Reporting Employment-Related Securities and Options to HMRC
Companies have an obligation to report to HMRC certain transactions involving shares, securities and options, each tax year on an online Employment Related Securities’ (ERS) Return.
In most cases, any share transactions involving employees are reportable.
The most common reportable transaction will be the issue or exercise of shares or share options to a director or employee. This does not just apply to current directors and employees, but also to those who have been directors or employees in the past, or may become so in the future.
If you have any reportable transactions, an ERS Return for the year to 5 April 2018 must be filed with HMRC by 6 July 2018.
HMRC is no longer issuing notices to complete ERS Returns. Therefore, if an ERS Return submission was submitted last year, one will need to be submitted again this year.
For companies with non-tax advantaged schemes (previously reportable on the Form 42 – now referred to as an ‘Other ERS Return’), if the last reportable event was in 2013/14, it will not be necessary to submit an ERS Return until the next year in which there is a reportable event. So if an ERS Return was not required to be submitted in 2014/15, 2015/16 and 2016/17, and there are no reportable events in 2017/18, then no ERS Return will be due.
Failure to make a report on an ERS Return can result in a penalty of £300 per reportable transaction plus daily penalties of £60; it can also affect your risk rating with HMRC.
Transactions reportable on an ERS Return include:
- Grant of securities options
- Acquisition of securities in connection with (including exercise of) securities options
- Assignment and release of securities options
Acquisition of securities
- Unrestricted securities
- Securities with an artificially reduced market value
- Restricted securities with or without a forfeiture restriction
Events occurring after the acquisition of securities
- Variation or lifting of restrictions on securities
- Conversion of securities
- Discharge of notional loans
- Receipt of other benefits from securities
- Securities sold for more than market value
- Artificial enhancement or reduction of market value
Companies incorporated in the year to 5 April 2018:
Where a company is incorporated in the UK and initial subscriber shares (also called founder shares) are acquired a report is not required if all of the following conditions are met:
- the shares are acquired either directly on incorporation, by transfer from a company formation agent, or from another person forming the company, e.g. a solicitor or accountant;
- all the initial subscriber shares (and no form of security other than shares), are acquired at nominal value;
- the shares are not acquired by reason of or in connection with another employment;
- the shares are acquired by a person who is a director or prospective director of the company, or someone who has a personal family relationship with the director and the right or opportunity is made available in the normal course of the domestic, family or personal relationship of that person.
This means that the majority of newly incorporated companies will not need to complete an ERS Return in respect of the founder shares, although there may be additional transactions which do need to be reported.
Other transactions where reports may not be required include:
- Transfers of shares in the normal course of domestic, family or personal relationships
- Flat Management Companies
- Members’ clubs (formed as companies)
Tax advantaged schemes:
For tax advantaged schemes, an online ERS Return will still need to be submitted in all of the following cases even if there have been no reportable events in the year:
- Save As You Earn schemes (SAYE) – previously on paper Form 34
- Company Share Option Plans (CSOPs) – previously on paper Form 35
- Approved Share Incentive Plans (SIP) – previously on paper Form 39
- Enterprise Management Incentives (EMI) – previously on paper Form 40
ERS Returns for 2017/18 must be filed electronically using the PAYE online service. For companies who are not already registered, the registration process takes time because of the need for HMRC to post out activation codes, so early attention is vital.
If you are in any doubt as to whether transactions need to be reported then please contact Robert Leggett or Andrew Scott.
Self-certification for new and existing share schemes from 6 April 2014
HMRC no longer provides formal 'approval' for any new share scheme arrangements. All new and existing arrangements will be required to register online, and 'self-certify' that they meet the necessary requirements.
The changes affect:
- Enterprise Management Incentives (EMI)
- Company Share Option Plans (CSOP)
- Save As You Earn option schemes (SAYE)
- Any non-tax advantaged arrangements
Details are on the HMRC website
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