HMRC’s’ decision to slash the interest rate for employees saving to buy shares in their employer’s company could deter people from signing up to these schemes, warns a leading accountancy group.
Employees in these schemes previously benefited from a 1.08 per cent interest rate paid on their savings, but since the start of this month that has dropped by half, to 0.54 per cent. Accountants UHY Hacker Young believe this will have a knock on affect on the number of people opting to join a Save-as-You-Earn share ownership scheme.
“If the Government is in favour of broadening employee share ownership they shouldn’t be allowing HMRC to cut the interest on these accounts to such a derisory level,” said Roy Maugham, tax partner at UHY Hacker Young.
SAYE schemes enable businesses to offer employees an option to buy shares in the company. The price of the shares is fixed, with a discount of up to 20 per cent off their current market value.
The employee pays a fixed amount of money into the account every month for three years which is then used to pay for the shares and it is the interest rate on these accounts that HMRC has cut in half to just 0.54 per cent.
If, at the end of the scheme, the employee decides not to exercise their option to buy the shares they get their money back plus the interest.
“By setting interest rates close to zero employees who later decide not to exercise their options will see almost no return on the money they have locked away,” says Maugham. “HMRC could not have done this at a worse time. The recession has forced many ambitious, growing companies to freeze pay and recruitment and a number have turned to SAYE schemes to reward talented staff with the offer of a stake in the company instead. HMRC is now throwing cold water on their attempts to incentivise and reward their most promising employees.”
He added that stock market volatility means a lot of employees are already less attracted to employee share schemes and that reducing the interest rate just undermines them further.
UHY Hacker Young points out that the 0.5 per cent interest rate will remain in place for the duration of the scheme despite employees agreeing to lock their savings away for three years and making a commitment to pay a fixed amount of money into their account each month.
“Rather than setting interest rates in line with the Bank of England perhaps HMRC should be aligning the interest rates on SAYE accounts to those available on gilts,” suggests Maugham. “Many high street savings accounts requiring savers to lock their money away for just two years are offering interest rates of more than 4 per cent so there is no reason why HMRC cannot offer SAYE account holders a similar rate.”
