The SIP is a tax-advantageous plan to encourage employees to hold shares in the company for which they work. The SIP legislation includes provisions intended to make the scheme appealing to smaller companies that may not previously have had an employee share plan. It also has some special features to make a SIP interesting to unlisted companies, which may not have a ready market for their shares.
The SIP allows employers to offer workers free shares that are tax-free if held for five years and to link the award of shares to performance targets. In addition, an employer can claim relief against corporation tax for the expenses of setting up and maintaining a SIP. One advantage for employees is that they can put their SIP shares into an individual savings account (ISA) as a way of extending their ISA entitlement in any particular year.