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Budget 2009: changes to SAYE option scheme administration
Practical Law UK Legal Update 7-385-8364 (Approx. 4 pages)
Budget 2009: changes to SAYE option scheme administration
by PLC Share Schemes & Incentives
| Published on 22 Apr 2009 • United Kingdom |
An update about changes announced in the 2009 Budget to the administration of the savings arrangements linked to HMRC-approved SAYE option schemes.
Speedread
Following HM Revenue & Customs (HMRC) consultations which began in November 2008, the 2009 Budget announced changes to the administration of the savings arrangements linked to HMRC-approved SAYE option schemes:
- Responsibility for setting and changing savings contract bonus rates and authorising savings providers will pass from HM Treasury to HMRC.
- The minimum notice period for changes in SAYE bonus rates will be reduced from 28 days to 15 days.
- HMRC will be able to specify that savings contracts may be entered into under the old rates, within a certain period after the change becomes effective. This will be done in the notice of the changes to savings providers.
At the same time, the method by which HMRC will set rates by reference to market swap rates is expected to change, although this does not require any legislative amendments.
The changes are expected to take effect on 29 April 2009, the day after the Budget Resolutions are passed.
See:
Background
In November 2008, HM Revenue & Custms (HMRC) consulted companies, advisers and administrators regarding proposals to simplify the administration of changes to bonus rates for savings contracts linked to options granted under HMRC -approved SAYE option schemes (SAYE savings contracts). Some (but not all) of those changes required legislative amendments. Following the consultation, HMRC circulated a document setting out changes they proposed to make, and invited further final comments on the proposals (see Legal update, SAYE option schemes: HMRC proposals for simplifying administration of SAYE savings contracts.
Draft legislation
The SAYE changes were included in HMRC's budget notes (see 2009 Budget - BN30 - Save As You Earn process simplification) and HMRC has also published draft legislation to enact the proposed changes, together with explanatory notes. The legislation is expected to come into force on 29 April 2009, the day after the Budget Resolutions are expected to be passed.
The draft legislation includes amendments to Chapter 4 of Part 6 of the Income Tax (Trading and Other Income) Act 2005 to:
- Transfer powers to approve, vary and withdraw savings specifications applicable to SAYE savings contracts (known as SAYE savings prospectuses) from HM Treasury to HMRC;
- Allow notices to vary or withdraw an SAYE savings prospectus to be sent to SAYE savings providers electronically;
- Reduce the period for notifying SAYE savings providers of the variation or withdrawal of an SAYE savings prospectus from 28 days to 15 days; and
- Give HMRC powers to provide that the variation or withdrawal of an SAYE savings prospectus will not affect SAYE savings contracts entered into under invitations issued before the change takes effect (see Effect of withdrawal of prospectus on existing invitations).
Comment
The changes proposed by the draft legislation are in line with what was announced in HMRC's response to the consultation. The proposed amendments to the legislation also appear to work as intended.
However, the explanatory notes to the draft legislation contain a curious comment - that shortening the period for notifying SAYE savings providers of forthcoming bonus rate changes will ensure that they are notified much earlier than may currently be the case. Possibly HMRC think that the transfer of powers from HM Treasury to HMRC will assist in the communications process, despite the reduced minimum notice period, since HMRC has more regular direct contact with the SAYE savings providers.
Effect of withdrawal of prospectus on existing invitations
The most significant item is the introduction of powers for HMRC to provide that the withdrawal of an SAYE savings prospectus will not affect invitations issued before or shortly after the change. The draft legislation provides that the notice withdrawing an existing SAYE prospectus may provide that the withdrawal will not apply to certain SAYE savings contracts (specified in the notice) made after the date of withdrawal. HMRC will therefore need to include in the notice withdrawing an existing SAYE savings prospectus details of the savings contracts to which the withdrawn prospectus will continue to apply. The explanatory notes suggest that these provisions will apply to SAYE savings contracts:
- Which are entered into under an invitation issued before the withdrawal takes effect; and
- Where the application for the SAYE savings contract is received within 30 days of the date of withdrawal of the SAYE savings prospectus.
During the consultation, HMRC proposed that these rules would apply to applications for SAYE savings contracts received within 21 days of the withdrawal of the SAYE savings prospectus, but HMRC received feedback that this period was too short, and has therefore extended it to 30 days. However, as most SAYE invitation periods are open only for the minimum period of 14 days permitted by HMRC, it would seem unlikely that a longer period would be needed to cover invitations issued before the withdrawal of the prospectus.
A longer period would seem necessary only if HMRC decide to extend this provision to situations where invitations are due to be issued shortly after the withdrawal of a prospectus. This would be a great help to companies, as changing documents and reworking the number of shares needed for the proposed grants of SAYE options would be costly and time consuming at such a late stage in proceedings. However, there is no suggestion in the explanatory notes that this is what HMRC have in mind at this stage.
The period during which applications under an old SAYE savings prospectus could be accepted may also interact with the period for notifying SAYE savings carriers of a forthcoming change in bonus rates. The notice period of 15 days is the minimum period of notice HMRC may give - it may choose to give a longer notice period. If HMRC chooses to give a longer notice period, it will give companies and SAYE savings providers longer to make necessary changes to documents or launch timetables, so HMRC might reduce the period during which applications for SAYE savings contracts under the old rates could be accepted.
Changes to the mechanism for emergency rate changes
In the November 2008 consultation, HMRC also sought views on proposed changes to the mechanism for making emergency changes to SAYE bonus rates. (Details of the current rate-setting mechanism can be found here.) HMRC proposed:
- Shortening the period (from 30 to 20 days) for measuring movements in swap rates, which determine whether an emergency rate change will take effect.
- Reducing the amount of movement in swap rates which triggers an emergency SAYE bonus rate change from 1.25% to 0.5%.
- Removing the annual SAYE bonus rate change.
These changes would seem likely to result in more frequent rate changes, possible increasing the administrative burden on companies SAYE savings providers. However, the providers may be happy to accept this change given that they will, as a result, have a reduced exposure to savings contracts at non-market rates.
As these changes to the rate-setting mechanism do not require legislation to bring them into force, there is no mention of them in the draft legislation or explanatory notes. However, because the timing of the introduction of these proposed changes needs to be co-ordinated with implementation of the draft legislation (particularly the way in which bonus rate changes affect existing invitations), it seems likely that these changes will come into force next week, at the same time as the draft legislation.