Annual returns for share-based employee incentives deadline: 6 July 2024

If your business operates share-based employee share schemes (such as EMI or other share option schemes and/or has issued shares to employees), it is your responsibility to file annual Employment Related Securities (ERS) returns. HMRC does not issue any reminders and penalties apply where there are compliance failures.

When do you need to file the return?

Every share-based employee incentive arrangement must be registered with HMRC, broadly before 6 July after the end of the tax year in which the share-based arrangement is established. This applies in respect of HMRC tax advantaged arrangements (EMI, CSOP, SAYE and SIP) and also in respect non-tax advantaged arrangements (e.g. non-tax advantaged share options and growth shares).  Once a scheme has been registered, annual returns must then be submitted online to HMRC between 6 April and 6 July 2024 in respect of the previous tax year, every year, even if there has been no reportable event in respect of the arrangement.

Are there any penalties?

Yes, there are penalties for failure to register new ERS schemes with HMRC, late filing of annual returns, and errors on ERS returns. These can mount up significantly, so don’t get caught out.

There is a £100 initial fixed penalty for a late annual return, and if a return remains outstanding more than three months after the deadline, there is a further fixed penalty of £300. If a return remains outstanding more than six months after the deadline, there is a further fixed penalty of £300. If a return remains outstanding more than nine months after the deadline, a penalty of £10 per day may be imposed by HMRC.  Even if you’ve received and paid the penalty, you must still submit an end of year or nil return to meet your filing obligation.

HMRC can also impose a penalty of up to £5,000 for a material inaccuracy in a return which is careless or deliberate, or which is not corrected by an amended return 'without delay'.

What do you need to report?

Matters that need to be reported vary depending on the type of arrangement, but can include:

1. The grant of share options (see requirements re EMI options below) or the acquisition of shares by employees, including the acquisition of shares by directors and non-executive directors;
2. The exercise of options – for example, if an option holder has exercised some of their options in the tax year;
3. The release, lapse, cancellation, or receipt of any benefit in respect of options – for example, if an employee leaves the company to work elsewhere, options will often lapse; or some companies may cancel and regrant options and this will need to be reported;
4. An exchange (rollover) of tax advantaged (e.g., EMI) options – this applies when there is a company takeover and instead of exercising options the option holders exchange (‘rollover’) their options into the acquiring company;
5. An adjustment of options – for example, if the company has undertaken a subdivision of shares this will affect the number of options and will need to be reported;

6. Post-acquisition chargeable events – in respect of any shares held by employees (e.g., any enhancement in value or sale at over-value); and
7. Nil returns - if the company has registered a share-based employee share scheme, but there is no activity during a tax year, the company must still make a nil return. Failure to do so will result in a non-filing penalty.

Are there any changes to reporting requirements?

1. With effect from April 2023, the Company Share Option Plan ('CSOP') individual limit increased to £60,000. HMRC is updating its end of year template for this change.
2. A big change with effect from 6.4.24 is that EMI options which are granted on and after this date, will need to be notified to HMRC by 6 July following the tax year rather than within 92 days of grant, which is the current requirement. This will not be relevant to annual returns to be submitted in this reporting season by 6 July 2024 but will be relevant to employer compliance requirements next year.

Senior employee incentives solicitor, Abby Watson, explains the importance of taking immediate action:

It’s crucial that companies file their employment related securities annual return(s) with HMRC prior to the deadline of 6 July, even if there’s nothing to report (a nil return). Failure to do so will incur a late filing penalty of £100. Additional automatic penalties of £300 will be charged if the return has still not been filed three months after the original deadline of 6 July, and a further £300 if it’s still outstanding six months after that date. If HMRC don't receive your return nine months after the 6 July, you could be fined £10 a day.

If  you require assistance with your ERS annual return or you’re considering setting up a share incentive scheme, get in touch with our team of employee share schemes solicitors today. From checking whether your business qualifies and valuing your shares (and confirming the value with HMRC), to the planning and drafting of share scheme rules and award agreements – we’ve got you covered.