Whenever employees or directors receive an interest in shares or securities of the company employing them, or certain related companies, the tax aspects of such provision must be carefully considered. One aspect of such provision is the potential reporting of such transactions to HM Revenue & Customs (HMRC) via Employment Related Securities (ERS) Return. ERS returns have to be completed by the employing company for tax years whenever such provision is made. The filing deadline is 6 July after the end of the tax year. Reportable share transactions arising during 2022/23 must be notified to HMRC by 6 July 2023.
An employer company must register its share schemes and ERS events online via the HMRC PAYE portal – so prompt action may be required..
When are returns required?
Annual ERS returns are required to report events relating to securities, such as options, shares or loan notes, which involve employees and/or directors. This may include employees who are to join or who may have left the company and includes founding directors.
Transactions do not need to be part of a formal share scheme to be potentially reportable and can include one-off events, for example, certain corporate transactions and re-organisations. Certain situations may not be reportable.
Any share scheme registered online will require annual returns to be filed for subsequent tax years, irrespective of whether there have been any reportable events in those tax years, unless the scheme has been terminated.
What `events’ are reportable?
The sort of transactions and events that can be classified as employment related securities are extensive and the ERS rules can apply even if there is no formal employee share plan in existence. This could include (but is not limited to):
- Tax-advantaged share plans,
- share acquisitions and disposals,
- share options,
- share-for-share exchanges,
- group re-organisations and other corporate transactions,
- variations in share capital,
- the lifting of restrictions attached to shares.
Often employing companies undertaking such transactions will be unaware that share transactions are reportable via an ERS return, or may mistakenly fail to deduct income tax and National Insurance contributions (NIC) through PAYE where liabilities arise. Whilst it is the Employer’s responsibility, this is an additional service that HSKSG can offer assistance with. Think about these requirements at the time of any transaction or events arising so that early registration and reporting can be undertaken when details are fresh in everyone’s minds and the filing deadline is still some time off.
HMRC do not send reminders to file ERS returns, but will issue automatic penalties. If annual ERS returns have not been filed for each open scheme by 6 July following the end of the tax year HMRC can levy automatic late filing penalties which start at £100 per scheme. Returns containing a ‘material inaccuracy’ can also attract additional penalties.
Think carefully as to whether you may need to make any report. If you require and guidance or assistance then contact the tax team at HSKSG.
Martin Tomes is HSKSG’s Director of Tax. He specialises in assisting and advising individuals and their businesses in all areas of taxation with an emphasis on tax planning, mitigation and compliance and also heads up the firm’s specialist property sector group.