Guidance

Share Incentive Plans and your entitlement to benefits

Updated 20 October 2025

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What a Share Incentive Plan is

Some employers offer their employees the opportunity to buy, from their gross pay, partnership shares in the business under a Share Incentive Plan.

If this applies to you, your employer will give you details of the plan, which will normally include a warning that you could lose some entitlement to state benefits, work or earnings related benefits or statutory payments if you take part.

This guidance answers many of the questions you might have and explains why you should consider carefully the possible effects on your benefit entitlement before you decide to buy partnership shares.

It is not intended to give you advice on whether you should take part in a Share Incentive Plan. The information in this guidance is based on the rules that apply at the time of writing.

This guidance explains how buying shares might affect your benefit entitlement and describes the effect on:

  • contribution based benefits, for example, State Pension, New Style Employment and Support Allowance (ESA) and New Style Jobseeker’s Allowance (JSA)
  • work or earnings related benefits or statutory payments, for example, Statutory Maternity Pay (SMP), Statutory Sick Pay (SSP) from an employer
  • means tested benefits, for example, Universal Credit
  • married women paying reduced rate National Insurance contributions

How buying shares will affect your benefit entitlement

Under the Share Incentive Plan rules, you will not pay Income Tax or National Insurance contributions on the pay you use to buy shares. Although this means you get more shares for your money, it also:

  • cuts the earnings on which you can pay National Insurance contributions
  • may take your earnings for which National Insurance contributions are due below the lower earnings limit

Find out more about your National Insurance contributions.

As your entitlement to some benefits is based on the amount of National Insurance contributions that you pay, and others on the amount of your earnings or savings over £6,000, buying shares may affect your current or future claims for a range of benefits.

For most employees, paying less in National Insurance contributions will not matter because:

  • you may still be paying enough National Insurance contributions to qualify for benefits
  • your taxable earnings may still be between the lower earnings limit and the primary threshold, so that you are still deemed to be paying National Insurance contributions and you can still build up benefit rights even though you are not actually paying National Insurance contributions
  • you may already be earning below the lower earnings limit before you buy the shares
  • if you only buy shares for a short period, your National Insurance contributions record will only be affected for that period, so the effect on your long term benefit entitlement will normally be minimal

Buying shares through a Share Incentive Plan may also affect your entitlement to means tested benefits such as Universal Credit or Pension Credit. You should consider these effects before you decide whether to buy shares.

How buying shares affects contribution based benefits

Your entitlement to contribution based benefits is related to the amount of National Insurance contributions that you have paid, treated as having paid or are credited.

Buying shares may reduce the amount of earnings on which you pay National Insurance contributions to below the lower earnings limit, so that you are no longer paying (or deemed to be paying) National Insurance contributions on your income.

Even if your income remains above the lower earnings limit, because you are paying (or deemed to be paying) less in National Insurance contributions, this may reduce your entitlement to contribution based benefits.

New Style Employment and Support Allowance

If your earnings for National Insurance purposes fall below the lower earnings limit, you may not be entitled to New Style contribution based ESA. If this happens, you may be entitled to income based support under Universal Credit, which is means tested.

New Style Jobseeker’s Allowance

If your earnings for National Insurance purposes fall below the lower earnings limit, you may not be entitled to any New Style JSA (contribution based), as this benefit is paid at a set amount which cannot be reduced. If you have not paid (or are not deemed to have paid) enough National Insurance contributions, you will lose entitlement to this benefit. If this happens, you may still be able to claim income based support under Universal Credit, which is means tested.

State Pension

Your State Pension depends on your National Insurance record. You will usually need at least 10 qualifying years on your National Insurance record to get any State Pension.

If buying partnership shares brings your earnings below the lower earnings limit you may not have made enough National Insurance contributions and there could be gaps in your record. If this happens you should check if you qualify for National Insurance credits or if you are eligible to pay voluntary contributions.

If you do not have enough qualifying years, you may only be entitled to a reduced State Pension or none at all when you reach State Pension age and claim it. If this happens, you may still be able to claim Pension Credit, which is a means tested benefit.

Work or earnings related benefits or statutory payments are paid by your employer and are based on your average earnings over a fixed period before you begin to receive them.

Any amount of pay you use to buy partnership shares is not included as part of your average earnings for calculating these benefits or payments.

If buying partnership shares brings your earnings for National Insurance purposes below the lower earnings limit, this may reduce your entitlement to these benefits.

