Annual Reporting for Employee Share and Share Options

If you operate an employee share plan for UK employees, then there are things you MUST do by 6th July 2021:

  • Notify HMRC of any new share plans you’ve established during the previous tax year
  • Certify whether these share plans meet conditions for tax relief
  • Submit your annual share plan return to HMRC, even if it is a nil return.

What are Your Reporting Obligations?

As an employer, you’re obliged to register any new reportable arrangements and file all employment-related securities (ERS) annual returns.

ERS refers to gifts and awards of shares in companies, typically as rewards or incentives for employees. These may be tax-advantaged or non-tax advantaged.

You must also let HMRC of any notifiable or reportable events. These include:

  • Securities, options or shares issued to, or acquired by, employees or directors
  • Shares that you’ve granted, exercised or cancelled.

If your company or limited liability partnership (LLP) is part of an international group, you must also identify any situations where your employees have received shares from other companies in the group. This includes companies that are based overseas.

If you set up a new share plan during a specific tax year, then you must register it online with HMRC before you can submit a return for it. You won’t need to have re-registered a plan if you make additional share option awards or grants under it.

There may be other reporting obligations you’ll need to meet if there is an acquisition of shares, or a grant of share options, during a change of control or other transaction.

Why is it Important to Notify HMRC?

Employment-related securities reporting is an important aspect of compliance. HMRC needs to know about any employment-related securities to confirm their tax position.

If employees have acquired shares or securities without paying market value for them, they may still be liable to pay income tax based on the market value of these securities or shares.

If the tax consequences of an employee receiving shares in this way do not reflect their full economic value, then HMRC may act.

However, they can only act based on the information they receive, via an annual ERS return.

As with other annual returns, you must ensure that the information you provide is correct and complete, and does not contradict or other information you’ve supplied to HMRC for payroll and corporation tax.

The risk for companies failing to meet the July 6 deadline is that they then become non-compliant unintentionally.

Failure to register new share plans, or to complete a return by the deadline results in HMRC automatically applying penalties.

What are the Penalties for a Late ERS Return?

If you do not submit an ERS return for a plan or arrangement you’ve registered for this year or the previous return, there is a £100 penalty per registration.

For submissions that remain outstanding by the following October and January, there are additional penalties of £300 apiece.

HMRC can also impose further penalties, depending on the circumstances.

Even if no reportable events occur during the tax year, in relation to a plan you’ve registered, you must still submit a nil return to avoid incurring a penalty.

What Must You Include on an Annual ERS Return?

Your ERS return should include details of:

  • Reportable activity that you must include on your annual return includes:
  • Any grants of share options you’ve made
  • The exercise of any options, or acquisition of shares or securities, including loan notes
  • Disposals of shares and securities that trigger income tax charges
  • Cash cancellation payments relating to share awards
  • Reportable events.

How Do You File Your Return?

You need to have registered for an HMRC Government Gateway account for your limited company and have an existing PAYE scheme. If you don’t have these, you need to set them up.

Next, the stages for filing your ERS return are:

  • Activating PAYE for employers online on your Government Gateway account
  • Getting a valuation of the shares and awards you’ve transferred
  • Completing the relevant government spreadsheet template for your return.

The valuation of your shares should be up to date and accurate. You may opt to do this yourself using HMRC guidance, but it can be easier to use an independent service to ensure your get an accurate valuation.

If HMRC decides your valuation is inaccurate, they will dispute it.

Act Now to Avoid Penalties

You must complete and file your employment-related securities reporting with HMRC by July 6.

If you need assistance doing this, Venn Accounts can provide you with the help you need. Please call us on 020 8088 2590, email or fill in our contact form and we’ll be in touch as soon as possible.

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Contact us and speak to a member of our team about our annual account service.