Given the period that has lapsed since the last time SAYE bonus rates have been applied, the SAYE plan rules and corresponding international SAYE plan rules should be reviewed to ensure that both contain appropriate provisions in relation to the application of the SAYE bonus rate and interest.
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In brief, under an SAYE scheme, employees can make contributions from their net pay towards three- or five-year savings contracts linked to employee share options. At the end of the contract, the amounts saved under the savings contract can be used to exercise the share option. The savings are managed by an appointed savings carrier.
These savings can also include a tax-free bonus paid by the savings carrier at the end of the savings contract – this is known as the SAYE bonus. The rate for this bonus is the prevailing rate set at the time the employee receives an SAYE invitation and enters into the savings contract. If, on the other hand, the employee decides to withdraw their savings before the end of the contract then tax-free interest may (depending on the timing of the withdrawal) become due at the prevailing interest rate set at the beginning of the contract.
HMRC’s new mechanism requires that bonus rates and interest rates are now calculated with reference to the Bank of England’s Bank Rate (also known as the base rate), with the intention that this will provide greater certainty and transparency for users. The new mechanism is detailed in HMRC’s new SAYE Savings Prospectus, which will also come into effect on 18 August 2023. The Prospectus can be accessed here: Guidance, Specimen Save As You Earn (SAYE) prospectus.
It has been almost 10 years since the last time SAYE bonus rates were available. For this reason, we encourage our clients to re-visit their SAYE plan rules and corresponding international SAYE plan rules to ensure that both sets of rules contain appropriate provisions in order to apply the SAYE bonus and interest rates.
The new Bank Rate was announced on 3 August, and therefore the first bonus rates to apply under HMRC’s new bonus calculation mechanism (effective 18 August 2023) are the following:
- For bonuses payable at the end of the savings contract:
- 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%.
If the Bank of England changes the Bank Rate, then the bonus and interest rates applicable to SAYE savings contracts will be adjusted in line with HMRC's new mechanism. HMRC will calculate the new rates that will be implemented on the 15th day following the Bank’s announcement. HMRC will also determine whether the old rates will apply to certain invitations issued before the rate change took effect.
Please note that HMRC will not be publishing any new rates in its ERS Bulletins. Instead, HMRC will announce any new bonus rates (including the early leaver rates) and the effective date of any such rate change here: Bank of England bank rates for Save As You Earn (SAYE) Share Option Schemes - GOV.UK (www.gov.uk)
Please note that the next date the Bank of England may be expected to change the Bank Rate is 21 September 2023. We recommend that our clients keep up-to-date on when the Bank Rate could change by monitoring the Bank’s scheduled MPC meetings here: Monetary Policy Committee dates for 2023 and 2024 | Bank of England
