ETASSUM30110 - Schedule 3 Save As You Earn (SAYE) option scheme: Introduction
- These are all-employee schemes. All qualifying employees and directors must be eligible to participate on similar terms.
- The company can specify a qualifying period of up to 5 years employment for employees and directors to be eligible to participate.
- The company grants eligible employees options to buy the company’s shares in 3 or 5 year’s time at the market value on the date of grant or at a discount of up to 20% of that market value.
- Participants must enter into a special savings contract to buy the shares at the end of a fixed term. This is known as a certified SAYE savings arrangement. As an alternative to exercising the option the participant may withdraw the savings (including any tax free interest due) and use the proceeds as they wish.
- Payments under the savings contract must be made on a weekly or monthly basis from salary or wages. The monthly savings under all current schemes must be between £5 and £500. The minimum number of monthly contributions is 36. The maximum is 60.
- The company must notify the scheme to HMRC in order for the scheme to be a Schedule 3 SAYE option scheme (see ETASSUM37030).
(Prior to 17th July 2013, anyone who owned more than 25% of the company was ineligible to participate in an SAYE scheme. This was the ‘material interest’ test).
Tax relief
- Income tax is not chargeable when an option is granted.
Participants will not normally be taxed when the proceeds of the savings contract are used to exercise the option. An income tax liability does arise where the option is exercised within three years of the date of grant because of certain take-overs but not when; (i) the takeover is a cash takeover within the provisions of Section 519 (3A- 3J)ITEPA or (ii) the sale of the business constitutes either (a) a TUPE transfer (paragraph 34(2)(c)), or (b) the employing company ceases to be an associate of the scheme organiser by reason of a change of control (paragraph 34(2)(d)). Where an income tax charge arises, this is NOT subject to PAYE (see ETASSUM38020) nor is NICs due. Any shares acquired by the employee on the exercise of a Schedule 3 SAYE option are excluded from the definition of an asset, Section 701(2)(c)(i) ITEPA.
- The base cost for capital gains tax purposes is the same as for the CSOP (ETASSUM45260).