Saving money and investing in the stock market can be a great way to grow your wealth, but it can be difficult to know where to start. Fortunately, there are several tax-advantaged employee share schemes available in the UK that can help you invest in your employer’s company while reducing your tax bill. Examples include the Share Incentive Plan or the Save As You Earn (SAYE) share scheme, which is a popular way for both employers and employees to save money and invest in the success of the business.
What is an employee share scheme?
Before we dive into the specifics of the SAYE scheme, it’s important to understand what tax-advantaged employee share schemes are and how they work. In the UK, there are several different types of employee share schemes, including:
- Share Incentive Plans (SIPs).
- Enterprise Management Incentives (EMIs).
- Company Share Option Plans (CSOPs).
- Save As You Earn (SAYE) schemes.
These schemes are designed to encourage employees to buy shares in their employer’s company, which can be a great way to align their financial interests with the success of the company. In addition, these schemes often come with income tax advantages for employees when compared to direct income, which can make them a more attractive investment option.
What is the Save As You Earn scheme?
The Save As You Earn (SAYE) scheme is a type of employee share scheme that allows employees to save money over a period of time and use those savings to purchase shares in their employer’s company at a later date. You can save up to £500 under a SAYE scheme. Under the SAYE scheme, employees agree to save a fixed amount of money each month for a period of three or five years.
At the end of the savings period, the employee can use the money they have saved to purchase shares in their employer’s company at a discounted price. The discount is determined at the start of the scheme and can be up to 20% of the share price at the beginning of the scheme.
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Save As You Earn BENEFITS for employees
There are several benefits to participating in a SAYE scheme as an employee. Firstly, the scheme allows employees to save money in a tax-efficient way, as the savings are deducted from their pre-tax salary. This means that employees can reduce their tax bill while also building up savings for the future.
SAYE also comes with specific extra tax advantages:
- The interest and any bonus at the end of the scheme is tax-free.
- You do not pay Income Tax or National Insurance on the difference between what you pay for the shares and what they’re worth.
You might have to pay Capital Gains Tax if you sell the shares. However, you will not pay Capital Gains Tax if you transfer the shares:
- To an Individual Savings Account (ISA) within 90 days of the scheme ending.
- To a pension directly from the scheme when it ends.
In this way, the SAYE scheme allows employees to invest in their employer’s company at a discounted price, which can be a great way to reward the effort they put into their work. If the company’s share price increases over the savings period, employees can potentially make a profit by purchasing shares at a lower price than they are currently trading at.
As a final point, the SAYE scheme is a flexible and low-risk way to invest in the stock market. If the employee decides not to purchase shares at the end of the savings period, they can simply withdraw their savings without penalty.
SAVE AS YOU EARN BENEFITS for employeRS AND BUSINESSES
The SAYE scheme can also be beneficial for employers. Firstly, it can be a great way to incentivise employees and align their interests with the success of the company. Employees who are shareholders are often more engaged and motivated, which can lead to increased productivity and profitability.
In addition, the SAYE scheme can be a cost-effective way for employers to offer a valuable employee benefit. Unlike some other share schemes, the SAYE scheme does not require the employer to give shares to employees for free, which can be expensive and dilute the ownership of the company.
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How do you set up a SAYE scheme as an employer / business?
Setting up a SAYE scheme as an employer or business owner is a relatively straightforward process, but it does require some planning and preparation. Here are the steps you will need to take to set up a SAYE scheme for your employees:
- Choose a savings provider:
The first step in setting up a SAYE scheme is to choose a savings provider who will administer the scheme on your behalf. There are several providers to choose from, so it’s important to do your research and choose one that meets your needs.
- Determine the details of the scheme:
Once you have chosen a savings provider, you will need to determine the details of the SAYE scheme, including the savings period, the amount that employees will save each month, and the discount that employees will receive when purchasing shares.
- Obtain regulatory approval:
Before launching the scheme, you will need to obtain regulatory approval from HM Revenue & Customs (HMRC). This will involve submitting an application and providing details of the scheme.
- Communicate the scheme to employees:
Once the SAYE scheme has been approved, it’s important to communicate the details of the scheme to your employees. This should include information on how the scheme works, how much employees will save each month, and the potential benefits of participating in the scheme.
- Launch the scheme:
Finally, you can launch the SAYE scheme and start accepting employee contributions. You will need to provide regular updates to employees on the performance of the scheme and any changes to the discount or savings period.
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Overall, setting up a SAYE scheme can be a valuable way to incentivize and engage your employees, while also offering a tax-efficient way for them to save and invest in your company. With careful planning and preparation, you can launch a successful SAYE scheme that benefits both your employees and your business.