Sharesave gives employees an option to buy shares at a fixed price, up to 20% below market value, funded by saving up to £500 a month for three or five years, and they can simply take their cash back if the shares fall. A Share Incentive Plan gives employees actual shares now: up to £3,600 of free shares a year, up to £1,800 of shares bought from pay before tax, and up to two matching shares for each one bought, all free of Income Tax and National Insurance if kept in the plan for five years.
Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.
How do the two plans compare at a glance?
| Point | Sharesave (SAYE, Schedule 3 ITEPA) | Share Incentive Plan (SIP, Schedule 2 ITEPA) |
|---|---|---|
| What the employee gets | An option over shares, exercisable at the end of a savings contract | Shares held for them in a trust |
| How it is funded | Monthly savings from net pay | Free and matching shares from the employer; partnership shares bought from gross pay |
| Annual limits | Savings up to £500 a month across all Sharesave schemes | Free shares £3,600 a tax year; partnership shares the lower of £1,800 or 10% of income; matching up to 2 for 1 |
| Discount | Option price can be up to 20% below market value at grant | Free and matching shares cost the employee nothing |
| Downside risk | None to savings: the employee can take the cash | Shares, including those bought from pay, can fall in value |
| Tax free point | Exercise at the end of the contract | Shares kept in the plan for 5 years (3 for dividend shares) |
| Capital Gains Tax | Due on later sale, unless moved to an ISA or pension in time | None if sold straight from the plan |
| Maximum service condition | Up to 5 years | Up to 18 months for free shares |
How does Sharesave work for the employee?
The employee signs a savings contract for three or five years. Schedule 3 paragraph 25 caps contributions across all linked Sharesave contracts at £500 a month and says the scheme cannot set a minimum above £10 a month. At the start, the company grants an option at a fixed price, which paragraph 28 says must not be manifestly less than 80% of the market value, so the discount is up to 20%. Paragraph 30 says the option can normally be exercised only after the bonus date at the end of the contract, and no later than six months after it. GOV.UK confirms the interest and any bonus are tax free. HMRC sets the bonus rates through an automatic mechanism linked to Bank Rate, so they change from time to time.
The decision comes at the end. If the share price is above the option price, the employee buys shares with the savings. If it is below, they take the cash. That one sided outcome is Sharesave’s main attraction. Our guide to Sharesave schemes covers the scheme rules in more detail.
Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.
From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.
See my price in 2 questions or call 01795 841 310.
★★★★★ Rated 4.9 out of 5 on Trustpilot from over 160 reviews
How does a SIP work for the employee?
A SIP can offer four kinds of share, explained in our Share Incentive Plans guide. The employer can give free shares worth up to £3,600 a tax year. Employees can buy partnership shares out of salary before tax, up to the lower of £1,800 or 10% of their income for the year. The employer can add up to two matching shares for each partnership share, and dividends can be reinvested as dividend shares if the plan allows. ETASSUM29020 explains that the shares are held in trust for a holding period of at least three years, which the employer can extend to five, although partnership shares can be withdrawn at any time.
What tax does the employee pay under each plan?
Sharesave. GOV.UK says there is no Income Tax or National Insurance on the difference between the option price and the value of the shares. ETASSUM38060 notes one exception: an exercise within three years of grant because of certain company events, such as a takeover that is not a cash takeover, is taxable. On a later sale, the base cost for Capital Gains Tax is the price paid (ETASSUM38100). GOV.UK says no CGT arises if the shares are transferred into an ISA within 90 days of leaving the scheme, or straight into a pension when the scheme ends.
