Setting up and managing your sharesave scheme

Introduction to Sharesave schemes

Sharesave is one of the most popular UK all-employee schemes, also known as SAYE or Save As You Earn. UK Sharesave is a tax-advantaged all-employee scheme that allows employees to save a fixed amount of money direct from payroll every month and receive share options that can later be exercised at a pre-approved and discounted price. A sharesave scheme is essentially risk-free for the employee, who is guaranteed to receive their money back whatever the circumstances. If an employee chooses to exercise their options, they can decide to sell their acquired shares right away or keep them to sell at a later date. They can also choose to not exercise and simply receive all of their savings back as well as any potential interest. Read more about how SAYE works for employees.

In the event that an employee decides to exercise their options, their accumulated savings are used to cover the cost of exercising, and there is no income tax due. A capital gains tax (CGT) liability may be triggered at sale on the difference between the exercise price and sale price, with the possibility of exemption from CGT if the proceeds from the sale are transferred into an individual savings account (ISA) within 90 days or transferred to a pension directly from the scheme.

The UK sharesave scheme is one of several  tax-efficient equity schemes and a powerful tool for talent retention as well as aligning teams behind company performance, and supporting good savings habits. But it can incur a lot of administrative overhead without the right tools in place, including reconciliation challenges, equity compliance requirements, and employee communication needs. Let’s go through the steps to setting up and managing a sharesave scheme, to enable your company and your employees to take advantage of its benefits!

Setting up your sharesave scheme: key considerations

When launching a sharesave scheme, companies must consider the scheme’s compliance requirements and the degree of choice they want to provide within these parameters, all while aiming to optimise operational efficiency and simplicity.

Starting with the compliance requirements, to benefit from the tax advantages, companies must:

• offer ordinary shares, fully paid up and non-redeemable.
• discount the purchase price at a rate between 0 and no more than 20% of the market value of the shares at the time the option is granted.
• run the scheme for a 3 or a 5 year period. Companies can also choose to run separate parallel schemes offering both a 3 and a 5 year savings period.
• make the scheme available to all UK-based employees with a relevant completed service period, ensuring all qualifying employees are eligible to participate on “similar terms”.
• ensure employees’ monthly savings contribution is between £5 and £500. Companies have the option to enforce their own restrictions within this range, and £500 is the maximum savings amount across all parallel scheme contributions for an individual employee.
• self-certify to HMRC that the Sharesave Plan meets the statutory requirements via an online end-of-year return on or before 6 July following the end of the tax year in which the first grant is made (and don't forget to complete a nil-return for registered SAYE schemes where no new grants have been made, too).

Participation in the scheme is voluntary for employees, who, upon enrolment enter into a savings contract and at maturity have the option to buy shares at a discounted, predetermined price. Eligible employees have several choices to make within the guidelines set out by the company, with the possibility to:

• choose for themselves how much they contribute monthly (within the limits), and whether to save for a 3 or 5 year period.
• defer up to 12 monthly payments with the savings contract extending by one month after each missed payment, and options lapsing if a 13th payment is missed.
• withdraw their savings and applicable interest at any time during the scheme, which triggers the lapse of the option (and also accelerates the options expensing charge).

During the setup of the scheme, companies must also determine:

• if they include or exclude overseas employees (who would not benefit from the UK tax advantages).
• leaver rules and how to best manage participants who may leave for a range of reasons during the scheme period.
• whether to offer 3 or 5 year savings periods or both.
• how to best communicate the scheme to employees, make it easy for them to make an informed choice on whether to participate, and what related documents to share with them to increase understanding and enrolment in the scheme.

Taking all of the above into account, along with expert advice, companies can decide on the right design for their sharesave scheme aligned with their company philosophy on employee share ownership, their employment proposition and their overall strategy. Because of the potentially large volume of transactions, taking the right approach from the outset can make a big difference for the teams running the scheme. So what does running a best-in-class sharesave scheme look like?

Managing your sharesave scheme with automation

Thanks to the nature of the sharesave scheme, participation for employees is simple  and straightforward: deductions are made from their salary automatically and transferred to the savings carrier in bulk. For the admin teams behind this operation, it's important that every step of this is tracked properly: from enrolment in the scheme to contributions, key dates, maturity, elections and more.

Automation is essential to managing your sharesave scheme, firstly to ensure accuracy and compliance, and secondly to provide clarity to employees.

Employees need to be able to enrol in the scheme and track their contributions in real time. They need to understand where those contributions are going, and the potential upside they might have. And when the scheme reaches maturity, they need to be able to choose between exercising and holding the shares, exercising and selling the shares, or taking back their savings, in an intuitive way. Employees also need to be able to transfer their retained shares to their chosen ISA or pension provider, or to their spouse, to mitigate CGT impact.

On the admin side, a large volume of enrolments, payments and transactions need to be tracked accurately, as they happen. Any employee change, like leavers or deferred payments, have important repercussions, which need to be managed carefully - especially since they may have a direct influence on payroll, the option itself and on the savings period. On top of that, admins need to be able to report to HMRC every year - tracking all the changes in the scheme compliantly.

Traditional manual processes or disconnected systems can create reconciliation nightmares, with data spread across payroll, HR systems, and savings carriers. A modern administration platform like Ledgy that integrates directly with the savings carrier eliminates these reconciliation challenges by automatically tracking contributions, transactions and employee changes in real-time. By automating the process end-to-end, companies can focus on optimising participation and engagement rather than manually updating data across different sources and constantly dealing with payroll and employee queries. With the right platform, teams can end their reconciliation headaches, and give employees and admins complete visibility over participation in one place.

Ready to automate your sharesave scheme with Ledgy? Speak with an expert now.

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