Save as you earn schemes

Save as you earn (SAYE) schemes are savings-related share option schemes which provide directors and employees with the option to buy a specific amount of shares in their employing company at a future date, whilst obtaining certain exemptions from income tax.

These schemes include contractual savings arrangements to which the participant contributes a fixed amount of salary at regular intervals over either a three-year or five-year contract period. These SAYE savings arrangements are self certified by the employing company as meeting the relevant conditions (see below).

Under the savings contract, the participant agrees to pay a fixed regular monthly sum, of between £5 and £500, over the contract period. The monthly limit was increased to £500 from £250 from 6 April 2014. Contributions are normally be made by deduction from pay.

At the end of the contract period (the ‘bonus date’), the participant is entitled to an amount. This amount is the total contributions made and may include a tax-free bonus element (if the bonus rate is more than 0%), which may then be used to buy a number of shares in the company at an agreed exercise price.

As a result of a review into tax-advantaged employee share schemes by the Office of Tax Simplification (OTS) in 2012, a number of changes were made to the SAYE rules by FA 2013 and FA 2014 to simplify the administration of the scheme and harmonise some of the rules with that of other tax-advantaged schemes. One of these changes means that from 6 April 2014 a qualifying SAYE is known as a ‘Schedule 3 SAYE option scheme’.

The rules for a Schedule 3 SAYE option schemes are found in ITEPA 2003, ss 516–519 and ITEPA 2003, Sch 3, setting out: