Posted: 12 / 04 / 2024
Gifts and awards of shares in companies, often known as employment-related securities (ERS), are commonly used by employers to reward, retain or provide incentives to employees.
HMRC require all companies to notify them of any relevant share transactions involving employees, directors, or other similar roles, whether they are tax-advantaged or non-tax-advantaged schemes. Companies who do not comply with these obligations risk penalties or lost tax reliefs.
Which ERS transactions need to be reported?
The most common events that need to be reported are the acquisition / disposal of shares by directors and employees and the award and exercise of share options.
The transaction doesn’t have to be between the company and the employee – a sale by one employee/director shareholder to another can be caught by the ERS legislation. Common transactions include:
- An acquisition or transfer of securities (or options to acquire securities) by reason of the individual’s employment or by reason of the employment of any other person
- A chargeable event in relation to restricted securities and restricted interests in securities
- A chargeable event in relation to convertible securities and interests in convertible securities
- An event which discharges a notional loan relating to securities or an interest in securities
- Doing anything that artificially enhances the market value of a security
- Disposal of securities and interests in securities for more than their market value
- The receipt of a benefit giving rise to a taxable amount which counts as employment income
- The receipt of a benefit which is, or is regarded as being, received in connection with a securities option
- The assignment or release of a securities option acquired by reason of the individual’s employment or by reason of the employment of any other person
- Any reportable event regarding ERS as part of a tax-advantaged scheme, must be reported under a separate registered scheme on the relevant form for that type of scheme
The following events may not need to be reported:
- Newly incorporated companies – allocation of initial subscriber shares and the allotment of further shares
- Transfers of shares in the normal course of the domestic, family or personal relationships
What are the reporting deadlines?
The deadline to register the creation of a share plan or the issue of shares etc. within the tax year to 5 April 2024, as well as the submission of the separate ERS annual return online with HMRC, is 6 July 2024.
However, as registration for the online service can take at least a week, it is recommended to register well in advance of the 6 July. In addition, if you require us to register as ERS online agents so that we may deal with the relevant annual return notifications, this may take three weeks or more, and therefore we recommend that you inform us as soon as possible. This will avoid the risk of late filing and the incurring of automatic penalties.
What is the ERS reporting process?
All share plans, schemes or arrangements must be registered on the HMRC online platform. An annual, online return must be submitted for each plan registered until ceased on the HMRC system.
Sedulo can be your agent for filing, but registration of plans must be completed by the Company (although we can assist!). We therefore recommend that you take action now and complete registration as soon as possible. This is currently an area of high risk as HMRC are engaged in checking payroll and corporation tax records against reported share plan activity in an effort to find and penalise mismatches between various reporting streams.
What are the penalties around ERS?
A return must be submitted for every share plan registered, even if it is a nil return. HMRC will not issue notices to file or reminders, it is the responsibility of the company to first register online so that the appropriate annual returns/ notifications may then be made.
Any failure(s) may also impact HMRC’s risk rating for the company and could subsequently result in an unwanted visit from HMRC.
How we can support you?
We can support you in assessing whether there is a reporting requirement, assist you with the initial registration process and complete the online annual return submissions.
Please get in touch with your local tax contact or Sarah Richards to discuss this further.
