• These are ‘all-employee’ schemes (that is, briefly, all qualifying employees and directors must be eligible to take part on similar terms, though no one is obliged to take part) 
• The company can operate an approved SAYE scheme only after HM Revenue and Customs has approved it. An application for approval must be made by the company setting up the scheme or by the controlling company in a group scheme
• The company can specify a period of up to five years employment for employees and directors before they can take part
• The employees and directors taking part should be resident and ordinarily resident in the UK for tax purposes and must normally be employed at the time of grant and exercise
• An option can be granted by the employer to enable employees/directors to buy the company's shares in three, five or seven years’ time at today's price or at a discount of up to 20% of that price
• The option holder must enter into a special savings contract to buy the shares at the end of the fixed three, five or seven year term 
• If the company is closed, participation in a SAYE scheme is not open to anyone who owns more than 25% of the ordinary share capital of the company 
• Payments under the savings contract must be made on a weekly or monthly basis and must be deducted from salary or wages net of income tax. The monthly savings must be between £10 (or such lower limit as the employer chooses) and £250
• Shares acquired under a SAYE scheme can be transferred into an ISA or a stakeholder pension on a tax-free basis within 90 days of exercising the option 
• The shares used must form part of the ordinary share capital of the employer and satisfy various conditions 
• The company's articles of association need to meet certain conditions
• No income tax or NIC is chargeable when an option is granted. The option holder will not normally be subject to income tax or NIC when the proceeds of the savings contract are used to buy shares. An income tax liability does arise where the option is exercised within three years because of a take over or because the employer’s business is sold or taken over (except that if the employee leaves the employment because of the take over, etc, he or she may still exercise within three years of the grant and enjoy tax relief) 
• PAYE and NIC must normally be accounted for in relation to all payments made where an option is given up in return for money or something else of value
• The costs an employer incurs in setting up an approved SAYE scheme are allowable as a deduction in computing the employer's profits for corporation tax purposes 
• When options are exercised under an approved SAYE scheme, the employer obtains a statutory corporation tax deduction for the amount of the employee’s gain (even though the employee will not normally be liable to income tax on that gain). This is subject to a transitional rule that restricts relief in relation to particular shares if the employer has previously enjoyed a corporation tax deduction in respect of expenses incurred in relation to those shares
• Any bonus or interest received on savings under the SAYE contract is tax-free
• Options exercised within six months of the cessation of an option holder's employment for injury, disability, retirement, redundancy or because of a take over, are not taxable regardless of the time period between the grant and exercise of the option
• If exercise of an option does not qualify for tax relief then income tax is payable on the amount of any gain made, through the personal tax return procedure. No NIC is due. The amount of the gain is:
  - what the shares are worth when bought, less
  - the price paid for the shares, less
  - the amount (if any) paid for the option itself when it was received
• If an option is given up and in return money or something else of value is received PAYE and NIC must normally be accounted for. The taxable amount is:
  - the amount or value of what is received for giving up the option, less
  - the amount (if any) paid for the option itself when received
• On disposal of shares acquired through the exercise of an SAYE option, a liability to capital gains tax may arise. The base cost for capital gains tax purposes is normally the price paid for the shares. If any income tax liability arose on exercise, the base cost includes the amount subjected to income tax
• In practice capital gains are often within the annual exemption (£10,600 for 2011/12) 
• As a further incentive, any shares acquired under an SAYE option which are transferred into a registered pension scheme may qualify as an employee contribution to the scheme and thus obtain tax relief in the year of transfer
• The ‘fair value’ (as defined especially for this purpose) of options granted must be shown as a deduction in the profit and loss account. The accounting deductions are not related to the market value of the shares for tax purposes, nor to the amount of the statutory corporation tax deduction referred to above.

Careful attention must be paid to the risk factors set out below.

• The tax legislation, rates and reliefs referred to herein are those for 2011/12. Tax rules change and the value of a relief from taxation depends on the circumstances of the taxpayer 
• The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and changes in tax legislation and you may not get back the amount originally invested
• If there is no recognised market for the shares involved it may be difficult to deal in the investment or to obtain reliable information about the value of the investment or the risks that may be involved.

For further information on share schemes, please visit www.bakertilly.co.uk/ecg