Module 7 – All-Employee Plans Flashcards
What is the maximum discount available under an SAYE option? (Notes – 2.9)
The option price must not be less than 80% of the market value on the date of grant.
Max discount of up to 20%
What is the monthly savings limit under an SAYE plan? (Notes – 2.2)
The current maximum amount an employee may save per month is £500.
What kind of shares can be used in an SAYE plan? (Notes – 2.5)
The shares that can be used for SAYE options must generally satisfy the following statutory requirements:
- they must be part of the ordinary share capital of the scheme organiser or its parent company, or,
- if it does not have a parent company and is instead owned by a consortium, they can be part of the share capital of a company which is a member of the consortium;
- they must be listed on a ‘recognised stock exchange’, or shares in a company which is not controlled by another company (although it is normally acceptable if the controlling company is itself listed on a recognised stock exchange), or shares in a company which is subject to an employee ownership trust;
- they must be fully paid up and not redeemable;
- if they are subject to restrictions, the company must notify employees of the restrictions; and
- if the company has more than one class of shares, the class used for the SAYE plan must satisfy the extra requirement that the majority of the shares of this class must either be ‘open market
shares’ or ‘employee controlled shares’.
What are the eligibility requirements under an SAYE plan? (Notes – 2.3)
The company must invite all employees (full–time or part–time) and all full–time directors (working more than 25 hours per week excluding meal breaks), who (in each case):
- are an employee or director of a constituent company;
- meet any qualifying period set by the company (which must be no more than 5 years ending with the grant date, and in practice is usually rather less); and
- are UK resident taxpayers.
The company cannot ever extend participation to non-employees or to a person who is an employee
or a director of a company which is in the group but which is not a constituent company.
However, the company can choose to invite the following people if it wants to:
- part–time directors (working 25 hours or less per week excluding meal breaks);
- employees who have not worked for the qualifying period; and
- employees who are not UK tax resident.
What are the good leaver grounds for an SAYE plan? (Notes – 2.20)
- injury or disability;
- redundancy;
- retirement;
- a TUPE transfer out of the group; or
- the company for which the participant works leaving the group.
When might scaling down be used for an SAYE option? (Notes – 2.10)
It is usual for plan rules to allow companies to set a maximum number of shares which will be available for each SAYE invitation, and to apply scaling down if that number is exceeded.
This helps a company manage use of shares for example, to comply with dilution limits.
Which 4 kinds of share award are available under a Share Incentive Plan? (Notes – 3.2)
- free shares;
- the opportunity to buy shares out of pre–tax salary (called ‘partnership shares’);
- matching shares at a ratio of up to 2 matching shares for every 1 partnership share bought;
- shares purchased using dividends paid on plan shares (called ‘dividend shares’), which in each case must be held in a special onshore (i.e., UK) SIP trust.
What are the SIP limits? (Notes – 3.18)
- Free shares – £3,600 each tax year
- Partnership shares – £1,800 each tax year or 10% of salary if lower
- Matching shares – 2 for each partnership share, (i.e., up to £3,600 each year)
- Dividend shares – No limit
What are the eligibility requirements for a SIP? (Notes – 3.4)
Like an SAYE plan, a SIP is an all–employee plan, and the company must invite all eligible employees to participate. These are all employees, whether full–time or part–time, of the company and any constituent company, except:
- employees who have not worked for the qualifying period (if any) specified by the company (the maximum length of which varies depending on the type of award – but in any case, will be no
more than 18 months); - employees who are not UK tax resident; and
- employees who are participating in another SIP operated within the group at the same time.
The company can choose to extend participation to employees who do not fall within this compulsory eligibility category because they are not UK tax resident. The company cannot extend participation to an employee of a company which is in the group but which is not a constituent company.
How do you register and self–certify SIPs and SAYE plans? (Notes – 4.1)
Plans must be registered online through HMRC’s Employment Related Securities (ERS) online service, which is found on the employer company’s PAYE government gateway.
