How to set up an all-employee share plan: SAYE or SIP

Before you start

Legal basis. SAYE is governed by Schedule 3, and the SIP by Schedule 2, of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) [2][3]. HMRC does not approve plans. The company declares that the plan meets the rules when it registers [8]. A call for evidence on both plans ran from 5 June to 25 August 2023. Publishing its summary of responses in November 2025, the government said it would consider whether the changes stakeholders suggested are required, and take any tax policy decisions at fiscal events [12].

Who to involve. Reward, company secretary, finance, payroll, legal advisers and the board.

What you need. Headcount by employing company, with tax status and start dates; share capital details; and a basis for valuing your shares.

Step 1: Choose SAYE, SIP or both

In the lumi reward benchmark, 83.8% of organisations operate neither plan, the common answer. SAYE (11.4%), SIP (3.8%) and both (1.1%) are each rare (n = 185). So 12.5% (11.4% + 1.1%) operate SAYE (full findings).

Step 2: Set the SAYE terms

The rules [2][5]:

• Savings of up to £500 a month across all of an employee's contracts. Any minimum you set must not exceed £10.
• Contracts of 3 or 5 years. Up to 12 monthly payments can be postponed, each delaying maturity by a month.
• The option price is fixed at grant and must not be manifestly less than 80% of market value.
• Options must be exercised within 6 months after the bonus date, except on death.
• The tax-free bonus is fixed when the contract starts. For contracts from 2 January 2026 it is 0.4 of a monthly payment over 3 years and 1.1 over 5 years. Early leavers get interest at 0.50% [7]. Rates change 15 days after any Bank Rate change [7].

Worked example. An employee saves £250 a month for 3 years. The share price at invitation is an illustrative £5.00, with a 20% discount.

from math import floor
BONUS = {3: 0.4, 5: 1.1}  # contracts from 2 Jan 2026

def saye(monthly, years, market_value, discount=0.20):
    price = round(market_value * (1 - discount), 2)
    repayment = monthly * 12 * years + BONUS[years] * monthly
    return price, repayment, floor(repayment / price)  # bonus included

def outcome(shares, price, repayment, price_at_maturity):
    if price_at_maturity <= price:
        return "take cash", repayment, 0
    value = shares * price_at_maturity
    return "buy shares", value, value - shares * price

The option price is £4.00. The repayment is £9,100 (£9,000 saved plus a £100 bonus), which buys 2,275 shares.

On a 5-year contract the same saving repays £15,275, enough for 3,818 shares. The company can deduct the shares' value less the price paid from taxable profits: £2,275 at £5.00 [11].

Step 3: Set the SIP terms

The rules [3][4][5]:

• Free shares. Up to £3,600 a year per employee, with a holding period of 3 to 5 years.
• Partnership shares. Up to the lower of £1,800 or 10% of salary a year. Any minimum deduction must not exceed £10. Money can accumulate for up to 12 months. Employees can withdraw these shares at any time.
• Matching shares. Up to 2 per partnership share, held for 3 to 5 years.
• Dividend shares. Reinvested dividends are free of income tax if kept in the plan for 3 years.

Free and matching shares taken out within 3 years are taxed as income on their value at exit. Between 3 and 5 years, the charge is on the lower of the value at award and at exit. No charge arises if employment ends through injury, disability, redundancy, a TUPE transfer, retirement or death [10].

Step 4: Invite every eligible employee

• SAYE. Every employee and full-time director of the participating companies whose earnings fall within section 15 of ITEPA must be eligible, on similar terms. Terms may vary with pay or length of service [2].
• SIP. Every eligible employee who is a UK resident taxpayer must be invited, on the same terms. Awards may vary with pay, length of service or hours worked [3].
• Neither plan may include a feature likely to discourage eligible employees [2][3].

List everyone eligible at the invitation date, including part-time staff, and record each invitation.

Step 5: Choose providers and estimate the cost

• SAYE savings carrier. A bank or building society regulated by the PRA or FCA and certified by HMRC to run the SAYE prospectus [5].
• SIP trustees. A trust under UK law, with UK-resident trustees [3].
• Administrator. Compare fees, payroll links, leaver handling and help with HMRC returns.

Costs include fees, free and matching shares, and dilution or buying shares. Corporation tax deductions cover free and matching shares, partnership shares worth more than the money paid, and trust running costs [11].

Step 6: Adopt the plan and register it with HMRC

• Adopt the rules by board resolution, and sign the SIP trust deed.
• In HMRC Online Services, add the PAYE online service, register the scheme and complete the self-certification declaration [8].
• Do this by 6 July after the end of the tax year of the first SAYE grant or SIP award [3][5].

If late, write to HMRC explaining why. The reasonable excuse route covers SAYE and SIP alike: if HMRC accepts you had one, it will explain how to register late and file any late returns [9]. Otherwise the plan is tax-advantaged only from a later tax year [3].

Step 7: Communicate and launch

• Explain how the plan works, key dates, leaver rules and how to apply, without giving personal financial advice.
• State the risks: SIP shares can lose value; SAYE savers can take cash instead.
• Explain that shares can move into an ISA within 90 days, or a pension, free of capital gains tax [4][6].

Step 8: File a return every year

• File an end-of-year return, or a nil return, online by 6 July after each tax year [8].
• Late returns attract an automatic £100 penalty, £300 more at 3 months and £300 more at 6 months. After 9 months HMRC may charge £10 a day [13].
• Recheck limits and SAYE bonus rates before each invitation.

Checklist

• Chosen SAYE, SIP or both, with trade-offs recorded
• Set SAYE discount, term, savings cap and option sizing
• Set SIP elements and holding period
• Listed every eligible employee at the invitation date
• Appointed savings carrier, trustees and administrator
• Adopted the rules and signed the trust deed
• Registered and self-certified with HMRC by 6 July
• Diarised the annual return for 6 July

Related

• Long-term incentives and share plans: UK benchmark 2026 — the benchmark findings behind the figures in this guide.
• How to design a bonus scheme: eligibility, measures, gatekeepers, malus and clawback
• How to set employer pension contributions above the auto-enrolment minimum
• How lumi works: methodology — how these figures are collected and calculated.