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 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 i.e. for the tax year ended 5 April 2018, returns are due by 5 July 2018. 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?
The HMRC system requires companies to activate the ‘Employment Related Securities’ in their online account. Once activated, the system requires ‘schemes’ to be registered. You can have as many schemes as you like, but note the following:
i. They need to be tied to the employing company by its PAYE reference.
ii. We recommend that you only have two schemes: ‘EMI’ for EMI share options and ‘Other’ for everything else.
- What information needs to be recorded in an ‘other’ annual return?
There are nine tabs on the annual return, however most are seldom used. We have outlined the purpose of the three that are often used. This return should not be used for EMI annual returns.
- Other_Grant_V3 – This tab is to tell HMRC about any unapproved options granted in the tax year.
- Other_Options_V3 – This tab is to tell HMRC about any changes to unapproved options previously granted. Changes which need to be recorded here are when an option has been: exercised, released, assigned, cancelled or lapsed in the tax year.
- Other_Acquisition_V3 – This tab should be used to tell HMRC about any direct award of shares eg, shares with reverse vesting or hurdle shares.
It should be noted that it is ESSENTIAL to take screenshots of any annual return submission (including nil-returns). Once submitted, you cannot obtain a copy of your submission.
- What information needs to be recorded in an EMI annual return?
There are five tabs on the annual return, the purpose of each is outlined below. This return should only be used for EMI annual returns.
- EMI40_Adjustments_V3 – Use this tab to tell HMRC about options that have been adjusted in the tax year i.e. an adjustment of options following a variation in the share capital.
- EMI40_Replaced_V3 – Use this tab to tell HMRC about options replaced because of a company re-organisation in the tax year.
- EMI40_RLC_V3 – Use this tab to tell HMRC about options released, lapsed or cancelled in the tax year.
- EMI40_NonTaxable_V3 – Use this tab to tell HMRC about any non-taxable exercises of options in the tax year.
- EMI40_Taxable_V3 – Use this tab to tell HMRC about taxable exercises of options in the tax year.
As above, it is ESSENTIAL to take screenshots of any annual return submission (including nil-returns). Once submitted, you cannot obtain a copy of your submission.
The diagram shows the decision-making process to determine the information required for an annual return after shares or share options have been issued within the tax year.
- What if a scheme is no longer required?
If you have a scheme open which becomes unnecessary, the company will need to both
i. Close the scheme and;
ii. file a nil-return for tax year in which the scheme was closed.Further information
Should you require any further information or guidance relating to any issues relating to employment related securities, please contact Liam Hawkins at Confluence Tax to discuss.
+44 (0)1223 751309