Income Tax (Earnings and Pensions) Act 2003 Schedule 3 paragraph 40H

Serious non-compliance with Schedule 3 SAYE option scheme requirements

Section 40H deals with the consequences where HMRC decides that a Save As You Earn (SAYE) option scheme has seriously failed to meet the required conditions, including loss of scheme status and penalties for the scheme organiser.

• If HMRC finds that the scheme requirements have not been met and the failure is serious enough, the scheme loses its Schedule 3 SAYE option scheme status from a date specified in the closure notice, or from the date the notice is given if no specific date is stated
• The scheme organiser faces a financial penalty, the amount of which is decided by HMRC but which cannot exceed twice HMRC's reasonable estimate of the total income tax and National Insurance contributions that individuals avoided as a result of the scheme having had approved status
• Share options granted while the scheme still had valid status but exercised after the scheme lost that status continue to benefit from the income tax exemption on exercise — meaning individual option holders are protected from the scheme organiser's failings
• The penalty cap calculation includes both past tax and National Insurance savings already enjoyed and future savings that would otherwise have arisen, including those arising from the protection given to options granted before the scheme lost its status