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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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HM Revenue & Customs
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Schedule 3 SAYE Option Scheme: General requirements: Scaling down

The following successive steps are acceptable in scaling down applications for options:

  1. each election for any bonus to be included shall be deemed to be an election for no bonus to be included.
  2. each application for a five year contract shall be deemed to be an application for a three year contract.
  3. the excess over the minimum (£5-£10) monthly savings contribution chosen by each applicant shall be reduced pro rata.
  4. applications will be selected by lot, each based on a monthly savings contribution of the minimum (£5-£10) and the inclusion of no bonus in the repayment under the savings contract.

A scheme which provides that only applications above a fixed limit (specified in the scheme) may be scaled down is acceptable provided that the specified limit can be shown to satisfy the similar terms requirements.

Other scaling down arrangements may be acceptable as satisfying the “similar terms” requirements.

Where a scheme’s invitation process provides scope for employees to make multiple applications, see ETASSUM34220, an employee’s various applications should be aggregated before any scaling down is applied to them.

Taking into account, when scaling down, how much an applicant is already saving under existing savings contracts (so as to favour new savers or current low savers) does not satisfy the similar terms requirements of paragraph 7. The similar terms requirements relate to “rights to be obtained” and are not concerned with the size of existing options held. Nor is a participant’s level of existing savings a similar factor to remuneration or length of service. Companies which wish to favour new or low savers should bear this in mind when setting the scheme’s maximum permitted aggregate monthly savings limit under paragraph 25 Schedule 3, see ETASSUM34210.

Once an agreed scaling down procedure provided for in the scheme rules has been commenced, it cannot be altered for the tranche of options to which the applications relate. If the company wishes to apply a different basis for scaling down  provided for in the scheme rules (or an amendment to the scheme rules if necessary), another invitation process must be commenced so that the options granted as a result of it are granted in accordance with the provisions of the Schedule 3 SAYE scheme.