Save As You Earn (SAYE) Share Option Schemes

Introduction

Save As You Earn (SAYE) schemes allow you to give your employees the opportunity to buy shares in your company at a discounted price, whilst they save a regular amount from their salary each month. These schemes come with valuable tax advantages for both you and your employees when set up and run according to HMRC's rules, including specific requirements for bonus rates and annual reporting.

What is a Save As You Earn scheme?

A Save As You Earn scheme is a type of tax-advantaged share option scheme. Your employees agree to save a fixed amount from their salary each month (deducted before they receive their pay) for either three or five years. At the end of the savings period, they can use the money they've saved to buy shares in your company at a price fixed at the start of the scheme.

The key attraction is that employees can buy shares at a discount to the market price (up to 20% below the share price when the option was granted), and if the share price has risen during the savings period, they benefit from that growth. If the share price has fallen, they can simply take their savings back instead.

Tax advantages for employees

When an SAYE scheme is set up correctly and meets HMRC's requirements, your employees pay:

• No Income Tax or National Insurance contributions on the difference between what they pay for the shares and what they're worth
• No Capital Gains Tax when they exercise their option to buy the shares (though they may need to pay Capital Gains Tax later if they sell the shares at a profit, subject to their annual exemption)

This makes SAYE schemes significantly more tax-efficient than non-approved share schemes.

Setting up your SAYE scheme

To establish an SAYE scheme that qualifies for tax advantages, you must work with a bank or building society that has been certified by HMRC to operate SAYE savings arrangements. You cannot simply run the savings element yourself.

You'll need to prepare an SAYE prospectus – this is the formal document that sets out the terms of your scheme. HMRC provides a specimen SAYE prospectus that came into effect from 18 August 2023, which you can use as a template for your own scheme documentation. Using the specimen format helps ensure your scheme meets all the necessary requirements.

SAYE bonus rates

One important element of SAYE schemes is the bonus paid on employees' savings. The bonus rate is not something you decide arbitrarily – HMRC operates an automatic mechanism to calculate SAYE bonus rates.

This bonus rates automatic mechanism also came into effect from 18 August 2023. The mechanism determines what bonus rate applies to savings contracts, ensuring consistency across all SAYE schemes. Your SAYE prospectus must refer to this automatic mechanism.

The bonus is paid by the savings institution (bank or building society) at the end of the savings period and increases the total amount your employee can use to buy shares.

Who can participate?

You must offer your SAYE scheme to all eligible employees on similar terms. You cannot cherry-pick which employees can join. However, you can set eligibility requirements such as a minimum length of service (up to five years).

Employees choose how much they want to save each month, subject to the scheme limits. They can save between £5 and £500 per month through an SAYE scheme.

Reporting requirements

As a company operating an SAYE scheme, you must complete an annual return to HMRC, even if there has been no activity during the tax year. This is called the end of year return.

For the 2025/26 tax year (and all subsequent tax years), you need to:

1. Complete your end of year return using either HMRC's official end of year return template or create your own template following HMRC's technical specifications

2. Check your completed file for formatting errors using HMRC's spreadsheet checking service – this helps avoid delays when you submit

3. Submit your return electronically through HMRC's employment-related securities online service

The end of year return template and guidance notes are available from HMRC to help you complete each required section correctly. Make sure you keep the guidance notes handy when filling in your return, as they explain what information needs to go in each field.

Key points to remember

Running an SAYE scheme involves ongoing administrative responsibilities. You need to:

• Maintain accurate records of all participants and their savings contracts
• Coordinate with the certified savings institution
• Complete annual returns to HMRC on time
• Ensure your scheme continues to meet all the qualifying conditions

The administrative burden is real, but for many companies, the ability to offer employees a tax-efficient way to become shareholders makes SAYE schemes an attractive benefit, particularly for staff retention and motivation.

Is SAYE right for your company?

SAYE schemes work best for established companies with a stable share price and a workforce you want to retain long-term. The three or five-year commitment means employees have an incentive to stay with your company.

However, they're not suitable for every business. You need to be comfortable with the idea of employees becoming shareholders, and you need to be confident your business will still be operating successfully in three to five years' time. There's also the administrative overhead to consider.

Sources

• Save As You Earn (SAYE): end of year return template and guidance notes
• Save As You Earn (SAYE) bonus rates automatic mechanism
• Specimen Save As You Earn (SAYE) prospectus

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.