Offer shares, options or other securities to your employees or directors?

What is caught?

Employment Related Securities, or ERS, is a very inclusive category. Any award of shares or other securities (including loan stock, debentures, restricted stock units and units in a collective investment scheme) made to an employee or officer of a company or certain LPs and LLPs by reason of their employment will be included. Any changes with these securities after they are awarded, such as the exercise of options or the cancellation of options for consideration, will also be caught.

This applies to both ERS plans and one-off awards.

What you need to do

Firstly, you must register your plan with HMRC if you haven’t already done so and ‘self-certify’ if it is a tax advantaged plan. Even a one-off award is considered a ‘plan’ for the purposes of ERS reporting to HMRC and must be registered in the same way. The plan should be registered by 6 July 2024 if it is either tax advantaged as was established in 2023/24 or it is non-tax advantaged was first used in 2023/24. If the plan is not registered before 6 July 2024, it may lose its tax advantaged status.

Secondly, on an annual basis you must report the award of ERS or any other reportable action including, but not limited to, the grant of an option, the exercise of an option, the cancellation or lapse of an option in exchange for consideration, changes to restrictions in any securities held, or sale of shares at over market value. If there have been no events in the year, but the plan is registered with HMRC, you must make a ‘nil return’.

Typical ERS plans include:

• Enterprise Management Incentive (EMI) plans – there are important earlier deadlines for the notification of EMI options, please contact us
• Company Share Option Plans (CSOP)
• Save As You Earn (SAYE) plans
• Share Incentive Plans (SIP)
• Non-tax advantaged plans (also known as ‘unapproved’ or ‘other’ plans and previously all schemes which were filed on a Form 42)
• Overseas ERS plans which have UK participants.

Please note, only the company can register the plan(s) via the HMRC online services; ERS agents can only view registered plans and file returns for registered plans.

Self-certification

As EMI, CSOP, SAYE and SIP are tax advantaged plans, you need to complete a declaration which states the plan meets the requirements of the relevant legislation at either the date of registration or when the first option grant/award is made. This declaration is known as self-certification.

It is the company secretary’s responsibility to ensure all applicable ERS schemes have been self-certified.

How to register and self-certify an ERS scheme

To register your schemes and arrangements, you need to have access to HMRC Online Services and PAYE for employers. Please note that payroll agent PAYE access to HMRC Online Services is different from PAYE for employers’ online access, and registration of ERS plans cannot be done via the agent login.

If you have not yet registered with HMRC as an employer, follow the required process on the GOV.UK website. Prior to registering for online access, please ensure HMRC have the correct correspondence address for the company on their PAYE records as they will post your login details to that address.

Once you have access

1. Login to HMRC Online Services.
2. Continue past the security message.
3. Select ‘Services you can use’ in the left-hand menu.
4. Select ‘PAYE for Employers’.
5. At the bottom of the page on the right-hand side there is a section called ‘employment related securities’. Select ‘Register a scheme or arrangement’ and follow the on-screen instructions.

While we are not able to register schemes directly, should we be instructed to act as your ERS agent, we would be more than happy to assist you with this process if required via meetings and conference calls.

Annual ERS filing requirement

In addition to registering the ERS plan(s) with HMRC, there is also a compliance obligation to file an annual ERS return by 6 July 2024 for 2023/24 and then annually thereafter until the plan is closed.

How HMRC use the information filed

It is vital to make sure all information reported on the ERS return is accurate, as HMRC may cross reference the data with other connected information they are provided with such as the corporate tax return, payroll submissions and individual self-assessments to ensure there are no conflicts.

Globally mobile employees

The reporting and taxation of equity is particularly complex when it comes to globally mobile employees. These may be UK employees in UK plans who spend time working outside the UK or participants in non-UK equity reward plans who work in the UK either for a UK employer or on an overseas secondment basis.

The UK payroll withholding for such individuals can be very difficult from a PAYE and National Insurance perspective.

ERS plans which include non-UK participants or UK participants in overseas plans may also need to be reported to HMRC by 6 July 2024 if an employee worked at any time in the UK during the earning period.

Penalties

If a return is filed after 6 July 2024, HMRC will issue a late filing penalty of £100 on 7 July 2024.

Additional late filing penalties will be charged if the return remains outstanding as follows:

• three months after the filing deadline £300
• six months after the filing deadline an additional £300
• nine months after the filing deadline, further daily penalties of £10 may be charged until the return is filed.

As well as the late filing penalties, HMRC may also issue a penalty not exceeding £5,000 if a return is found to contain a material inaccuracy that was careless or deliberate, or if the return is not corrected once the company becomes aware that the return is incorrect.

Please note the registering of any plan creates an annual filing obligation. If a plan is registered but no reporting events occur during the tax year, a nil return still must be filed. The obligation to file only ceases once the scheme has been closed down. Likewise, if a plan is incorrectly registered, a nil return is required to be filed after which the scheme should be closed down. Failure to do so may result in late filing penalties being issued.

Deadlines

The deadline to register share plans and to submit completed ERS forms to HMRC is 6 July 2024 for the 2023/24 tax year.

Timings to consider

While the 6 July 2024 deadline may seem far away, we recommend starting the process as soon as possible. Unforeseen delays may occur in determining which events are reportable, obtaining the required information, gaining access to HMRC online services and registering schemes with HMRC; these could lead to late penalties being issued.

The table below offers some approximate timescales; these may be useful to keep in mind.

Summary

What needs to be done:

• Register any new UK ERS schemes introduced since 6 April 2023 online with HMRC.
• Register any non-UK ERS schemes online with HMRC that have UK participants with 6 April 2023.
• File annual ERS reporting online with HMRC.

When:

• Registrations and Annual ERS reporting (even if a nil return) must be made online with HMRC by 6 July 2024 to avoid penalties arising.

How Crowe can help:

• Drafting of UK Equity plans as part of your Reward strategy together with related employee communication.
• Reviewing of Non-UK Plans to determine UK equivalence for payroll withholding and annual reporting purposes for UK taxable participants.
• Advise on PAYE and NIC withholding for trigger events under ERS plans, such as award and vesting or grant and exercise, for UK employees and global workforce participants.
• Annual ERS reporting with HMRC by 6 July.
• Bespoke advice to participants whose personal tax affairs are complicated by tax residency issues in the UK and elsewhere.
• Assist with bringing any annual reporting gaps up to date to stop penalties accruing.