SIP. HMRC’s table at ETASSUM29020 sets out what happens when shares leave the plan, other than on a good leaver event:
| Shares removed | Free and matching shares | Partnership shares |
|---|---|---|
| Within 3 years | Income tax on market value at removal (section 505(2)) | Income tax on market value at removal (section 506(2)) |
| After 3 but before 5 years | Income tax on the lower of value at award and value at removal | Income tax on the lower of the pay used and value at removal |
| After 5 years | No Income Tax or NICs (section 497) | No Income Tax or NICs (section 497) |
ETASSUM29040 says the employer deducts tax and NICs through PAYE where the shares are readily convertible assets. Otherwise there are no NICs and the employee reports the income through Self Assessment. Shares sold straight from the plan carry no CGT, and GOV.UK says shares moved into an ISA within 90 days are also free of CGT. Shares taken out and kept can produce a gain if they rise in value afterwards; see base cost of employee scheme shares.
What does each plan ask of the company?
Both are all employee plans. Sharesave must be open to every employee and full time director who meets a service condition of no more than five years (Schedule 3 paragraph 6). A SIP can set a qualifying period of up to 18 months for free shares (ETASSUM22130). Sharesave needs a linked savings arrangement. A SIP needs a trust and trustees to hold the shares. GOV.UK says both must be registered by 6 July after the tax year they are set up, and an ERS annual return is due by 6 July every year. A Corporation Tax deduction may be available for set up and running costs and when the shares are provided, explained in Corporation Tax relief for employee shares.
How do the numbers compare for one employee?
Illustration only. Sam earns £30,000. The share price is £3.00 at the start.
- Sharesave: Sam saves £250 a month for three years, £9,000 in total, under an option priced at £2.40, a 20% discount. Ignoring any bonus, that buys 3,750 shares. If the price is £4.00 at the end, the shares are worth £15,000 and the £6,000 gain is free of Income Tax and NICs. Moving the shares into an ISA within 90 days avoids CGT on a later sale. If the price has fallen to £2.00, Sam takes the £9,000 back.
- SIP: Sam buys £1,800 of partnership shares a year from gross pay (10% of £30,000 would be £3,000, so the £1,800 cap applies) and the employer matches one for one. After five years in the plan, no Income Tax or NICs arise on either set of shares. If Sam leaves for another job after two years, not as a good leaver, both sets are taxed on their market value when removed. If the share price falls, Sam bears the loss on shares bought from pay.
Which plan suits which workforce?
Sharesave tends to suit staff who want a no lose savings product and companies expecting steady share price growth. A SIP suits companies that want employees to become shareholders straight away, receive dividends and stay for five years, since the tax result improves the longer shares stay in the plan. The £500 savings cap in paragraph 25 counts only Sharesave contracts, so a company can run both plans side by side. For discretionary plans aimed at key people rather than all staff, see EMI or CSOP.
What mistakes come up most often?
- Telling staff Sharesave is risk free once they have exercised: after exercise they hold shares, which can fall.
- Missing the 90 day window to move Sharesave or SIP shares into an ISA; the shares also count towards the £20,000 ISA allowance.
- Forgetting that partnership shares withdrawn within five years are taxed.
- Letting a Sharesave option lapse by not exercising within six months of the bonus date.
- Missing the 6 July registration or annual return deadline.
If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.
Related Accountapedia entries
- Share Incentive Plans (SIP)
- CSOP Share Options Explained
- Save As You Earn (Sharesave) schemes
- Share buyback or MVL: which suits a retiring owner
- Umbrella or limited company: which suits a contractor
Related cover: Employers liability insurance: the legal requirements and Employers liability vs public liability.
Sources
- GOV.UK: Tax employee share schemes
- GOV.UK: How employment related securities work if youre an employer
- legislation.gov.uk: Act 2003 c. 1, schedule 3
- legislation.gov.uk: Act 2003 c. 1, schedule 3
- legislation.gov.uk: Act 2003 c. 1, schedule 3
- legislation.gov.uk: Act 2003 c. 1, schedule 3
- GOV.UK: Change in bonus rates for save as you earn saye share option schemes
- GOV.UK: www.gov.uk
- GOV.UK: www.gov.uk
- GOV.UK: www.gov.uk
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.