Save As You Earn schemes (SAYE) are a type of employee share scheme that allows employees to invest in the business for whom they work in a way that saves them tax. These employee share schemes aren’t just good for staff, they benefit the employer too.
In this article, we discuss what SAYE schemes are, the benefits for your business and employees and explain why it may be a good idea for your business to set one up.
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What are SAYE schemes?
A Save As You Earn (SAYE) scheme, also known as sharesave, is a tax-efficient savings scheme that allows you to save money towards purchasing shares in your company. At the end of the savings period, employees have the option to either buy shares in your company or withdraw your savings in cash.
How do SAYE schemes work?
Under a SAYE scheme, employees set aside part of their net salary every month to save towards shares in their employer and are granted options. At the end of a fixed term (usually three years but can be five years), they can buy the shares at a pre-agreed discount on the market value at the time of the grant, of up to 20%.
If at the end of the term, they decide they don’t want to purchase shares, they can get their money back. In effect, it’s a risk-free way to save, since the money is paid into a special bank account that’s guaranteed up to £85K per person. Interest is also payable on the funds, and this is tax-free. And if the shares are performing well, they get a bump in terms of the discount on the price of the shares when they exercise their right to buy, and the shares are bought free of income tax and national insurance contributions.
What are the SAYE scheme rules?
In terms of SAYE scheme rules, the shares must be ordinary, non-redeemable shares that are fully paid up. Your company must tell HMRC about the scheme and confirm that it meets the rules for SAYE schemes. Also, you need to offer the scheme to all employees who have been with you for five years or more (and you can choose to offer the scheme to those with less service).
SAYE scheme benefits for employees
Your employees benefit because whether they choose to exercise their option or not, they will earn interest on the money saved. The amount they choose to save can be as little as £5 per month or as much as £500 per month, so it’s a flexible way to save. If the value of the shares has gone up, they will receive a financial benefit in terms of the discount offered on the value of the shares, and this is tax-free. If they sell the shares, they will be subject to capital gains tax on any gain, but sales can be managed to be covered by the annual CGT exemption.
What happens when an employee leaves when they have a SAYE scheme in place?
This depends on the reason for leaving and the timing. Involuntary leavers (e.g. for redundancy or ill-health reasons) must be permitted to exercise their options early and before the savings period expires. Generally other leavers’ will lose their options and will withdraw their savings.
What are the benefits of implementing a SAYE scheme for my business?
Attracting and retaining talent
There are some excellent success stories of SAYE schemes providing significant financial benefits to a broad base of employees rewarding all employees for the success of the business.
Smart businesses know that the key to success is attracting and retaining the best talent. Getting your team aligned behind your business objectives is one of the best ways to accomplish this, and with a SAYE scheme, workers may become shareholders after a three or five year service period so they’re strongly motivated to work with you to grow the business as the value of their shares will increase. If you’re keen to hold on to cash to reinvest, you may not have funds available for high salaries and bonuses. In this situation, offering a SAYE scheme can make a career at your company appear an attractive choice. What’s more, because all staff can participate, they are a good way to get all members of your team behind your business goals.
Encouraging financial planning
The SAYE scheme is a simple and risk-free way for employees to save and then use their savings to buy shares in your company.
Shareholder and director communications
Another reason why it’s a good idea to have a SAYE scheme is that it can free up communications between the company’s shareholders and the board of directors. Employees holding shares may form a significant percentage of the total number of shareholders, and you can use this group as a sounding board when you’re considering new ideas for the business. It can help with employer/employee relations too, as shareholding staff feel more invested in the business and more inclined to freely express their opinions to management, even if these are critical.
Some companies use platforms like Slack or their intranet to create channels where employee shareholders can discuss business matters. They can also ask questions about the SAYE scheme and engage with each other. This can foster better staff/employer communications overall, with workers feeling consulted and engaged, and more inclined to participate in the success of the business.
SAYE corporation tax benefits
As well as employees receiving tax benefits under SAYE schemes, you can treat a SAYE scheme as an expense for corporation tax.
How do I set up a SAYE scheme?
Setting up a Save As You Earn scheme as an employer requires planning and preparation. If you wish to establish a SAYE or SIP, it is essential to seek expert legal advice from an experienced employee incentive solicitor. Your company must qualify for the scheme, and you will need to certify this to HMRC and register the scheme by July 6th following the end of the tax year in which it is set up.
If you want to find out more information about SAYE schemes, contact our expert team of employee share scheme solicitors via 0800 689 1800, or by completing the enquiry form below.
