The incentives for companies to provide profit-sharing schemes for employees are becoming more attractive and should prompt a more wide-scale take-up.

The Government has now extended the tax relief for employees participating in Save As You Earn Schemes. The scheme will be based on the British model adopted in 1972. It allows employees to save a portion of their gross salary over a fixed period to buy shares in their company at a future date.

To join this type of scheme, employees agree to save a set amount of their basic salary, usually for a period of between three and seven years. At the same time they are granted options to buy shares based on the amount of money to be saved at the end of that period. The share options give the employees the right to buy shares in the company at a future date at an agreed price. The options are generally priced to offer them at a significant discount to their market value at the time the contract is agreed, with discounts usually of the order of up to 20 per cent.

Most SAYE schemes are expected to lodge employee savings in the National Instalment Savings Scheme from An Post, which provides a tax-free bonus on those funds based on a certain rate of interest. The money may also be lodged with certain banks and building societies.

If it is based on the British scheme, the amount of money an employee can save will be capped. In Britain, for instance, employees can save up to £30,000 over their lifetime and benefit from the tax advantages. Some analysts suggest the Government may initially look to cap savings here at around £10,000.

For tax purposes these schemes are regarded as consisting of two separate elements - a share options scheme and a savings scheme. At the end of the savings terms, employees are under no obligation to exercise their share options and, as such, are protected from any downturn in the price of the company's shares. They can at that stage opt to use their savings to buy some or all of the shares over which they have options. Alternatively they can decide to take their savings as a tax-free lump sum or they can continue to hold their funds on deposit.

Those who decide to purchase shares and later sell them will incur capital gains tax liability as normal.