ETASSUM38140 - Schedule 3 SAYE option schemes: Taxation: Collection of tax

Section 701 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

Section 701(2)(c)(iza) of ITEPA specifically excludes all acquisitions of shares resulting from the exercise of a Schedule 3 SAYE share option from the definition of an “asset”. This means that if tax arises from the exercise then tax must be collected via self-assessment; there is no obligation on the employer to operate PAYE nor is there any liability to NIC. All exercises of SAYE share options where income tax arises must be included in the annual return, (see ETASSUM37040).

Income tax arises most commonly in the circumstances of a change of control and this can present administrative difficulties for the new company where large numbers of individuals incur a liability to tax and which should be accounted for under self assessment. In such circumstances it is acceptable for the new company to collect the income tax due through the payroll, providing this arrangement is purely voluntary on the part of the participants, who must be allowed to deal with income tax under self-assessment if they wish. Where it is agreed that the company can account for the tax through the payroll (under PAYE but NIC is not due) the tax collected should be paid over with the normal monthly remittance and fully accounted for in the end of year returns including the SAYE end of year return. This arrangement is an administrative arrangement in accounting for tax that is due and is not to be confused with a PAYE Settlement Agreement which is not an appropriate means of accounting for this tax. 

Section 999 Corporation Tax Act 2009 and section 94A Income Tax (Trading and Other Income) Act 2005 concern rules regarding when the deduction is available.