SAYE schemes ― an overview

By Tolley
Employment_tax_img4

The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • SAYE schemes ― an overview
  • Advance approval not now required
  • Legislation
  • Savings period
  • Savings amounts
  • Tax-free bonus
  • Share options
  • Scheme rules
  • Tax treatment
  • Eligibility
  • Similar terms
  • Scheme shares
  • HMRC powers and penalties

Introduced in 1980, these are the oldest HMRC tax-advantaged share schemes still in operation. The legislation originally created Savings-Related Share Option Schemes, but they are also known as Save As You Earn (SAYE) Schemes or Share Save Schemes. Although the name and administrative process has changed and the legislation rewritten, the basic structure and effect of the scheme has remained unchanged.

This is an all-employee scheme and therefore, within certain limits, rights must be offered on similar terms to everybody working for the company.

ITEPA 2003, Sch 3, paras 6–8

In a SAYE scheme, employees will allow a proportion of their salaries to be paid to a bank or building society SAYE account on a monthly basis.

This will be accumulated over a three or five-year period with a tax-free bonus at the end of the savings period as a small reward for keeping up the payments. The savings provider should be offering the equivalent to interest on the cash invested, although in recent recessionary times the rates fixed by the Treasury were 0% for a number of years. However, from 28 July 2014 to 26 December 2014, the bonus rate applicable to five-year SAYE schemes briefly increased from zero to 0.6% x the monthly payment (AER 0.39%), before returning to 0% with effect from 27 December 2014. The bonus rate for three-year SAYE schemes has remained unchanged for a number of years at zero.

The savings account has to be formally connected with a share option, offering the employee the chance to buy shares in their employing company at a discount of up to 20% against the value of those shares as at the date on which the option is granted (or as at an earlier date as determined in accordance with HMRC guidance ― see ETASSUM35200).

At the end of the fixed period, employees will be able to exercise the