Sharesave Schemes (often known as Save As You Earn or SAYE), is one of the HMRC (HM Revenue and Customs) approved tax-advantaged employee share schemes available in the UK. This scheme tends to be popular among enterprises that employ a large workforce.
Similar to the ESPP program under which employees can purchase stock in their companies at a discount – often between 5-15% off the fair market value (FMV), both programs target all employees and offer tax benefits. Here are their key features:
| ESPP (Qualified & Non qualified) | SAYE | |
| Mainly used in | US | UK |
| How it works | Employees contribute to the plan through payroll deductions and purchase shares at the purchase date. (i.e. a few times per year) | Employees contribute to the plan through payroll deductions and purchase the SAYE options (or take back all savings) when the scheme ends. |
| Contributions | Post-tax salary ($) | Post-tax salary (£) |
| Length of program | Typically less than 3 years | 3 or 5 years |
| Discount on purchase price | Up to 15% (qualified) | Up to 20% |
| Tax Advantage | No tax is due at purchase for the qualified ESPP plan | No tax is due at purchase if conditions are met |
How do Sharesave schemes work?
If a company chooses to roll out a Sharesave scheme to their UK-based employees, it must be made available to all employees with 5 years of employment service or more, but participation is voluntary.
To participate employees need to enter into a savings contract. When the contract begins the employee is granted the right to buy shares at a future date and at a discounted purchase price (i.e. exercise price). The funds used to buy the shares will come from the accumulated savings, made over the savings period. Savings are done via payroll deduction. During the savings period the money will sit in a savings account, managed by an approved savings carrier.
At J.P. Morgan Workplace Solutions, we’ve helped businesses to set up and administer their employee share schemes from launch through to maturity, including reporting, tax and compliance and everything in between. We also have experience setting up a SAYE scheme for US-based companies and operating multiple plans for international companies.
To begin their savings contract participants must:
– Choose how much they want to invest: Between £5 and £500 per month.
– Choose how long you want to invest: SAYE schemes run for either 3 or 5 years.
– Have confirmation of the discounted purchase price when the scheme ends: Maximum discount is 20%.
Eligibility for a Sharesave scheme
Employee:
You’ll be eligible to participate in the scheme if you’re a UK employee or a full-time director of the company, or of a participating company within the group.
The board may, however, determine that a qualifying period of service (up to a max of 5 years) is required before an employee or full-time director can participate in the scheme.
Shares:
The shares must be ordinary shares, fully paid up and non-redeemable.
What can you do with your savings when the contract ends?
When your 3-or-5-year savings contract ends, you’ll generally have 2 options:
1. Use your savings to buy some or all of the shares: This can be further broken down into three approaches:
✔ Buy & Sell: You might have to pay capital gains tax (CGT) if you sell the shares.
✔ Buy & Transfer: CGT will not be trigged if you transfer the shares to your pension immediately OR an Individual Savings Account (ISA) within 90 days of the date of your scheme ending. Even if you sell your shares from the ISA, any profit won’t be subject to CGT.
✔ Buy & Keep
2. Decide to not purchase (i.e. exercise) the shares and have your savings returned as a lump sum: This may happen if the market value of the shares has fallen below the exercise price, i.e. the cost price after the discount is higher than the value of the shares on that date.
Are Sharesave schemes worth it for employees?
Financial and tax benefits:
The scheme is one of the most tax-efficient employee share schemes in the UK. For example, there’s no tax charged :
– At the grant;
– At the exercise of the share option if the date of exercise is at least three years after the date of grant;
– On the interest and any bonus earned.
– And in certain other situations – check out our article on Sharesave Scheme Tax.
Flexibility:
In addition to offering flexibility when it comes to saving – from as little as £5 or as much as £500 per month, you can potentially withdraw your savings, plus any applicable interest, at any time during the term and have the full amount sent to you.
Money-back protection:
Alternatively, when the scheme ends, if the share price drops below the exercise price you can simply ask for all your savings back.
Are Sharesave schemes worth it for employers?
Corporation tax deduction:
A Sharesave scheme can help benefit a company financially when calculating their tax liabilities.
The costs incurred in setting up an approved scheme are treated as a deduction in working out the company’s profits for corporation tax purposes.
Also, when options are exercised, an employer obtains a statutory corporation tax deduction for the amount of the employee’s gain.
Flexibility:
Companies can decide on the level of discount given – from zero to 20% of the market value of the shares. They can also set a minimum service requirement for participants, up to a maximum of five years. Therefore, employers can choose to exclude relatively new workers.
Employee retention and loyalty:
The real advantages for a business can often come though come from the sense of ownership, loyalty and accountability a Sharesave scheme can give to employees. It is also a great way to link individual employee goals to overall company aims.
By committing to the scheme, an employee is much more likely to commit themselves to the company itself, both in the length of their service and the quality of that service. When the company succeeds they succeed, making it a win-win situation.
What happens if you leave the company during the scheme period?
This agreement should be laid out from the very beginning in the scheme rules, but there are a number of ways it could pan out, ultimately depending on the reason for the employee leaving the company.
✔ Good leavers (leave because of injury, disability, redundancy or retirement): You normally have six months from your leaving date to purchase as many shares as the proceeds of your savings scheme allow, under the contract.
✔ Bad leavers (get a job at another company): That depends on the scheme. You may not be able to exercise the option to purchase the shares, however all the accumulated savings you have made to date and any interest due will be repaid to you.
So, how can a company set up a Sharesave scheme?
Before implementing the plan, it’s a good practice to review all the SAYE scheme design components once again to ensure each has been considered. The company must also self-certify to HMRC that the SAYE Plan meets the statutory requirements via HMRC’s ERS Online service. It must also file an annual share scheme return with HMRC every year on 6 July following the end of the year in which the scheme was operated.
At J.P. Morgan Workplace Solutions, we’ve helped businesses to set up and administer their employee share schemes from launch through to maturity, including gathering employee data, enrolment, task tracking, reporting, tax and compliance and everything in between. We also have experience setting up a SAYE scheme for US-based companies.
If you want to learn more about Sharesave, fill in the form below and our team will give you a call to discuss your needs and arrange an appointment.
This publication contains general information only and J.P. Morgan Workplace Solutions is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. J.P. Morgan Workplace Solutions’ Insights is not a substitute for professional advice and should not be used as such. J.P. Morgan Workplace Solutions does not assume any liability for reliance on the information provided herein.
