Employment related securities: guide to HMRC filing
EMPLOYMENT related securities (ERS) are a common way of incentivising employees within the technology and biotechnology industries. However, issuing shares or share options results in a reporting obligation to HMRC, the UK tax authorities. This quick guide covers the most common queries regarding these annual returns and what your obligations are for filing an ERS return.
Any company that has given shares or share options to employees is required to submit annual returns to HMRC. This note sets out the what, when, why and how of these returns.
- What is the purpose of the annual return?
The purpose of the returns is to determine whether any income tax, PAYE or national insurance charges should be applied to the employee and/or the company.
- If nothing has happened in the year, does an annual return need to be filed?
Yes, even if no taxable events occur a nil return is still required. Please also note that for enterprise management incentive (EMI) schemes, the annual return is in addition to any notification of a grant of EMI options.
- When does an annual return need to be filed?
Returns for the tax year should be filed within three months after the end of that tax year – so for the current tax year this would be 5 April 2021, returns are due by 5 July 2021. Failure to meet the deadline will result in an automatic £100 fine for each overdue return. If the return remains unfiled after three months, a further £300 fine for each unfiled return will apply. If the return still remains unfiled after six months, an additional £300 fine for each unfilled return applies. After nine months, the company will be charged daily £10 penalties from nine months after the due date.A return must be submitted every year from, and including, the year in which the first qualifying option is granted until, and including, the year in which the scheme is closed.
- How does registration work?
HMRC’s system requires companies to activate the ‘Employment Related Securities’ in their online account. We recommend that you register a maximum of three schemes: ‘EMI’ for EMI share options, ‘CSOP’ for CSOP share options and ‘Other’ for everything else. Note that CSOP refers to a Schedule 4 ITEPA Company Share Ownership Plan only. Only use this registration if you have such a scheme.
- What if a scheme is no longer required?
If you have a scheme open which becomes unnecessary, the company will need to do the following
i. close the scheme and;
ii. file a nil return for tax year in which the scheme was closed.
*It is ESSENTIAL to take screen shots of any annual return submission – including nil returns. Once submitted you cannot obtain a copy of your submission. It is now common for screen shots to be requested as part of tax due diligence.*
Should you require any further information or guidance relating to any issues relating to employment related securities, email email@example.com