Review SAYE arrangements following HMRC bonus rates guidance, say experts

An SAYE plan 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 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, that is set to change.

For SAYE invitations issued on or after 18 August 2023, the bonus rate that is payable will be determined in accordance with a new calculation methodology determined by HMRC. HMRC has published new detailed guidance explaining how the rate will be calculated.

James Sullivan-Tailyour of Pinsent Masons, who specialises on share incentives  matters, said: “The bonus rate will broadly track the Bank of England’s base rate and will be updated automatically on the 15^th day after the base rate is updated on any occasion. We don’t yet know the precise bonus rate that will apply from 18 August, as that will depend on whether the base rate is changed in the interim, but it will certainly be significantly higher than the current 0%.”

Reduced bonus rates will apply to participants whose employment ceases prior to the end of their savings contract – these early leaver rates will also be calculated in accordance with the new guidance.

SAYE invitations issued before 18 August 2023 will be unaffected by the changes. For those invitations, the existing 0% bonus rate will apply.

Sullivan-Tailyour said that employers are under no obligation to increase the number of shares that can be acquired in connection with an SAYE invitation to take account of the increased bonus rate. However, he commented that many companies will likely choose to do so to maintain the attractiveness of saving under an SAYE scheme for the purposes of acquiring shares in the company, relative to what the savers might earn from holding their cash in a regular bank or other savings account.

Lynette Jacobs of Pinsent Masons, who also specialises in share incentive matters, said that companies who operate an SAYE scheme need to understand the implications for them and their employees of the increase in bonus rates from August 2023, and whether they would increase the number of shares that can be acquired under their SAYE scheme to reflect the tax-free bonus available.

“The impact of the application of a bonus rate should be discussed with finance and company secretarial colleagues,” said Jacobs. “Whilst the bonus rate will be funded by the savings carrier, the impact of offering a bonus on the accounting cost of the SAYE scheme and the increase in potential dilution – since more shares will need to be issued in connection with the SAYE – will need to be modelled and understood.”

“Where UK employers have overseas participants in an international version of the SAYE scheme, they will also need to consider the potential differences there will be going forward between UK and overseas participants, to the extent interest is not already received on savings made by overseas participants in the SAYE and/or the implications of the company funding a bonus for those overseas participants to align them with their UK counterparts” she said.

Sullivan-Tailyour added: “SAYE rules and communication documents will need to be reviewed and refreshed to ensure they reflect the bonus rate going forwards. Employers may also wish to take the opportunity to update those documents to reflect the reduction in the capital gains tax annual allowance to £6,000 for the 2023-24 tax year and then to £3,000 for the 2024-25 tax year – this is likely to bring many more SAYE participants within the scope of CGT and trigger a requirement to submit an annual self-assessment tax return or to pay any CGT liability via the ‘real time’ Capital Gains Tax Service”.