Save As You Earn (SAYE) and Share Incentive Plan (SIP) – Not Ordinarily Resident employees

Some employers who offer these all employee share schemes may need to change their scheme rules to ensure that the schemes continue to meet their requirements.

Who is affected?

Employers who offer SIP, SAYE or both schemes to their employees, and whose scheme rules refer to Section 15 of ITEPA, or to earnings within Section 15 of ITEPA.

If all of your employees are resident and ordinarily resident, then there is no need to make any changes. A change will only be needed if you have employees who are resident but not ordinarily resident in the UK and you do not wish to invite them to participate in the schemes.

Details of change

The legislation covering SAYE and SIP provide that employers who wish to use these schemes must offer them to all employees who are resident and ordinarily resident in the UK. They may also choose to offer them to employees who are resident but not ordinarily resident. In some cases, the existing rules of a scheme meet this requirement by referring to employees with earnings which fall within Section 15 of ITEPA 2003.

The meaning of Section 15 was changed by Finance Act 2008, so that this section now covers earnings of employees who are resident in the UK, whether or not they are ordinarily resident. For those employers whose scheme rules mention Section 15, the scheme is therefore extended to more employees than the company may wish, since the employer must now offer participation in the scheme to employees who are both resident and ordinarily resident and those who are resident but not ordinarily resident if they wish to retain the tax benefits of SAYE or SIP.

However, some employers may not wish to extend their scheme to employees who are resident but not ordinarily resident – for example, it may not be beneficial for these employees to take part in a SAYE or SIP scheme. In that case employers will have to amend their scheme rules to exclude employees who are resident but not ordinarily resident in the UK.

What change is needed?

The precise change needed will depend on the particular wording used in the scheme rules but provided the following wording is used to amend the rules, there is no need to seek approval from Employee Shares and Securities Unit (ESSU) for the amendment or, if that is the only amendment, send a copy of amended rules to ESSU.

SAYE

(a) the individual's earnings from the office or employment referred to in Rule [ ] meet (or would meet if there were any) the requirements set out in paragraphs 6(2)(c) and 6(2)(ca) of Schedule 3 ITEPA 2003.

b) the individual's earnings from the office or employment referred to in Rule [ ] are (or would be if there were any) general earnings to which section 15 ITEPA applies (earnings for a year when employee resident in the UK) and those general earnings are (or would be if there are any) earnings for a tax year in which the individual is ordinarily resident in the UK.

SIP

The plan must provide for invitations to participate in awards and acquisitions of plan shares to be extended to any employee who meets the eligibility requirements in the plan and who is a UK Resident Taxpayer. For this purpose,

(a) 'UK Resident Taxpayer' has the same meaning as in paragraph 8(2) of the Schedule (employee resident and ordinarily resident in the UK)

(b) 'UK Resident Taxpayer' means an individual whose earnings from the employment by reference to which the individual meets the employment requirement in paragraph 15 of the Schedule are (or would be if there were any) general earnings to which section 15 ITEPA applies (earnings for a year when employee resident in the UK) and those general earnings are (or would be if there were any) earnings for a tax year in which the individual is ordinarily resident in the UK

If minor amendments are required, for example inserting paragraph numbering so that the text above makes sense when transferred into your scheme rules, there is no need to request approval as those minor changes are not amendments to a key feature of the scheme.

If you wish to use different wording to that above or other amendments are made, then the proposed amendments will have to be agreed with the Employee Shares and Securities Unit before being adopted by the company.