Communication vital now SAYE bonus rates set, says expert

Lynette Jacobs of Pinsent Masons, who specialises in share incentive matters, was commenting after the new bonus rates applying to SAYE savings contracts entered into by reference to invitations issued on or after 18 August 2023 were confirmed.

An SAYE plan, sometimes referred to as a Sharesave scheme, 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 in connection with any SAYE invitation, 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 HM Revenue and Customs (HMRC) 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. This is because it will broadly track the Bank of England’s base rate, set by the Bank’s Monetary Policy Committee (MPC). The bonus rate will be updated automatically on the 15th day after the base rate is updated on any occasion.

Jacobs said: “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.”

“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 SAYE/Sharesave invitations made on or after 6 October may be different. If that is the case, then in accordance with the new specimen SAYE prospectus introduced to give effect to the new SAYE bonus rate mechanism, SAYE savings contracts by reference to the 18 August invitation date will terminate unless the savings contract start date is within three months of the date by reference to which the new bonus rate applies – i.e., no later than 1 January 2024. Companies should be aware of this and take this new ‘three month rule’ it into account when planning any future SAYE/Sharesave launch timetables,” she said.

The specimen SAYE prospectus stipulates that the starting date of an SAYE contract will generally be “the day on which the first monthly contribution is received by the bank (or such later date as a person and the bank may agree)”. However, if a change to the bonus rate is made before the contract starting date, the prospectus states that the SAYE contract will terminate – unless the starting date is within three months of the date of the variation or withdrawal of the specification, or the date on which the new bonus rate applies.

Jacobs explained how this might affect SAYE contracts being prepared in the context of forthcoming meetings of the MPC relating to the setting of the Bank of England base rate that are scheduled.

“Were the MPC to announce a change in the base rate at its 21 September meeting, then if the start date of the contract linked to the August invitation is after 1 January 2024, the contract will terminate and be of no effect – there can be quite a lengthy period until savings contracts actually begin,” Jacobs said.

“The position would be different if the MPC did not change the base rate at its September meeting but, say, instead changed it at its 2 November meeting so that then, the contract linked to the August invitation would only not be of effect, for these reasons, if its start date were after 1 February 2024. No issues would arise regardless of if any changes are made by the MPC to the base rate at its September meeting if the start date of the contract linked to the August invitation is before 1 January 2024,” she said. 

HMRC is to publish guidance, keeping a record of the Bank of England base rate, SAYE plan bonus rates, and the effective date for any change.

Jacobs said a further complication for employers is the need to take account of the specified ‘window periods’ – generally the period of 42 days after the announcement of a company’s results when SAYE/Sharesave invitations can normally be made – when working out a launch timetable for SAYE/Sharesave options.