If a company has more than one SIP or SAYE plan, each one must be notified and registered separately.
As part of the registration process, the company must make a declaration that the requirements of the relevant UK tax legislation have been met. This is called self–certification.
The deadline for registration and self–certification of new SIPs and SAYE plans is 6 July following the end of the tax year in which awards are first granted.
Companies cannot delegate their responsibility to register and self–certify their plans to advisers (unlike the filing of ERS annual returns, companies must do this themselves).
What are the consequences of a self–certified plan not meeting the legislative requirements?
(Notes – 6.2)
Where there has been a fundamental or material error in the plan rules or way the plan was operated, such as where the shares used for the plan did not meet the legislative requirements, HMRC has the
power to:
- state that the plan is no longer a tax advantaged plan from the date of the relevant notice or any other date specified by HMRC; and
- impose a penalty of up to 2 times HMRC’s reasonable estimate of the income tax and NICs benefits that participants (and employing companies) have enjoyed as a result of the plan being operated as if it were a tax advantaged plan. If HMRC deems that the lack of compliance is less serious, then
- it will not remove the tax advantaged status of the plan, but will instead give the company 90 days
to ‘repair’ the plan and ensure the requirements of the legislation are met; and - the company will also be liable for a penalty not exceeding £5,000 or, if less, the total amount of income tax and NICs relief provided.
If the company does not amend the plan so that it complies with the legislation within the 90 day
deadline, HMRC has the power to issue a default notice which can state that the SIP or SAYE plan will lose tax advantaged status from the date the default notice is given or another date specified by HMRC. The more serious penalty regime will then also apply
What documents are normally required for an SAYE plan?
These include:
* plan rules;
* savings contract;
* invitation letter;
* application form;
* explanatory booklet or FAQs;
* option certificate or statement; and
* exercise notice.
What documents are normally required for a SIP?
These include:
* trust deed and rules (these are often a single document);
* invitation letter;
* (usually) application form for free shares – this will constitute the agreement that is (usually) required by the legislation;
* (usually) a free share agreement – this sets out the terms applying to free shares;
* application for partnership shares – this will enable employees to state how much they would like to save;
* a partnership share agreement – this sets out the terms applying to partnership shares. If matching shares are being offered, they will be included in this document;
* dividend re-investment documents – in practice the company’s position on dividend reinvestment is usually included in the free shares agreement for free shares or the partnership share agreement for partnership and matching shares, but there could be separate documents; and
* explanatory booklet.
Global Contributory plans come with a host of features that must be considered in addition to the factors listed above. When operating these all-employee plans globally, companies must consider:
- if deductions from salary will be legally permitted. A company will need to check if salary deductions are permitted in the countries they wish to operate the plan;
- whether there are any specific limits on salary deductions;
- what contribution levels are appropriate in different countries;
- timing for collecting contributions – when and for how long to take salary deductions;
- banking arrangements – where the contributions will be held before they are used to purchase shares;
- how surplus contributions will be treated – how will surplus contributions not used to purchase shares be dealt with;
- obtaining participant consent to the salary deduction processes; and
- whether there are any foreign exchange issues for remitting contribution funds to a different
country.
For PDMR’s or PCA’s what needs to be notified and when?
The PDMR or PCA must first notify both the issuer company and the FCA promptly and, in any event, within three working days, of the transaction (or any such shorter period as provided in the company’s own dealing code), providing specified information including the following:
- the name of the person;
- the reason for the notification;
- the name of the relevant issuer company;
- a description of the financial instrument;
- the nature of the transaction (e.g., acquisition or disposal), indicating whether it is linked
to the exercise of a share option; - the date and place of the transaction; and
- the price and volume of the transaction.
For how long must dividend shares normally be held to obtain tax-free status under a UK tax advantaged Share Incentive Plan (SIP)?
Minimum of three years
