One way to attract, retain and motivate staff is to provide them with shares or share option rights. However, companies need to remember that there are annual compliance obligations which must be followed.
What to consider when issuing employment related securities?
Employment Related Securities (“ERS”) annual returns are required to be filed online with HMRC by 6 July 2022 following the tax year where share related benefits are provided to employees/Directors and/or where shares or securities are acquired by individuals by virtue of their employment (or the employment of an associate), including where (but not restricted to):
- EMI options have been exercised, cancelled, replaced (and a check required that in-year grant notifications have been made);
- Other share scheme options have been granted, exercised, cancelled, replaced;
- Other share/stock/securities have been awarded by virtue of employment e.g. Restricted Stock Units/shares in the group’s parent entity;
- Restrictions attached to shares have been lifted;
- Actions have changed the share value of an employee or Director’s shareholding, such as substantial movements in a loan to or from a relative’s company;
- Shares or other securities in any other company have been obtained by reason of their employment by a current, former or future employee.
- A scheme has previously been registered but not closed, even though no reportable events have occurred during the tax year – a nil return still needs to be filed.
Any schemes (EMI or other share schemes) will need to be first separately registered with HMRC. If an ERS scheme has closed/terminated then HMRC will need to be informed of a final event date before they can close the scheme. The annual filing obligation will only cease when the scheme is closed.
Penalties will arise if a return is not received by 6 July following the end of the tax year to which the return relates. A £100 penalty will be issued automatically even if the return is just one day late. Additional automatic penalties of £300 will be charged if the return is still outstanding three months after the due date, and a further £300 if it is still outstanding six months after the due date. If a return is still outstanding nine months after the due date, daily penalties of £10 a day may be charged. It is therefore important to ensure that all transactions are recorded accurately so that the ERS return can be submitted on time. It is also important to note that a nil return is still due where there have been no transactions in the year but a share scheme is ‘open’ with HMRC.