Firms could face administrative burdens amid UK SAYE rule change

Under SAYE, also known as Sharesave, a qualifying company’s employees can choose to save between £5 and £500 of their salary each month over a 36- or 60-month term. At the end of the term, the employees can choose to use their accrued savings to buy shares in the company they work for, or the parent company of the group for which they work.

Participants can retain or sell those shares, which may result in a capital gains tax charge, or transfer the shares into an ISA or a registered pension scheme within 90 days of acquiring the shares on the exercise of the option.  Participants can also choose to cash in the savings or place the money in an ISA.

In 2020, HM Revenue & Customs (HMRC) created an extended SAYE savings contribution holiday, allowing qualifying employees who were furloughed or on unpaid leave due to the Covid-19 pandemic to stop paying into their linked savings accounts for an unlimited period without losing their Sharesave option. But in his spring fiscal statement last week, the chancellor confirmed that, from 5 April, the SAYE savings contribution holiday will end - with new savings contracts entered into on or after 6 April subject to a maximum of 12 months missed payments.

Lynette Jacobs of Pinsent Masons explained that the ability of some SAYE participants to postpone their contributions indefinitely while they were on furlough or unpaid leave as a result of the pandemic could present a challenge for some companies.

She said: “The fact that participants in a company’s Sharesave could have a variety of maturity dates - and so a variety of six-month periods during which the options can be exercised – is a potential administrative headache for employers. That being said, it seems that few Sharesave participants make use of the normally available 12 months’ payment holiday, and we also understand that the Covid-19 related suspension of the limit on missed payments was not widely taken up by participants.”

“Companies operating Sharesaves – and administrators of Sharesaves - should keep precise records of all participants who have missed contributions to be fully aware of the six month periods when those individuals will be able to exercise their options. Late completion of the savings contract may also impact on an employee’s ability to participate in a new Sharesave offer if they are, as a result, still saving the full, or a large proportion of, the maximum monthly £500 savings limit,” Jacobs added.

To support the change, HMRC has prepared a new SAYE prospectus which will apply for new savers from 6 April, which no longer contains the provision for the Covid-19 easement. It has also issued a notice of withdrawal of the current prospectus to all UK savings providers.

HMRC also announced plans to end the current Covid-19 easement for tax-advantaged enterprise management incentive (EMI) options on April 5. EMI options are intended to help smaller companies with growth potential to recruit and retain the best employees. They offer generous tax advantages to employees of those companies that qualify.

During the pandemic, many employees eligible for options were prevented from being able to fulfil the working time requirement included in EMI governing legislation because they were furloughed or placed on unpaid leave. In 2020, ministers confirmed changes to the law would allow eligible employees who would otherwise have met the scheme requirements to count the period they were furloughed for towards their working time. HMRC also said that it would disregard the reduction in working time as a “disqualifying event” for EMI purposes, if it was for reasons connected to Covid-19.

Jacobs said that the modification of the normal working time requirements during the pandemic had been “compassionate”, but voiced concerns over the planned return to the previous system. “It is to be hoped that withdrawal of the modification from 5 April is not too soon for some companies – and their employees – that are still struggling to rebuild their businesses as the economy emerges from Covid-19.”

Rishi Sunak's spring financial statement also ruled out changes to the EMI regime, despite the government ordering a review into its efficacy in 2020. An announcement said the government had concluded that the current scheme “remains effective and appropriately targeted,” and instead announced the review would be widened to consider whether the other discretionary tax-advantaged share scheme - the Company Share Option Plan (CSOP) - should be reformed.

Fleur Benns of Pinsent Masons said: “It is disappointing that despite representations from companies and practitioners to expand the remit of the current EMI legislation, that no changes will be made. Many companies struggle to incentivise employees in a tax efficient way if they are not a qualifying EMI company - or if they become too big to continue to grant EMI options.”

“It is some consolation therefore that the government has announced that the scope of the review will be widened to look at whether the CSOP legislation should be reformed to support such companies. We are yet to see an expanded scope document, but at the very least we would hope to see the current £30,000 individual limit increased and the application of capital gains tax business asset disposal relief applied to CSOP gains in the same way as they are to EMI gains,” Benns added.