UK: Employer Compliance – 2023/24 Employment Related Securities (ERS) Reporting

In this article for employers, we outline the key tax deadlines coming up for employers concerning ERS schemes. Additionally, we address changes announced by HMRC over the past few years in relation to ERS reporting alongside common issues encountered in ERS administration.

Reporting for employee share schemes

Employers must report annually any events that occur in relation to ERS, which include any shares or other securities that are acquired by reason of employment.

The deadline for the 2023/24 tax year is 6 July 2024. However, filing the ERS return involves several key tasks that are essential in submitting the return to HMRC, and we recommend that employers start looking at this now to ensure they meet the deadline.

The key points to remember include:

1. Registering new plans: For new share plan arrangements (including simple acquisitions of shares by employees and directors, as well as non-executive directors) that occurred in 2023/24, companies must first register "a plan" online with HMRC via the ERS Online Services page. This process can take time and should not be left until 5th July.
2. Verify or self-certify the tax-advantaged plans in place, including Enterprise Management Incentive Plans (EMIs), Share Incentive Plans (SIPs), Save As You Earn (SAYE) plans, and Company Share Option Plans (CSOPs). If you do not verify them, you risk losing the beneficial tax treatment.
3. Submit annual returns with all reportable events: The list of potential reportable transactions/events includes (but is not limited to) any acquisition of shares or securities (e.g. loan notes, carried interest, etc.) made by employees or directors, the grant of share options to (or exercise of share options by) employees or directors and certain disposals of securities (where these events have given rise to income tax).
4. Nil returns: Remember to submit a nil return for all open tax-advantaged and non-tax advantaged plans even if there have been no reportable events in the tax year. Employers should also submit a nil return for the year of grant of EMI options (assuming none of the options are exercised or lapse in the same year), in addition to separately notifying grant of those options.

Reminder of the reporting changes impacting net settled awards and other changes to the annual return template

Changes in reporting requirements of net settled awards

In October 2019, HMRC published ERS Bulletin 33, which outlined changes regarding the reporting of net settled awards. In response to numerous queries arising from Bulletin 33, HMRC released Bulletin 39 in August 2021 to offer detailed guidance on how companies should report net settled awards in the end-of-year template.

As a reminder, effective from April 6, 2021, net settled awards should be reported in two separate rows in the end-of-year ERS template as outlined below:

1. Row 1 – report the acquisition of the actual number of securities delivered to the employee in column number 31, along with relevant information in other columns.

2. Row 2 – report the cash cancellation in relation to the non-issued shares by:

• Entering 'Yes' in column number 30.
• Including the shares given up in column number 31.
• Leaving columns 32 to 37 blank.
• Entering 'Yes' in column 38.
• Providing the sterling value of the cash received in column 39, along with other pertinent information in the respective columns.

Example:

An employee was granted a nil-cost option award over 1,000 shares. At exercise, the shares have a market value of £20 per share. Assuming the employee's effective tax rate is 47 percent, the reporting would be as follows:

Further information can be found in HMRC's bulletin 39.

Other changes to the end-of-year template

In January 2023, HMRC published ERS Bulletin 47, which set out changes to the end-of-year template for these returns. The templates have been updated from 6 April 2023 to reflect the following changes:

• The PAYE reference for the employing company became mandatory, as well as the question about whether PAYE has been operated for non-tax-advantaged schemes.
• The NI number field for each employee became mandatory. If the employee does not have an NI number, the following format must be used, which generates a reference number specifically for the return template:

o 'TN' to indicate an ERS reference that cannot be used for any other purpose;
o The employee's date of birth; and
o A 'no NI number reason identifier'.

Further information can be found in HMRC's bulletin 47.

HMRC has also updated the guidance notes to the templates to give more information about registering for ERS online, registering a share scheme and notifying the end of a scheme.

The additional mandatory requirements have placed further administration burdens on employers, during what is already a challenging "compliance timetable".

Common issues relating to ERS returns

Some of the most common errors/issues we see occurring in regards to ERS returns include:

• Using the wrong currency in the ERS return template which will cause the price paid for the shares to be incorrectly reported.
• Failing to include those individuals that are not UK-based employees but carry out duties in the UK during the period of the award.
• Excluding non-executive directors from the "Other" return for non-tax advantaged plans.
• Failing to review, analyse and report correctly any restrictions attached to the shares.
• Failing to report exercises and lapses of EMI options correctly.

Penalties

Late ERS filings will result in penalties from HMRC as follows:

A penalty of up to £5,000 can also be charged for a material inaccuracy in an ERS return which is not immediately addressed and resolved.

Originally published 22 April 2024

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.