Find out more about Benefits and financial support for families.

Maternity Allowance (MA)

To get MA you must be earning (or classed as earning) at least £30 a week for 13 weeks of your employment. If after buying shares your earnings fall below £30 per week, you will lose your entitlement to MA. If your average weekly earnings are above £30, MA is paid at 90% of your average weekly earnings subject to a maximum weekly rate.

Statutory Maternity Pay (SMP)

If your average weekly earnings (calculated for SMP entitlement purposes) fall below the lower earnings limit, you may lose your entitlement to SMP. If this happens, you may still be entitled to Maternity Allowance, which is an earnings related benefit.

If you qualify for SMP and your average weekly earnings are at least equal to the lower earnings limit, SMP is paid at 90% of your average weekly earnings with no upper limit for the first 6 weeks and a maximum standard rate for the next 33 weeks. If your employer operates an occupational maternity pay scheme, you may still be entitled to maternity pay through that scheme.

Statutory Sick Pay (SSP)

If your average weekly earnings (calculated for SSP entitlement purposes) fall below the lower earnings limit, you will lose your right to SSP. If this happens, you may still be entitled to New Style ESA or Universal Credit if you meet the qualifying conditions.

If your employer operates an occupational sick pay scheme, you may still be entitled to sick pay through that scheme.

Other work or earnings related benefits or statutory payments can include:

  • Statutory Paternity Pay (SPP)
  • Statutory Shared Parental Pay (ShPP)
  • Statutory Parental Bereavement Pay
  • Statutory Adoption Pay (SAP)
  • Statutory Neonatal Care Pay

To be eligible, an employee must have average weekly earnings for National Insurance purposes at least equal to the lower earnings limit.

How buying shares affects Universal Credit entitlement

Universal Credit replaced the following benefits for most people from 6 April 2025:

  • Housing Benefit
  • Income related Employment and Support Allowance (ESA)
  • Income based Jobseeker’s Allowance (JSA)
  • Child Tax Credit
  • Working Tax Credit
  • Income Support

Universal Credit is a means tested benefit that is assessed based on your monthly income. It helps to pay daily living costs and is available to those out of work or on low incomes.

Amounts deducted from earnings under tax-exempt schemes, for example, use of Employer Supported Childcare via salary sacrifice or payments to purchase shares under a Share Incentive Plan (SIP), are not included when calculating Universal Credit entitlement.

If a person’s capital is over £6,000 Universal Credit may be affected.

How buying shares affects my means tested benefits

The amount of capital you own, and the amount of your net income, may affect your entitlement to means tested benefits.

If you or your partner is receiving one of these benefits when you buy shares through the plan, because your net income (including the value of the shares you buy) rises, you may receive less benefit.

The market value of shares, however you buy them, is treated as capital. Owning shares can reduce your entitlement to means tested benefits if the share value takes your capital above the lower limit which is:

For Housing Benefit the lower capital limit is over:

  • £6,000 for working age customers
  • £10,000 for people of state pension age

Means tested benefits include:

  • Council Tax Benefit (overseen by the Ministry of Housing, Communities and Local Government)
  • Universal Credit
  • Pension Credit

How buying shares affects married women paying reduced rate National Insurance contributions

If buying shares reduces your earnings to below the lower earnings limit, you will not be liable to pay National Insurance contributions and will not be treated as having paid them for benefit purposes.

If you are a married woman and your earnings are below the lower earnings limit for 2 consecutive tax years, and you are not self-employed in those years, you will automatically lose the right to pay reduced rate National Insurance contributions.

Putting money from my pay aside to buy shares later

You can only do this if your employer offers you this option. If so, you can accumulate money this way for up to 12 months before it is used to buy shares. Tax and National Insurance contributions are not deducted from this money.

Asking for a refund of this money

You can ask for a refund of this money. However, when you receive the refund, because the money is no longer being used to buy shares, tax and National Insurance contributions will be deducted from it.

These deductions could restore in part or in whole the benefit entitlement that you may have lost. The tax and National Insurance contributions you pay on the refund may also offset the additional net pay that you had received as a result of buying shares.

Further information

You can read about:

HMRC also produce a wide range of leaflets, factsheets and booklets to explain the different aspects of your tax or National Insurance and to help with the completion of tax returns.

You can find more information on:

These notes are for guidance only and reflect the tax and National Insurance contributions position at the time of writing. They do not affect any right of appeal.

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