ERS schemes are a way of companies transferring shares to employees, including company directors.
These schemes can be either tax advantaged or non-tax advantaged. Tax advantaged schemes enable employees to avoid paying things like income tax or national insurance on the value of the shares they receive.
These types of schemes include:
However, for many smaller companies, running a tax-advantaged scheme is too complicated. They are looking for a more straightforward transfer of shares.
But doing this may mean that HMRC still classifies the transfer as ERS, requiring a return.
Therefore, it’s important to check when issuing shares to employees.
In certain circumstances, you do not require an ERS return for HMRC:
You must tell HMRC about any new employment related securities schemes you’ve launched, or schemes that have stopped.
You must register all new tax advantaged ERS schemes by 6 July of a tax year. This includes one-off awards or gifts of shares.
You cannot register these schemes after 6 July:
You must also register non tax advantaged schemes if these involve a reportable event, such as:
You must also inform HMRC if you grant enterprise management incentives (EMI) share options.
You need to submit an annual ERS return for each registered scheme you run. You must do this every year, even if there’s no reportable event.
Submit your ERS return, even if:
If your ERS scheme ceases, you must tell HMRC, and give a final event date.
HMRC will assume you’re limited company director and you’ve transferred or awarded shares to an employee or director in your company.
Your company will need an HMRC Government Gateway account and an existing PAYE scheme.
You must set these up first if you don’t already have them.
There are various stages to filing an ERS return:
You should get an up to date, independent valuation of your shares.
But be careful: HMRC may dispute your valuation if they do not feel it’s accurate.
You can value your shares yourself, using HMRC guidance, but to get an accurate valuation, we recommend you seek professional advice.
HMRC is interested in employment related securities because when employees acquire these shares or securities without paying market value, they may be still liable to income tax based on their market value.
ERS rules aim to modify the position in cases where the tax consequences of receiving these shares do not reflect the full economic value of the shares.
Therefore, HMRC requires regular, up to date information about ERS schemes, and companies concerned must comply with this.
Without a clear understanding of the requirements and deadlines, there’s always the risk of becoming non-compliant unintentionally.
Compliance is a critical part of running a company successfully. Venn Accounts can make sure your employee related securities schemes follow the rules.
But we can also advise you on the best tax position you can gain for your employees by the type of ERS scheme you choose.
If you want to reward or incentivise your workforce, you also want them to be able to take full advantage of your generosity.
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