Communication role for HR now UK’s SAYE bonus rates set

The Revenue has, as we expected, confirmed new bonus rates applying to ‘save-as-you-earn’ share option schemes. In an update published on 7 August, HMRC announced that a new bonus rate mechanism would become effective from 18 August 2023 meaning that any new savings contracts entered into after that date will have a bonus attached – the first time we’ve seen that in almost a decade. We’ll hear from a share plans specialist with a message for HR.

A reminder. An SAYE plan, or Sharesave, offers eligible employees the opportunity to acquire shares in their employer, or parent, company on a tax-advantaged basis. The acquisition price for the shares is a fixed, typically discounted, price which is set when the SAYE invitation is first issued. The acquisition price for the shares is funded with the participating employee’s accumulated savings which are built up through regular post-tax deductions from pay over the life of their three or five-year savings contract. The accumulated savings, and therefore the number of shares that the participating employee can acquire through the scheme, can be increased by the amount of any tax-free bonus which is paid on the accumulated savings.

The bonus rate applicable to an SAYE savings contract is fixed by the Revenue and is set when the SAYE invitation is issued. Due to very low prevailing interest rates no bonus has been payable on SAYE savings contracts since the end of 2014. However, the position has changed with interest rates rising and earlier this year HMRC issued new guidance on how the SAYE bonus rate will be calculated, with the new methodology applicable to SAYE invitations issued on or after 18 August.

The bonus rate is subject to change. That’s because it will broadly track the Bank of England’s base rate, set by the Bank’s Monetary Policy Committee. The bonus rate will be updated automatically on the 15th day after the base rate is updated on any occasion.

Writing about this for Out-Law, share plans specialist Lynette Jacobs says: “Now that the bonus rates applying to SAYE contracts with invitation dates on or after 18 August have been confirmed, to obtain maximum benefit from the reintroduction of the bonus, companies who are issuing SAYE/Sharesave invitations which will have the benefit of the bonus should ensure that good communication strategies are in place so that employees understand what the bonus is and its positive impact on their SAYE/Sharesave options.”

So, let’s consider that communications piece which is clearly HR territory. Earlier Lynette joined me by video-link from Manchester and I asked her what the wording might cover: 

Lynette Jacobs: “Yes, so there are two points on that. So, first of all, yes, obviously any communications that relate to share save invitations in respect of which a bonus will now apply to those options, the wording needs to be included about that, and the effect, and how that how that works and, as for any employee communication, that needs to be clearly worded and clearly explained so that employees understand how it works. At the same time, and as we've referred to in the article, and we have referred to previously, the annual exemption for capital gains tax came down on 6 April this year from the previous £12,300 to now £6,000 and then on 6 April next year it's going down again to £3,000. This can have an impact where employees have share save options, and when they exercise them they make a gain because whereas, previously, obviously some employees would be really lucky but most gains would have come within that £12,300 annual exemption and also with the possibility for the employee to transfer some of the shares that they had acquired, or exercise the option to either a spouse or civil partner, so as to have double that annual exemption available. With it going down to £6,000 now and to £3,000 next year, there's clearly the potential that if the share prices have gone up that people will have a capital gains tax liability in respect of the options, because when they come to sell the shares, they'll be making a gain that's in excess of that annual allowance. If that's the case, the employee, who may not otherwise be used to filling in a self-assessment tax return would need to do that. although there is also a particular online CGT return that individuals can do which avoids the need for them to then have to start filling in a whole self-assessment return. But yes, so that is something that's important, especially because I know that in respect to a number of companies where share save options were granted in 2020, 3 years ago, because most share save options are over three year periods now, that was during COVID and so share prices in many companies were depressed at that point and if the option was granted, and a 20% discount applied to that share price then, and if the share price has gone up quite a lot since then, some employees will be making a sizable gain this year and if they come to sell the shares they'll have the CGT to think about.”

Joe Glavina: “Finally, Lynette, on a positive note, this development does seem to be a good news story for HR to be putting out?” 

Lynette Jacobs: “Absolutely, Joe, yes, for a number of reasons. First of all, because with the interest rates having been around for quite a while now, but there was no bonus so effectively interest payable on monies being saved by employees in share save contracts and with the cost of living crisis, if an employee does have some spare money and wants to invest it, although they would be receiving an option with potentially a 20% discount to the share price at the time it's granted, if they had a choice of saving £50 a month either for their share save contract or alternatively putting it into a bank account that would give some interest, they may well have sort of struggled to make the decision as to whether to participate in the share save. So if they’ve now got the opportunity to be granted an option at a discount of up to 20% of current market price of the shares and on which they will be getting, effectively, interest, that makes it a better and more likely choice to go into share save. Secondly, for the company it just makes it a good news story because your employees can participate and, all being well, if your share price is going to at least get up to the price it was at the date pf grant, and hopefully more, your employees will then be able to exercise their option at the end of the three-year savings period which most companies now operate. There are things to think about. You'll need to speak to your savings operator, but the savings operator will be really geared up for this, as far as I'm aware. They have dealt with bonuses in the past and their systems are set up to operate them so it’s just a matter of thinking about it. A lot of people won't have had experience of share save and bonus rates previously but it's like anything - once you start doing it, you'll get used to it and it'll just become a way of operating share save again.”

It’s worth saying that depending on the MPC’s decision regarding interest rates at its next meeting on 21 September, the bonus rate applying to savings contracts linked to invitations made on or after 6 October may be different. Lynette deals with that issue, along with advice on launching a timetable for your Sharesave options, in her Out-Law article: ‘Communication vital now SAYE bonus rates set, says expert’ which is available from the Outlaw website. We’ve put a link to it in the transcript of this programme. 

LINKS
- Link to Out-Law article: ‘Communication vital now SAYE bonus rates set, says expert’
- Link to Out-Law article: ‘Review SAYE arrangements following HMRC bonus rates guidance, say experts’
- Link to ERS Bulletin 53