ERSM302100 - SAYE Option Schemes: Overview

• 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, 5 or 7 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 £250. The minimum number of monthly contributions is 36. The maximum is 60.

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 because of a take-over or because the business unit in which they work has been sold. This is NOT subject to PAYE (see ESSUM39200). Any shares acquired by the employee on the exercise of an SAYE option is excluded from the definition of an asset, Section 701 (2) (c) (i).
• The base cost for capital gains tax purposes is the same as for the CSOP.

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Annual reporting requirement

On the first working day after the end of the tax year (usually 6 April) a notice to file is issued to all scheme organisers of approved SAYE option schemes. The notice sets out the legal obligations for a return to be filed and provides details of where to obtain a return for completion; ESSU does not automatically issue a blank return to scheme organisers. A pdf version of Form 34 is available for download from the shareschemes web page or from the useful forms section of the Employer CD-Rom issued annually to employers. From 6^t h April 2006 it has also been possible to file the annual return online.

• Section 1 of the return requires summary details of all options granted to eligible employees on any day during the tax year, there is no requirement to provide individual details of option grants.
• Section 2 of the return requires details of all options exercised in the prescribed circumstances where income tax is due.
• Section 3 of the return requires summary details of scheme activity during the tax year.