22 August 2011
Publications that covered this article included, the Financial Times, 20 August 2011 and the Sunday Times, 21 August 2011.
- Undermines efforts to encourage employee share ownership
- Introduces inflation risk into what is meant to be a risk free saving scheme
HMRC has cut interest rates for employees share saver accounts to zero percent, undermining efforts to encourage employee share ownership, our research warns.
Participation by employees in Save As You Earn (SAYE) schemes to buy shares in the company they work for is still 40% below its peak in 2001-02* and this latest step may deter participation in the scheme.
Roy Maugham, Tax Partner in our London office, comments: “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.”
Our research explains that 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% 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.
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.
Roy says: “By setting interest rates at zero employees who later decide not to exercise their options will have taken a big hit as inflation will have eroded away their savings.”
"RPI is currently 5% [new data on August 16]"
"It is a poorly timed decision as the current stock market turbulence will be making a lot employees question whether they really want to enter a SAYE scheme."
"SAYE schemes were meant to be risk free but cutting interest rates on the account HMRC have introduced inflation risk."
"Stock market volatility means a lot of employees are now less attracted to employee share schemes and reducing the interest rate just undermines them further."
Employees locked into a zero interest rate for the next three years
Roy says: "Those joining SAYE schemes now will be locked into a savings account that pays just zero interest for the next three years, unable to benefit from any increase in prevailing interest rates between now and 2014."
Our research points out that the zero 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.
Roy says: "HMRC or the Treasury should change the rules. The Government should be taking steps to encourage employee share ownership rather than discouraging employees from participating with such shockingly low interest rates." adds Roy.
*options granted to 1, 300,000 employees in 2001-02
options granted to 720,000 employees in 2009-10
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