay any income tax or National Insurance Contributions on the contributions that you make. To calculate potential income tax and National Insurance Contributions savings you can use our 'Tax Savings Calculator'.
• You can invest up to £1,800 or 10% of your taxable salary (whichever is the lower amount) in Partnership shares each tax year.
• If you leave employment you will keep all of the Partnership shares you have purchased but may forfeit any linked Matching shares (please see below).

Matching shares

• Matching shares are awarded by the company at no cost to the employee, based on the number of Partnership shares purchased (up to a maximum of 2 matching shares for each Partnership share bought).
• Matching shares are directly linked to the Partnership shares purchased, so if you sell Partnership shares that have Matching shares linked to them, or leave employment, within the 'Matching share forfeiture period' you may lose some or all of your Matching shares.

Free shares

• The company can award up to £3,600 of Free shares a year to each eligible employee.
• The value of the shares (award price) is taken at the date the award is made.
• Free shares are subject to restrictions and may be subject to forfeiture if you leave employment.

Dividend shares

• Your company may allow you to use your dividends to buy further shares, this is known as Dividend reinvestment.
• You can reinvest an unlimited amount of dividends each tax year into the plan.
• Dividend shares will be 'Locked In' for 3 years, you cannot sell or transfer them during this period.
• If you are a higher rate tax payer no further income tax is payable on dividends that are reinvested, provided that the shares remain in the plan for 3 years.

Holding periods apply to Free, Matching and Dividend shares. For Free and Matching shares it is a period of time set by the company during which you must keep your shares and are unable to sell or transfer them. This is a minimum of 3 years, but can be up to a maximum of 5 years. For Dividend shares the holding period is always 3 years. There is no holding period for Partnership shares. Please refer to your plan brochure for specific information.

A forfeiture period is the period of time set by the company (up to a maximum of 3 years), during which Free or Matching shares may be forfeited. Forfeiture does not apply to Partnership or Dividend shares. For specific details of forfeiture periods please refer to your plan brochure.

Forfeiture will apply if you leave the company for reasons such as resignation. If you leave for reasons such as retirement at normal retirement age, redundancy, sale of business, injury or disability, forfeiture will not apply. Partnership shares can be taken out the plan at any time. However, if they have not been held for the length of time specified as the forfeiture period, the corresponding Matching shares will normally be forfeited.

Partnership/Matching shares
SIP is an all-employee plan so your company cannot restrict participation to particular groups or individuals. However, your company may specify that you must work for the company for a minimum period of time before you can join. You will need to pay tax on your earnings under the UK pay-as-you-earn (PAYE) scheme. If you are eligible to join, you will receive plan information and an invitation. If you have not received this, but believe you are eligible, please call the helpline.

Free shares
Your company may link the award of shares to: level of pay; length of service; hours worked; or performance. Details will be set out in the plan brochure.

Partnership shares
This will depend on how the plan is set up. Your company may allow you to join at any time or there may be a specified application period.

Free shares
No. Your company will send you an invitation to join within a specific time period.

Yes, if you are eligible you can join the plan however you may not be able to contribute as much as a full time employee as you cannot contribute more than £1,800 or 10% of your salary (whichever is the lower) in any one tax year. Please note that your entitlement to some statutory benefits may be affected if the money you contribute to the SIP reduces your qualifying earnings to below the Lower Earnings Limit. You can find out more about this in HMRC booklet IR177.

Due to HM Revenue & Customs rules, there is a limit on investment in Partnership shares of £1,800 or 10% of your taxable salary in any one tax year to date, whichever is the lower amount. Depending on the company you work for and specific plan rules, there may also be periodic limits on investment under the terms of the plan – for example some companies limit the monthly contribution to a maximum of £150, whereas others will allow more, or less.

You can invest in Partnership shares for as long as the plan is in place and you continue to be employed by the company.

Information will be provided to you at the time of your application to let you know whether your payroll will be able to arrange for your contributions to be deducted each pay period.

Some companies also allow one-off contributions. Please refer to the SIP brochure for details.

HM Revenue & Customs have set overall maximum limits to the various plan elements. Your company may choose to set lower limits and will detail this in your plan documentation. Maximum limits are:

• Partnership shares - invest up to £1,800 or 10% of your salary per tax year; whichever is lower
• Matching shares - your company can award up to a maximum of 2 Matching shares for each Partnership share you buy
• Dividend shares - you can reinvest an unlimited amount of dividends each tax year
• Free shares - your company can award each employee Free shares to a maximum value of £3,600 each tax year . Your company’s plan may link the award of Free shares to your:
• level of pay
• length of service
• hours worked, or
• performance

No. The money used to buy Partnership shares is taken from your pre-tax (gross) salary before any income tax or National Insurance Contributions deductions are taken. If you receive Free or Matching shares from your employer, these will not be subject to income tax and National Insurance Contributions deductions, however you may be liable to pay income tax and National Insurance Contributions on these if they are removed from the plan within 5 years.

Yes, and you will receive any dividends paid on those shares. However, your employer can put certain conditions on the shares e.g. the shares may have limited voting rights.

Yes, if your company offers both you can contribute to both.

Free and Matching shares
If you leave the company you will no longer be able to participate and your shares will need to be taken out of the plan. Forfeiture will apply if you leave for reasons such as resignation. If you leave for reasons such as retirement at normal retirement age, redundancy, sale of business, injury or disability, forfeiture will not apply.

Matching shares
Partnership shares can be taken out the plan at any time. However, if they have not been held for the length of time specified as the forfeiture period, the corresponding Matching shares will normally be forfeited.

Partnership and Dividend shares
Forfeiture does not apply to Partnership or Dividend shares.