Employment Related Securities

With the 2023/2024 tax year coming to an end there are various filing requirements for an employer to consider.

One such filing requirement arises when an employer has provided shares or securities to employees/directors (current, former or prospective) by reason of their employment. This can include the following examples:

• Enterprise Management Incentive (EMI) share options
• Stock Options granted to employees to buy shares at future date, whether under an approved HMRC scheme (Company Share Option Plan) or an unapproved scheme
• Gift of shares to employees
• Save As Your Earn (SAYE) scheme
• Share Incentive Plans (SIP)
• Loan notes provided to employees
• Sales of shares between employees and directors.

The above just lists some examples and the legislation is drawn widely to prevent abuse. The major exception to these rules is that no report is required when a transaction occurs in the course of normal domestic, family or personal relationships.

If any of the above schemes commence during the year, or are in operation during the year with changes being made, HMRC will expect an Employment Related Securities (ERS) return to be filed to report the transactions which have occurred.

This return is simply to provide information to HMRC as any tax payable as a result of these schemes will be dealt with either via payroll or self-assessment depending on the nature of the scheme and status of the company.

How to Register

If this is the first year that there is a reportable event, the employer will have to register the scheme. Agents are currently unable to register a scheme on behalf of their clients, but can complete the annual filings following an authorisation process.

The registration process can be cumbersome as the employer will need to complete the following steps:

1. Set up an HMRC Online Services account, if not already done
2. Login to HMRC Online Services
3. Go to the ‘PAYE for Employers’ section
4. Select Employment Related Securities and then ‘Register a scheme or arrangement’ and follow the on-screen instructions.

To authorise an agent to complete the returns and manage your account the agent will have to request an activation code which will be sent to the employer.

If an employer does not have a PAYE for Employers account already the above steps can take up to six weeks to complete.  We would therefore recommend that employers start the registration process as soon as possible.

In the same manner that only the employer can open a scheme, the employer must close a scheme down if all reportable events have occurred e.g. all share options granted have been exercised.

Filing Returns and Penalties

The Return required will be dependent on the type of scheme in operation. Generally approved HMRC schemes such as EMI have their own annual forms for completion. If the scheme is not approved then the form required is ‘Other ERS Return’, previously known as Form 42.

The Returns must be filed with HMRC on or before 6 July following the end of the tax year i.e. the reporting of transactions which occurred during the year ended 5 April 2024 must be completed by 6 July 2024.

If a scheme has been registered but not closed, HMRC will expect either an annual return to be filed or a declaration to be made that no reportable events have occurred in the year.

If a return is not filed by 6 July following the end of the tax year, then HMRC will charge the following penalties:

• £100 automatic penalty
• Further £300 penalty if the return outstanding after 3 months
• Further £300 penalty if the return outstanding after 6 months.
• If a return is outstanding after 9 months daily penalties of £10 per day may be charged.

EMI Notification changes

Currently when an employer grants options under an EMI scheme, the employer must make a notification to HMRC within 92 days of the options being granted otherwise the options will not qualify for the favourable treatment available under the scheme.

From 6 April 2024 these rules are being relaxed and the EMI notification deadline will be extended and fall into line with the current filing deadline. For example, if an EMI option is granted on 1 April 2024 it will be notifiable to HMRC by 2 July 2024 while options granted on 8 April 2024 would be notifiable by 6 July 2025.

We can help with the registration of Employment Related Securities along with the filing of annual returns.  Please get in touch if you require any assistance.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.

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