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Share Incentives > SAYE - Basics/Overview > Flashcards

SAYE - Basics/Overview Flashcards

1
Q

SAYE is also known by which name?

A

Sharesave, save as you earn option scheme, or savings related share option scheme.

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2
Q

Which schedule of ITEPA contains the law regarding SAYE?

A

Schedule 3 ITEPA 2003

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3
Q

What is a SAYE in a nutshell?

A

SAYE provides for the grant of share options, potentially at a discount, to all employees, subject to a qualifying period of service, conditional on the employee taking out a linked savings arrangement with a bank or building society.

At the end of the period (of 3-5 years), the employees can either use the money saved to exercise their option and buy shares, or withdraw their savings.

Historically, a bonus rate applied to the options, which I think meant that they would get an extra amount of shares on top, but this is currently 0. (I think this is basically to off-set the inflation/devaluation of their savings).

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4
Q

Do offers have to be made to all employees?

A

Yes

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5
Q

What is the maximum discount applicable to the exercise price for SAYE options?

A

20%

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6
Q

Why is SAYE described as “risk-free” to employees?

A

This is because, as with all options, the employee will not be obliged to exercise the option, so will not need to acquire shares if the value (share price) has fallen below that of the exercise price. In other words, they can choose whether to use their options if it is beneficial to them.

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7
Q

Is the deduction from pay in a savings contract before or after tax?

A

After tax

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8
Q

What is the range of contributions permitted under a savings contract, per month?

What are the maximum overall savings permitted if the contributions are at this level?

A

£5-£500

£180, or £18,000

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9
Q

Which companies in a group can grant SAYE options?

A

Either the employer or the parent company.

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10
Q

Are there any requirements as to the type of shares which can be subject to options?

A

Yes, share under option must be ordinary share capital.

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11
Q

What are the requirements as regards the control of the company whose shares are placed under an SAYE option?

A

The company must either be:

1) listed on a recognised stock exchange; or
2) free from the control of another company (unless that other company is itself registered on a recognised stock exchange).

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12
Q

Which of the following companies might encounter difficulties with the rules regarding share type and control of the company?

a) listed companies
b) AIM companies
c) private companies
d) overseas companies

A

Private and overseas companies. AIM are fine even though they are not listed per se (not sure how this works).

Private companies or overseas companies with UK employees may be able to have an SAYE scheme but will need to review it carefully.

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13
Q

What is the maximum permitted length for a minimum term of service requirement in an SAYE plan?

A

5 years

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14
Q

Does an SAYE scheme need to have a qualifying service period?

A

No, this is optional.

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15
Q

When do invitations to take part in a scheme need to be made?

A

There is no statutory requirement as to the frequency or particular date, but this is usually done on an annual basis.

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16
Q

What is the meaning of SAYE being “all-employee”?

A

All (elibible) UK-resident employees and full-time directors must be invited to participate in an offer.

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17
Q

Can the following be included in an SAYE scheme?

  • Non-resident employees
  • Full time directors
  • Employees and full-time directors with a qualifying period less than that specified in the scheme?
A

Yes

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18
Q

When does the exercise price for the option need to be set?

A

When the option is granted.

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19
Q

How long does an employee have to decide whether to exercise the options they have acquired under an option?

A

Six months

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20
Q

What happens if the employee does not opt to acquire shares?

A

They simply get the cash instead!

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21
Q

Are SAYE options also exercisable in the event of good leaver events?

A

Yes

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22
Q

Are SAYE options exercisable before they reach the maturity of the particular savings contract (3 or 5 years)

A

Usually not, subject to good leaver events.

23
Q

What are the good leaver events?

A
  • Injury
  • Disability
  • Redundancy
  • Retirement
  • TUPE transfer
  • Employer ceasing to be an associated company (of company whose shares are under option)
  • Death
24
Q

How long does an employee have to exercise their options in the event that a good leaver event occurs?

A

6 months (12 months for death)

25
Q

Can the rules of an SAYE option scheme provide that SAYE options are exercisable early on a takeover of the scheme company or a court-sanctioned scheme of arrangement?

A

Yes.

26
Q

If an SAYE option scheme provides that SAYE options are exercisable early on a takeover of the scheme company or a court-sanctioned scheme of arrangement, when can the options be exercised?

A

SAYE option scheme rules can permit exercise within 20

days before or after a change of control.

27
Q

When are the general events which will cause an SAYE option to lapse?

A
  • On leaving employment
  • If the employee withdraws the savings or misses more than 12 monthly savings contributions [This might now have been updated as of guidance this month (October 2019]
28
Q

Before 1 September 2018, what was the “savings holiday” applicable to an SAYE contract?

A

6 months. [As opposed to what I think is 12 months now.]

29
Q

What happens when an SAYE option lapses?

A

The employee can withdraw their savings

30
Q

What points are there to note regarding the tax treatment of SAYE options?

