Employee ownership schemes are powerful tools for UK startups, scaleups, and SMEs looking to engage their teams and reward loyalty.
Two of the most widely used schemes are Save As You Earn (SAYE) - often known as Sharesave - and Share Incentive Plans (SIPs).
Wondering which scheme is best for you? Read on and find out!
Save As You Earn is a government-backed, tax-efficient savings scheme typically offered over either three or five years.
Employees choose how much to save each month - anywhere between £5 and £500 - directly from their net pay into an approved savings account. At the outset, the company offers the right to purchase shares at a fixed discounted price, often up to 20% off the market value.
At scheme maturity, participants may either use their savings to purchase shares at the discounted rate or withdraw their cash plus any tax-free bonus.
If the share price has fallen below the exercise price, employees can simply reclaim their savings without claiming the shares, offering downside protection as well as upside potential.
SAYE offers some really interesting tax advantages. No income tax or National Insurance is payable on the grant of the option or the bonus at maturity.
Capital Gains Tax may be due only if the employee later sells the shares and makes a gain above the annual exemption (currently £3,000 for the 2024/25 tax year, down from £6,000 the year before).
Furthermore, savings deposited into an ISA or pension within 90 days of scheme maturity may shield gains from capital gains tax entirely.
From the employer’s perspective, SAYE schemes are again highly favourable. The company may deduct the costs from its Corporation Tax bill, and expenses relating to setting up and managing the scheme may also be offset.
Crucially, SAYE encourages long-term employee loyalty through its savings mechanism.
Share Incentive Plans differ markedly from SAYE in structure and flexibility. They allow employees to acquire shares under four possible components:
SIP is also highly tax-efficient for employees who retain shares in the plan for specified periods. Free and matching shares withdrawn after five years are completely tax-free.
Partnership shares follow similar rules, with tax relief available for shares retained for five years. Dividend shares benefit from exemption after three years.
Employers benefit too: contributions from gross pay and the value of free and matching shares can be deducted from the company’s Corporation Tax liability. No National Insurance is payable on shares issued through SIP, which makes it a very cost-efficient option!
A key requirement is that SIP must be offered to all UK-taxed employees, not just select individuals. After all, the scheme is meant to promote a shared sense of ownership and commitment across the workforce - it would make little sense to exclude part of one’s employees from it!
If you’ve read this far, it will be obvious that both schemes have a lot going for them. Neither is necessarily “better” than the other, but they do cater to different business types and workforce strategies.
Save As You Earn is arguably best suited to public companies listed on the stock exchange, or those owned by a listed business.
It tends to work well when employees commit to saving over several years, particularly where the share price shows steady growth. The savings element makes participation predictable and relatively low-risk.
That said, there’s nothing stopping private companies from setting up a SAYE scheme. Though if they’re eligible, Enterprise Management Incentives (EMIs) are usually the better shout.
As for Share Incentive Plans, they’re more flexible, offering a range of options, from free shares to dividend reinvestment. They're ideal where the goal is widespread employee participation and long-term retention.
The tax benefits hinge on holding periods, encouraging loyalty and incentivising mid-to-long-term tenure.
In short, SAYE may be the best option if your company can support payroll deductions and structures regular savings for employees - while SIP might be most appropriate if you are looking to distribute equity broadly and reward long-term workforce commitment.
Vestd doesn’t currently support SAYE or SIPs, but we do make it easy to manage a wide range of other HMRC-approved and unapproved share schemes.
Designed for UK companies, the platform integrates with Companies House, is ISO 27001 certified, and streamlines many of the processes involved in managing equity - reducing admin and helping you stay organised.
Employees also get their own dashboards to see what their stake is worth today and what it could be worth 2, 5, 10 years from now!
And as a certified B Corp, we’re committed to ethical business practices, transparency, and alignment with ESG principles.
Interested? Book a free, no-obligation consultation to find out more.