In an update published on 7 August 2023, HM Revenue and Customs (HMRC) announced that the mechanism for calculating bonus rates for participants in the Save As You Earn (SAYE) scheme will change from 18 August 2023. This new change is set to result in a bonus for new participants for the first time in almost a decade.
An SAYE plan (also known as a Sharesave scheme) provides eligible employees with the chance to buy shares in their employer or parent company with tax advantages. The share acquisition cost, typically discounted, is fixed when an SAYE invitation is issued. Employees fund this acquisition using accumulated savings generated from regular post-tax deductions over a three or five-year savings contract. These savings, and consequently the shares accessible via SAYE invitations, can be augmented by tax-free bonuses linked to the accumulated savings.
The bonus rate associated with an SAYE savings contract is determined and established by HMRC. Historically, no bonuses have been paid on SAYE savings contracts since the close of 2014, attributed to exceptionally low prevailing interest rates. However, the scenario has shifted due to the increase in interest rates. Earlier this year, HMRC introduced fresh guidelines outlining the methodology for calculating the SAYE bonus rate. This new approach is applicable to SAYE invitations released on or after 18 August 2023.
In the Employment Related Securities Bulletin 53, HMRC announced the applicable rates as follows:
- For three-year savings contracts, 1.1 multiplied by the employee’s monthly savings contribution
- For five-year savings contracts, 3.2 multiplied by the employee’s monthly savings contribution
- For early leavers, the interest rate will be 1.42%
It’s important to note that the bonus rate is not fixed and is subject to adjustments. It closely follows the Bank of England's base rate, determined by the Bank's Monetary Policy Committee (MPC). Any change to the base rate will trigger an automatic update to the bonus rate on the 15th day following the base rate adjustment.
Head of Employee Incentives, Ian Fraser, comments:
Any interest payable on savings contracts for SAYE is a welcome development and the new automatic adjustment mechanism provides more certainty around the timing and calculation of bonus rate changes. However, bank savings rates have also been improving recently, meaning that there are other savings vehicles providing competitive rates for post tax cash savings. Other tax advantaged share incentive arrangements are still likely to be more attractive than SAYE for SMEs
How do I set up a SAYE scheme?
Your company may need to qualify under the scheme, and you’ll need to certify this to HMRC and register the scheme by 6 July after the end of the tax year in which it is set up. Our guide to SAYE and SIP schemes can provide you with the information you need to make an informed decision. If you would like to set up a SAYE plan for your company or discuss the alternative share incentive arrangements that are available, we recommend that you seek legal advice from an experienced employee incentives solicitor.