Employment-related securities (ERS) are shares and other securities (including units in a collective investment scheme) acquired by an individual, where the right or opportunity to acquire the security is available by reason of employment.
Carried interest and co-investment entitlements issued to UK-based directors or employees of a fund manager or investment adviser are generally treated as ERS.
What are the obligations?
Companies have an obligation to:
- Register any new carried interest or co-investment, and any top-up/reallocations of carry, issued between 6 April 2023 and 5 April 2024 with HMRC. This process can take up to 10 days, so it is important to allow time for registration to meet the annual returns deadline.
- File annual returns in respect of existing carried interest or co-invest schemes for the 2023/24 tax year – even if nothing has paid out or changed, and the business is filing a nil return.
This must be done online using HMRC's Employment Related Securities Service by the deadline of 6 July 2024. (Any carry/co-invest issued on or after 6 April 2024 will be reported next year).
Late filing will trigger automatic penalties from HMRC.
Where can I find the templates?
Carried interest should be reported under "Other ERS schemes and arrangements" using the relevant HMRC template and guidance note. Further information is available on HMRC's Employment Related Securities Service.
While it is possible for businesses to use their own templates, we recommend downloading HMRC's template to take into account any recent changes.
Practical points
- Carry/co-invest held by salaried members of an LLP will count as ERS for these purposes.
- New/top-up carry or co-investment interests should be reported using the "Other acquisition" tab in the template.
- Returns are required for carry or co-investment interest issued to employees or directors who are liable to UK employment tax. This will include all UK residents and any non-UK residents who carry out duties in the UK.
- Where an individual needs to be included on a return but does not have a UK national insurance number, an alternative reference should be used – see Employment Related Securities Bulletin 47 (January 2023).
- It is important to take screenshots of all the information uploaded to HMRC for your records.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.