After nearly ten years, SAYE bonus rates are back with HMRC publishing a new savings prospectus taking effect from 18 August 2023. To simplify how they are set going forward, bonus rates will be linked to Bank of England Bank Rates.
The mechanism previously used to calculate SAYE bonus and interest rates was complex, and HMRC has worked with stakeholders to develop a new, simpler method.
Background to the changes
One of the requirements of a tax advantaged SAYE plan is a link to an approved savings arrangement. The savings terms and bonus and interest rates to be paid by the savings carrier (the bank or building society) to participants, are set out in the savings prospectus issued by HMRC. All approved savings carriers must use the prescribed prospectus, meaning all participants receive the same savings terms.
Bonus and interest rates, along with the prospectus, change from time to time. The rates and prospectus effective on the date of an SAYE invitation apply to all contracts entered into for that launch. Rates are fixed at invitation, so employees who are already saving under existing SAYE contracts are not affected by subsequent rate changes.
Key take-aways for companies:
- The new prospectus and bonus rates take effect from 18 August 2023 and will apply to invitations made on/after that date.
- Bonus rates will be linked to Bank of England Bank Rates. If the Bank Rate changes, the new bonus rates will apply 15 days later.
- Dates for the Bank of England Monetary Policy Committee meetings, where decisions about Bank Rates are made, are published in advance and, therefore, can be included in invitation launch timetables.
- SAYE bonus rates for different levels of Bank Rates have been published in a Bonus Rate table. This also includes the early leaver interest rate (paid from the first anniversary of the savings contract start date if at least 12 monthly contributions have been paid).
- In advance of the company’s next SAYE invitation, review scheme rules and agree whether the bonus should be used when calculating shares under option.
- Bonus and interest information should be included in employees’ invitation documentation.
- Although international SAYE schemes are unlikely to have fixed bonuses, companies should check their scheme rules and consider whether or not a ‘notional’ bonus should also be applied when calculating shares under option.
- The savings prospectus will not change each time there is a bonus rate change. Companies should check scheme rules and speak to advisers to understand if the company has flexibility to issue invitations following a bonus rate change.
To support the new mechanism, HMRC will record bonus rates, early leaver rates and the effective date of any change online at Change in bonus rates for Save As You Earn (SAYE) Share Option Schemes.
Information about the new mechanism, and the basis by which the rates will be set in the future, can be found in ERS Bulletin 51.