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HMRC internal manual

National Insurance Manual

Class 1 NICs: Employment - Related Securities: Shares - Share Incentive Plans

Paragraph 6 and 7 of Part 9 to Schedule 3 of the Social Security (Contributions) Regulations 2001

An approved Share Incentive Plan (SIP) provides tax and NIC advantages when employees buy or are awarded shares in their employing company at less than the market value. Companies can give up to £3,000 worth of shares a year to each employee. In addition, employees can buy up to £1,500 worth of matching partnership shares a year. Companies can reward this commitment by giving two matching shares for each partnership share an employee buys.

Under a partnership share agreement, employees can opt to have deductions from gross pay with the deductions used to purchase shares. These deductions are disregarded in the calculation of earnings. If, for whatever reason, the employee is refunded these deductions (rather than be used for the purchase of shares) the amount returned is a payment of earnings liable for Class 1 NICs.

The shares are kept in trust until an employee leaves employment or decides to take shares from the plan although they must be held in the plan for five years to obtain the full income tax and NIC advantages.

A payment by way of an award of shares under a SIP is disregarded in the calculation of earnings. However, a Class 1 NICs liability, and income tax charge, may arise if the employee leaves the company, or takes shares out of a plan, within five years of joining it - see NIM06807.

ERSM303000 et seq provides further information about SIPs.