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

Penalty for less serious non-compliance of SAYE option schemes

Section 40I deals with the penalties and consequences that apply when HMRC finds that a Save As You Earn (SAYE) option scheme has failed to meet certain requirements, but the breach is not serious enough to warrant the more severe action available under paragraph 40H.

• Where HMRC identifies a less serious breach of scheme requirements, the scheme organiser faces an initial penalty of up to £5,000 and must put the scheme back into compliance within 90 days
• If the scheme organiser fails to rectify the breach within 90 days, HMRC may issue a default notice which strips the scheme of its Schedule 3 SAYE status, either from a date specified in the notice or from the date the notice is given
• Share options granted while the scheme was compliant but exercised after it loses its status are still treated as qualifying for the income tax exemption under section 519
• A further penalty may be imposed on default, capped at twice HMRC's reasonable estimate of the total income tax and National Insurance contributions that have been or will be forgone as a result of the scheme having had its tax-advantaged status