Action may be required by 6 July 2022
Companies who operate any share plans or, in the past tax year, have issued shares or securities (including share options) to employees may be required to submit an employment-related securities (‘ERS’) report to HMRC.
Companies must disclose any “reportable events” to HMRC using a designated form. The definition of a “reportable event” for these purposes is wide and can include the following:
- Any individual who has acquired securities by reason of their employment or directorship, including shares and loan notes;
- Any activity related to share options during the 2021/22 tax year, including the grant, exercise, assignment, or release of options;
- The lifting or variation of any restrictions attaching to any securities already held by employees or directors;
- Any conversion of securities;
- Any securities disposed of an amount exceeding their market value;
- Any artificial enhancements of the market value of securities.
Although the scope of ERS reporting is broad, HMRC specifies that the following events may not need to be reported, provided certain conditions are met:
- Events related to newly incorporated companies – this includes the allocation of initial subscriber shares, allotment of further shares or shares acquired directly from the agent forming the company prior to the company commencing trading;
- Transactions that are not connected to employment (i.e. through family or personal relationships).
ERS schemes or arrangements must be registered with HMRC. Once the scheme has been registered, there is a yearly reporting requirement to file an Annual Return (previously known as a ‘Form 42’) by 6 July following the end of the tax year. A company is still required to file a nil return for a registered scheme even if there has been no reportable activity in the tax year, until the scheme is closed.
As with other reporting obligations, HMRC may charge penalties for late submissions. This includes an initial penalty of £100 for outstanding reports at the 6 July deadline, a £300 penalty issued on 6 October if the report remains outstanding, and an additional £300 on 6 January (i.e. 6 months late). Daily penalties of £10 may then accrue from 6 April 2023 until submission of the report.
In addition, penalties of up to £5,000 may be issued for returns which contain inaccuracies.
As always, if you would like any further information regarding the above, please feel free to contact our offices by email firstname.lastname@example.org