Employment-related securities filing deadline

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Employers who have provided shares or options to employees by virtue of their employment must file an annual return on-line via the HMRC reporting portal. The deadline for reporting for the tax year ended 5 April 2020 is midnight on 6 July 2020 – you do not have long.

Reporting of employment related securities (ERS) applies to all types of share award (such as growth shares, restricted shares, changes to share rights, and share buy backs) and options (such as EMI, CSOP and unapproved options).  It is the duty of the employer to ensure that a return is filed. Failure to report on time will result in automatic penalties and loss of tax advantages for certain share awards.

Main pitfalls arising with employment related securities

Dealing with annual ERS reporting can be complex and from our experience many employers get it wrong. If the ERS return contains inaccuracies, HMRC can impose penalties of up to £5,000 per return. We have highlighted below some of the main pitfalls employers face.

Not reporting all share awards

Employment related securities are widely defined. It captures any shares or options whether bought for market value or not, that were acquired by virtue of the employee/director’s employment.  Non-executive directors and some consultants can be caught.  Options as well as shares are caught.

If a company buys back their own shares, which consequently results in the other shareholders who are employees or directors of the company gaining an uplift – this will be reportable.

Most employers register the allotment of shares following a capital event with Companies House, but fail to notify HMRC. Easily done.

Failing to file a ‘nil ERS return’

Employers who have registered share options  (such as  EMI) with HMRC but had no reportable events in the tax year such as the grant, exercise or surrender of a share option still need to file a nil ERS return.

If you have notified HMRC of a share option in the past and you still have options that have not yet been exercised, expired or lapsed, you will need to file a return.

Employers can stop reporting only seven years after the employee has left employment as at that point the securities cease to be employment related securities.

Filing a return for an event that is not an employment related security

There are other events where reports may not be required. These are:

  • Transfers of shares in the normal course of the domestic, family or personal relationships
  • Flat Management Companies
  • Members’ clubs (formed as companies)
  • Share for share exchange
  • Rights issues
  • Bonus issues
  • Scrip dividends
  • Dividend reinvestment plans (DRIPs)
  • Shares acquired independently by employees.

Real life horror

An employer assumed that their accountants were notifying HMRC of the grant of EMI options and shares to employees. The employer failed to follow up with the accountant. The accountant was not familiar with the process of registering the scheme.  Neither did the accountant realise that the employer needed to file an ERS return.

This small miscommunication resulted in missed deadlines and an income tax bill of approximately £595,000 for loss of EMI status.

Process for filing an ERS return

We have provided a step-by-step guide on how to file an ERS return.

  1. Employers need to register with HMRC’s Employment Related Securities service using the following link https://www.gov.uk/log-in-register-hmrc-online-services/register.
  2. The employer will need to ensure that they have an organisation account with HMRC and that they are registered for employers PAYE. They can register for employers PAYE by calling PAYE for Employers helpline on 0300 200 3200. Once registered, HMRC will send an activation code to the employer’s address HMRC has on file for PAYE purposes. This usually takes up to two weeks or longer.
  3. Once registered, a unique scheme reference number will be allocated by HMRC.
  4. Download and fill in the relevant template, which can be found at https://www.gov.uk/government/collections/employment-related-securities. – this link also has guidance notes on how to complete each template.
  5. Upload the template https://www.gov.uk/employment-related-securities-files (use the same login details you used to register the ERS with HMRC).
  6. If you have nothing to report, you must submit a nil return. You will need your login details you used to register at inception.

Please do get in touch with us if you need any help.