Save as you earn schemes

Produced by Tolley

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

  • Save as you earn schemes
  • Summary and background
  • Requirements of a Schedule 3 SAYE option scheme
  • Eligible individuals
  • Shares to which the scheme can apply
  • Linked savings arrangement
  • Exercise rights
  • Self-certification of a Schedule 3 SAYE option scheme
  • Annual return
  • Informal advance clearance
  • More...

Summary and background

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.

Under the savings contract, the participant agrees to pay a fixed regular monthly sum of between £5 and £500 over the contract period. Contributions are normally made by a deduction from pay.

At the end of the contract period (the ‘bonus date’), the participant is entitled to an amount of money. 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.

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’.

Requirements of a Schedule 3 SAYE option scheme

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

  1. the general requirements for the scheme to qualify as tax-advantaged

  2. the definition of individuals eligible to participate

  3. the shares to which Schedule 3 SAYE option schemes can apply

  4. the existence of a linked savings arrangement

  5. the type of share options which can be granted

  6. the requirements for the exchange of share options

  7. the notification of schemes and annual returns which must be filed

A scheme may be extended

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