A

The employer company (not the company whose shares are acquired, if different) will usually be entitled to a corporate tax deduction.

31
Q

Which legislation sets out that a corporation tax deduction will usually be claimable by the employing company?

A

Part 12 of the Corporation Tax Act 2009

32
Q

When can issues arise in relation to the claiming of a corporation tax deduction?

A

On a change of control where the acquiring company is AIM listed or is a private company if options are not exercised within 90 days of the change of control.

33
Q

If SAYE options are not exercised within 90 days of a change of control where the acquiring company is AIM listed or is a private company, what could be the consequences.

A

[I think] the corporation tax deduction might be lost.

[I don’t know why at this point!]

34
Q

When is relief given for corporation tax?

A

This is given in the accounting year in which the options are exercised.

35
Q

Is there any income tax for the employee on the grant of an SAYE option? What is the statutory reference?

A

No, section 475 ITEPA 2003.

36
Q

Is there any income tax for the employee at the end of the savings period?

A

No. Any savings bonus or, if the savings arrangement is terminated early, any interest payable, is not subject to tax.

37
Q

Is there any income tax for the employee on exercise of the SAYE option?

A

No, so long as the date of exercise is at least three years after the grant date.

38
Q

Is there income tax if the employee has left the company because of a “good leaver” reason before the period of three years?

A

No.

39
Q

Will there be an exemption from corporate tax in the event of a transaction?

A

Depending on the terms of the transaction, there is sometimes an exemption from income tax if options are exercised within six months of
- a court-sanctioned scheme of arrangement,
- a change of control by way of general offer, or
- as a result of the operation of the minority squeeze out provisions,
provided certain conditions are met.

40
Q

When is tax-advantaged exercise is permitted in the context of a change of control a “non-UK company reorganisation”?

A

This is permitted
- within 20 days before a change of control or a “non-UK company reorganisation”; or
- within 20 days after a change of control or a “non-UK company reorganisation” that causes the option no
longer to meet the requirements of the SAYE code.

41
Q

Do you have to agree the value of SAYE options?

A

Yes, unless the shares are registered on a listed exchange.

42
Q

What happens, as regards the tax treatment, if an option is not exercised in the 20 day window either side of a change of control a “non-UK company reorganisation”?

A

The tax treatment will be the same as for non-tax favoured options. The option holder will be chargeable to income tax on the difference between the market value of the shares acquired and the option price paid for them.

43
Q

Does PAYE have to be operated on the grant or exercise of SAYE options?

A

No, provided the scheme retains its tax advantaged status.

44
Q

Are NICs payable on the grant or exercise of SAYE options?

A

No, provided the scheme retains its tax advantaged status.

45
Q

Where is the restricted securities taxation regime located in ITEPA?

A

Chapter 2 of Part 7 of ITEPA.

46
Q

Do shares fall, in principle, within the restricted securities taxation regime in ITEPA in the same way as any other? What is their actual treatment?

A

Yes, they do fall within the restricted securities taxation regime in ITEPA in principle, but where shares are acquired on an SAYE option exercise which does not give rise to an income tax charge, there is a deemed section 431(1) election.

47
Q

Which section provides for a deemed section 431 election on SAYE exercise?

A

Section 431A(2)(b).

48
Q

Where can the relevant law on SAYE options be found?

A

4 places:

1) Chapter 5 (sections 471-484) of Part 7 of ITEPA;
2) Chapter 7 (sections 516-520) of Part 7 of ITEPA;
3) Schedule 3 to ITEPA; and
4) Part 2 (paras 9-10) of Schedule 7D of the Taxation of Chargeable Gains Act 1992

49
Q

Why is the accounting treatment of SAYE considered unfavourable?

A

This is because (in brief) the company cannot adjust the expense it records in its profit and loss account on the grant of an SAYE option if an employee has started saving under an SAYE savings contract later withdraws.

(This is one reason it makes particular sense to have a rule where cancelled contributions are deemed to continue.)

50
Q

How is the release or assignment of SAYE options treated as compared to non-tax favoured options?

A

This is treated in the same way.

51
Q

Assuming that there are not particularly large gains on SAYE shares under option, what is likely to be the CGT treatment?

A

The likely treatment is that there will be no tax to pay, as this will be chargeable to CGT and the gains (if not large) will be under the CGT threshold).

52
Q

What are three simple ways PLC suggests mitigating the CGT that arises on SAYE?

Which of these routes can also be used for non tax-advantaged and CSOP options?

A

1) Staggering sales to use the annual exempt amount over several years.
2) Transfer shares to a spouse or civil partner.
3) Transfer shares into an ISA or personal pension.

53
Q

What is the effect of the deemed section 431 election on SAYE options?

A

The SAYE relief applied on exercise applies to a gain caclulated using the UMV of the shares and no future restricted securities charges can arise.

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