UK employees collectively miss out on £171 million of tax breaks annually, by failing to utilise the most tax-efficient employee share schemes, according to Unbiased.co.uk, the professional advice website.

There are currently 10,840 companies running a tax-advantaged employee share scheme and of these, 940 are share incentive plans (Sips), which give employees returns free of income tax and national insurance.

If the 570,000 staff currently in another type of savings related share option scheme invested £125 a month each in a Sip (the maximum allowed) the total collective tax saved would amount to £171 million.

David Elms, chief executive of Unbiased.co.uk, commented: “Share incentive [plans] are a brilliant way of being tax efficient and keeping your money safe from the taxman. With more and more companies offering them every year, workers need to make sure they are making the most of this tax saving option.”

The Sip, launched in 2001, is described by the HM Revenue and Customs as “the most tax-advantaged all employee share scheme ever introduced into the UK”.

The main features of this scheme are:

  • Employers can give up to £3,000 worth of free shares a year to employees free of tax and national insurance
  • Employees can buy up to £1,500 of partnership shares from their pre-tax monthly salary or weekly wages, free of tax and national insurance contribution liability.
  • Employers can give employees up to two free matching shares for each partnership share the employees buy.
  • Employees who keep their shares in the scheme plan for five years pay no income tax or NI on profits made on their sale.
  • Employees who take their shares out of the scheme plan after three years will pay income tax and NIC on no more than the initial value of the shares. Any increase in value recorded while the shares where held in the plan will be free of income tax and NIC liability. As will be any dividends reinvested in more plan shares, provided those shares are held for at least 3 years.

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