If you provide options, shares or other securities to your employees, you must file details with HMRC by 6 July. Here’s what you need to know.
Giving away shares or share options in your company is often an excellent way to incentivise employees. But you need to think beyond the initial transaction and immediate tax implications. There are also annual reporting requirements, and HMRC won’t remind you about them. The penalties for forgetting these requirements (or not knowing they exist) can soon rack up.
Does this affect me?
As the employer, you need to tell HMRC about all reportable events in relation to options, shares and other securities that individuals have obtained by reason of their employment. Reportable events are not the same as chargeable ones – even if no tax is due, they may still need to be declared.
It’s worth noting that transactions involving incoming employees are caught, as are those with former employees who left during the last seven years. Not being paid a salary is not a get-out either – the rules still apply to otherwise unremunerated directors.
If you have given equity or options to non-resident individuals, you may still need to report them, depending on whether they perform any UK duties for the company.
The reporting requirements are quite wide-ranging.
What do I need to do?
If you think you have a reporting obligation, register the company for a Government Gateway account as soon as possible, add the PAYE service and register any share schemes. If you have made a furlough claim previously, you will already have a Government Gateway account with PAYE set up. Otherwise, you might need to request an employer’s ID online for the first time. This involves a letter being sent to you in the post, which can take time to come out, so don’t delay.
Once you have registered the company for Employment Related Securities (ERS), with your approval we can get ourselves appointed as your agent and deal with the necessary electronic paperwork for you. To do this, please be aware, there is another administrative stage that involves waiting for a letter to turn up in the post. You must register to file, and authorise an agent to file on your behalf, as soon as possible.
What do I need to report?
Good news: it’s not usually necessary to report the following events:
allocation of initial subscriber shares in newly incorporated companies
shares in newly incorporated companies acquired directly from the formation agents
shares in listed companies acquired independently (e.g. through a broker)
rights issues, bonus issues and scrip dividends
Most other events (even if they don’t create an immediate tax charge) will need to be reported.
What needs to be filed, and by when?
Tax-advantaged schemes like Enterprise Management Incentive (EMI), Share Incentive Plan (SIP), Save As You Earn (SAYE) and Company Share Option Plan (CSOP) all have their own special forms. For everything else that needs to be reported, you will need to complete a generic form called an ERS Return. All forms must be filed online by 6 July 2021.
HMRC didn’t give any extensions last year, even at the full height of lockdown, so you shouldn’t assume any concessions for this year.
What happens if I get it wrong?
If you miss the deadline, anyone treated as the employer and – if different – the person from whom securities or options were acquired, will be subject to penalties.
There will be an initial fixed-rate penalty of £100 if you don’t file the 2020/21 return by 6 July 2021. Further fixed-rate penalties of £300 will arise if still outstanding on 6 October 2021 and 6 January 2022, bringing total flat-rate penalties to a maximum of £700. If a return is still outstanding after 6 April 2022, there may be daily penalties of £10 a day.
On top of these, HMRC can also impose penalties of up to £5,000 per return if a filed return contains inaccuracies.
How we can help
Determining which transactions are caught by the rules can be tricky. We can advise whether you need to make a report and either file on your behalf or prepare the paperwork you need and talk you through online submission.
Please note, if you are an existing listed audit client we are restricted by the FRC’s Revised Ethical Standard from preparing your corporate tax returns, we may still be able to advise on ERS reporting, depending on the specific circumstances.
Please get in touch with your usual PKF contact if you think ERS may be relevant to your company.
If you’re considering making investments into EIS Companies, and you want to know how this will affect your tax position, or whether the Company qualifies – speak to us and we can help. Note however that we cannot assist you in making an investment decision.