HMRC have announced that the mechanism for calculating bonus rates for SAYE participants will change from August which is expected to result in a bonus being provided to new participants for the first time in nearly 10 years. If you are thinking of adopting a new SAYE plan or planning to issue invitations under your existing plan over the summer, this announcement could have an impact on your timetable and is something you should discuss with your legal advisers and savings provider.
SAYE plans are a form of tax-advantaged, all-employee share option scheme under which participants can exercise their options using the proceeds of a savings contract lasting 3 or 5 years. At the end of the savings period, the savings contract can have a tax free "bonus" added to it which is expressed as a multiple of monthly contributions. If an individual chooses to withdraw their savings early they won't be eligible for a bonus but may be entitled to receive tax free interest. The bonus and interest rates are fixed by HMRC using a set mechanism and remain the same throughout the life of the relevant savings contract.
Although the existing mechanism is designed to ensure that bonus and interest rates are broadly in line with the market, HMRC acknowledge that it is complex. HMRC have worked with external stakeholders to produce a new automatic mechanism which they hope will provide greater certainty and transparency for users. Under this new mechanism, the bonus and interest rates will be calculated by reference to the Bank of England Bank Rate (also known as the 'base rate') and will change on the 15th day following a change in the base rate. Given that bonus and interest rates have been zero for many years, this will be a significant development for those operating SAYE plans.
The new mechanism will come into effect on 18 August and will apply to SAYE invitations issued on or after that date. HMRC have published a new Specimen Save As You Earn (SAYE) prospectus to give effect to the mechanism however the prospectus will not require replacement to update the bonus rate in future. HMRC will record the bonus rates, early leaver rates and effective date of any change here and will add the rate which will apply from 18 August 2023 following confirmation of the base rate in early August 2023.
As noted above, it's been a long time since companies have had to think about the bonus rate, so now is a good time to check what your underlying SAYE rules say and the choices that you will need to make to take advantage of any increase in the rate from August.
Originally published 30 May 2023
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