Out-Law / Your Daily Need-To-Know

Employers operating SAYE told to prepare for potential increase in bonus rates

Out-Law News | 10 Aug 2022 | 2:08 pm | 2 min. read

Employers who operate tax-advantaged Save-as-you-Earn (SAYE) schemes should prepare for an increase in bonus rates, according to one legal expert, after HM Revenue & Customs (HMRC) said it was considering changes to the way the rates are calculated.

Lynette Jacobs of Pinsent Masons said: “Companies who operate SAYE schemes may need to start planning for a potential increase in bonus rates that could occur prior to the issue of their next set of SAYE invitations. They should consider whether the existing SAYE scheme rules accommodate for a bonus rate and whether any amendments are required. Most SAYE scheme rules will have appropriate provisions, but it would be advisable to check, especially given that bonus rates have been at zero for nearly a decade.”

Her comments come after HMRC announced a review into the methodology used to calculate the bonus rate which applies to savings contracts under SAYE schemes. HMRC said: “The current mechanism is extremely complex, and we are undertaking a review to consider options to simplify it.”

Interest is not payable on any savings made by a participant under an SAYE savings contract. Instead, SAYE participants receive an entitlement to a tax-free bonus amount which is a multiple of their agreed monthly savings. The bonus is paid at the maturity of the SAYE savings contract and is added to the participant's accumulated savings. These can be used to purchase shares under the participant's related SAYE option or, alternatively, withdrawn as cash.

The bonus rate applicable to an SAYE savings contract is set at the time the savings contract is entered into and is unaffected by any subsequent change to the rates. Since 2014, HMRC has set the bonus rate at 0%, meaning companies have not had to establish any processes for applying bonus rates to savings contracts under their SAYE schemes.

Jacobs said: “The expectation is that HMRC's review of the methodology for setting the bonus rate is in anticipation of an increase to the bonus rate, to reflect rising interest rates and to ensure that participation in an SAYE scheme remains an attractive and risk-free proposition for employees. If the bonus rate is indeed increased, companies should examine whether they would offer participants the opportunity to make savings into an SAYE savings contract on the basis that the bonus will be applied to increase the number of shares granted to them under the associated SAYE option.”

She added: “It is not necessary for the bonus to be added to participants' savings when calculating the number of shares over which the SAYE options will be granted and it may be appropriate to exclude the bonus if it would significantly increase the cost of providing shares under the SAYE scheme – or if the bonus rate is negligible and not worth the additional administrative effort of doing so.”

HMRC said the bonus and interest rates will be held at 0% until it completes the review. It told firms it would provide an update on any changes to the mechanism before the end of the summer.

James Sullivan-Tailyour of Pinsent Masons said: “Firms need to discuss with their finance teams whether any accounting or financial modelling is required on the impact of including the bonus with participants' savings for the purpose of the number of shares over which SAYE options are granted, particularly modelling on share usage and dilution under the SAYE scheme given that this will increase the number of shares that can be acquired under SAYE options. Companies may also need to factor the impact of adding a bonus into any approach to scaling-back of applications under the SAYE.”

He added: “Companies should also look at whether invitation materials and communications sent to SAYE participants need to be reviewed and updated to reflect any increase in bonus rates.”