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A Share Incentive Plan (known as the "SIP") is a scheme which involves the establishment of an employee benefit trust known as the Share Incentive Plan Trust ("SIP Trust") which has a more limited remit than the EBT above. A SIP is a statutory scheme which attracts tax relief for a company which makes payment to the trustees of the SIP Trust. The trustees of that Trust have an obligation to purchase shares in the founding company and to allocate those shares to qualifying employees of the founding company. As a statutory scheme there are a number of requirements which must be satisfied in order for the scheme to be approved by HM Revenue and Customs. If these conditions are met employees are not taxed on the allocation of shares to them nor on the subsequent sale of those shares. If the SIP is unapproved, or at any time fails to satisfy the applicable conditions these tax benefits are lost.
As a rule of thumb it is sensible to have 20 or more employees in the company before a share incentive plan is established to make it cost effective.