If an employer gives shares to an employee, or sets up a tax advantaged share or share option scheme, the benefit is taxed within the Employment Related Securities (ERS) regime. The employer will then have a requirement to register a share scheme with HMRC and file an annual return.

  • An online return is normally required for each registered employment-related securities scheme or arrangement by 6 July following the end of the tax year, including details of any reportable events in the tax year. See below for 2017/18 reporting deadline changes.
  • If there are no reportable events during the tax year, a nil return is still required.
  • Before you can submit a return using the ERS Online Service you must be registered to use HMRC Online Services and PAYE online.
  • Late filing penalties apply for returns outstanding. They apply for the year 2015/16 onwards. 
  • Penalties for error will apply if the reporting error results in a loss of tax.

HMRC Employment Related Securities bulletin 25 (September 2017): the highlights

  • Employers are confused by the process and keep registering their schemes as the wrong ones
  • CSOPS and SIPs: there are many kinds of reporting errors, these may disqualify schems
  • EMI: new EMI options must meet the requirements of Schedule 5, ITEPA 2003.
  • Unapproved schemes: new schemes are reported under section 421K of Part 7, ITEPA 2003
  • Incorrect scheme registration and return submission: this could mean a penalty of up to £5,000 and the loss of tax advantages on awards and grants made from 6 April 2014. For CSOP it could mean the loss of tax advantages on unexercised options granted before 6 April 2014
  • See HMRC ERS Bulletin 25

HMRC Employment Related Securities bulletin 24 (June 2017): updates for 2016/17 returns

Reporting problems

  • The deadline for reporting has been extended to 24 August 2017 (it was 7 July 2017).
  • For the third year running HMRC says that there have been reporting problems with their spreadsheet templates.
  • The templates are supposed to work as CSVs but some do not and many agents find that it is better to use the ODS format. You need to download the correct software to make this work.

Participating company information

  • It is no longer possible to upload a file to provide details of all participating companies in a scheme. If this applies to you and you have a nominated Customer Relations Manager (CRM) in HMRC then you should enter details of one participating Company and then send a separate list of all participating companies to your CRM.

Checking for errors

  • Use the ERS checking service accessible from the ‘View schemes and arrangements’ screen to check for formatting errors before submitting your annual return.
  • If you’re creating your own CSV file to submit your annual return you need to follow the published technical guidance for each type of return precisely. For example, your first line of data should start from cell A1.
  • If there have been no reportable events you’ll still need to file a ‘nil’ return.
  • If you’ve registered a scheme in error you’ll still need to file a ‘nil’ annual return and then ‘enter a date of final event’ to close the scheme.

Not registered for PAYE?

ERS returns are not required if all of the following applies:

  • Neither the company, nor any other company in the same group or under the same ownership, was registered for PAYE
  • The arrangements were not tax-advantaged schemes (that is, not SIP, SAYE, CSOP or EMI schemes)
  • The company had no obligations to operate PAYE in respect of the reportable event
  • The company had no obligation to operate PAYE in respect of anything else it does.

Schemes set up in error

To cease a scheme you should access the ERS service through the company’s PAYE for Employers account. There is no agent facility: this presents a problem if agents are required to assist employers who have enabled two factor authorisation.

Select ‘View schemes and arrangements’. You’ll need to scroll down to the bottom of your screen to view schemes and arrangements.

Select the relevant scheme. On the next screen provide a date of final event. To close an EMI scheme, after selecting the scheme select ‘End of year returns’ and then on the next screen select ’provide a date of final event’. This can be a date in the past, but remember that an annual return must be submitted for the tax year in which the final event date falls.

If you’re still not sure why a scheme was registered on ERS service you’ll need to speak to the Company Secretary or seek professional advice. Please note a scheme can only be registered by someone in the company who has access to the company’s HMRC online services account.

If you registered the scheme but there have been no reportable events or if you registered the scheme for a one-off transaction you can either: 

  • Close the scheme by entering a final event date of 5 April you will still need to submit a ‘Nil’ return for the year
  • Keep the scheme open if you think there may be further reportable events, you will still need to submit a ‘Nil’ return for the last tax year.
  • If you choose to keep the scheme or arrangement open, you will need to submit returns each year until the scheme is closed.

Penalties

Returns, including nil returns, must be submitted for any schemes registered on the ERS online service including:

  • Enterprise Management Incentives (EMI)
  • a non-tax advantaged scheme or award
  • Schedule 4 Company Share Option Plan
  • Schedule 3 Save As You Earn scheme
  • Schedule 2 Share Incentive Plan

HMRC says that once a scheme or arrangement has been registered on the service and remains live, you have a continuing annual obligation to submit an end of year return online by the deadline. The statutory deadline for returns is on or before the 6 July following the end of the tax year. A return is required even if you have:

  • already paid the initial penalty of £100
  • had no transactions
  • made an appeal
  • had an appeal allowed
  • ceased the scheme by entering a final event
  • registered the scheme in error
  • registered a duplicate scheme
  • notified EMI option grants

Editor's note: It is doubtful that a return is in fact due if there is no reporting obligation i.e. if a scheme was set up in error, duplicated etc.

Appeals

If you wish to appeal against a late filing penalty you can write to HMRC at:

Charities, Savings and International 2 
HM Revenue and Customs 
BX9 1BU 

or by email: This email address is being protected from spambots. You need JavaScript enabled to view it. telling HMRC why the return was late.

Useful Links

Employment Related Securities: designing share schemes and how they are taxed

How to appeal a tax penalty