06 April 2023
The deadline for employers to file their annual ‘employment-related securities’ (ERS) returns with HMRC for the 2022/23 tax year is approaching. If:
- UK directors, employees or employees with UK work duties have acquired shares or other securities in your company; or
- your company operates an employee share plan or arrangement,
there will likely be a filing requirement by 6 July 2023.
When is a return required?
Annual ERS returns are required to report events relating to securities (such as options, shares or loan notes) which involve employees and/or directors (including founding directors).
A company must ensure it has registered its share schemes and ERS events properly online via the HMRC PAYE portal. Transactions do not need to be part of a formal share scheme to be potentially reportable and can include ‘one-off’ events (for example, certain corporate transactions and re-organisations). Reporting may also be required where shares/securities are located outside of the UK.
We therefore recommend that any activity involving UK employees/directors which involves shares, options or other securities is considered to confirm whether there is a registration and reporting requirement.
Any scheme registered online will require annual returns to be filed for subsequent tax years, irrespective of whether there have been any reportable events in those tax years, unless the scheme has been formally closed by entering a ‘date of final event.’
What is reportable?
The events and transactions that can be classified as employment-related securities are wide-reaching and the ERS rules can apply even if there is no formal employee share plan in existence.
This could include (but is not limited to):
- HMRC tax-advantaged plans (EMI, CSOP, SAYE/Sharesave and SIP);
- share acquisitions and disposals;
- share options;
- share-for-share exchanges;
- overseas plans with UK participants (e.g. RSUs, RSAs and ESPPs);
- group re-organisations and other corporate transactions;
- variations in share capital;
- carried interest arrangements;
- the lifting of restrictions attached to shares (including on disposal);
- restricted stock units (RSUs) and restricted stock awards (RSAs);
- transactions involving loan notes or warrants; and
- units in investment schemes.
Often, employers do not recognise that share transactions are reportable via an ERS return, or may mistakenly fail to deduct income tax and NIC through PAYE, which only becomes apparent when the annual return is being filed.
Common issues we have seen include:
- failure to register a CSOP, SIP or SAYE scheme online by 6 July following the tax year in which the first awards were granted. This will result in any awards granted in that previous tax year not qualifying for the associated tax reliefs;
- failure to notify HMRC of the grant of EMI options within 92 days from each grant date;
- global equity plans with UK participants, where UK tax/reporting treatment may be different to that of the plan’s ‘home’ country;
- employees/directors acquiring/disposing of shares at a price that is different to the market value for tax purposes. This could be the case if, for example, a pro-rata value is paid for minority shareholdings;
- share class redesignations or other restructuring, particularly if it results in an uplift in the market value of particular shares;
- share for share exchanges, bonus issues and rights issues involving employees;
- transactions in one individual’s shares affecting the value of another person’s shares;
- the lifting of restrictions attached to shares, for example if shares were subject to a forfeiture provision for a limited time and that time has passed; and
- gifts of shares to friends.
HMRC do not send reminders to file ERS returns, but will issue automatic penalties. If annual ERS returns have not been filed for each open scheme by 6 July following the end of the tax year HMRC can levy automatic late filing penalties (starting at £100 per scheme). Returns containing a ‘material inaccuracy’ can also attract additional penalties.
What employers can do
We always recommend carrying out regular reviews of your employee share arrangements and the ways in which they operate alongside the annual returns process.
This ensures the arrangements remain compliant with legislative changes and updates to HMRC practice or guidelines, and that they are achieving their intended purpose.
Reviewing your ERS reporting as early as possible also ensures you have sufficient time to prepare and submit the returns ahead of the 6 July deadline.
If you have any questions or concerns about ERS or require assistance in keeping up to date with your filing obligations please contact Fiona Bell, Simon Adams or Martin Cooper.