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Employee share plan reporting 2019/20: Time to get ready!

Time to get ready!

Employers can take steps now to plan ahead of the deadline and avoid last minute issues.

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Lorna Jordan

Director of Reward, Tax and People Services

KPMG in the UK

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Also on home.kpmg

Currently, the 2019/20 deadline for filing annual share plan returns remains 6 July 2020 and automatic penalties will arise for forms that are not submitted by the deadline. However, this could change, and we will update you should we receive any further information.

We appreciate that some companies may want to delay starting the reporting process given the current issues you may be facing with COVID-19. Others may want to start the year end reporting now.

HMRC uses annual share plan reports to check employer payroll and corporation tax filings, as well as employee self-assessment returns – so it’s important to get your reporting right. Start early to lower the risk of late filing, and help you identify and sort any payroll errors more quickly.

What do employers need to do?

Year-end employee share plan reporting involves three key tasks:

  • Registering new plans (or other arrangements) established during 2019/20 via HMRC’s Employment Related Securities (ERS) Online Services;
  • Certifying that certain tax advantaged plans meet the qualifying conditions; and
  • Submitting returns detailing reportable transactions, or ‘nil’ returns where no reportable events occurred.

Each new tax advantaged share plan – that is Save As You Earn (SAYE) plans, Company Share Option Plans (CSOPs), Share Incentive Plans (SIPs) and Enterprise Management Incentive (EMI) plans – must be registered individually.

Other plans (including overseas plans with UK participants) may be registered individually or included under a single registration.

Certain events that occur outside a formal employee share plan can also give rise to reporting obligations, and might need to be registered as a ‘plan’. Examples include ad hoc share awards, and acquisitions of shares and/or options on a change of control or other transaction.

Why is this important?

Registration

It is crucial that SAYE plans, CSOPs and SIPs established in 2019/20 are registered on ERS Online Services before 7 July 2020.

Each grant of EMI options must be reported to HMRC within 92 days, meaning new EMI plans must be registered with HMRC in time for notifications to be filed within 92 days of the first grant of options.

Unless the employer has a reasonable excuse, late registration of a new SAYE plan, CSOP or SIP means that the plan will only qualify for income tax relief from 6 April 2020.

This means that awards granted in 2019/20 would not qualify for tax relief (i.e. they would be treated as non-tax advantaged awards, as would late notified EMI option grants absent any reasonable excuse for late notification).

Reporting

HMRC uses information provided in the annual returns to identify any errors in:

• PAYE and NIC operated on share based awards;

• Corporation tax relief claimed in relation to employee share acquisitions; and/or

• Employees’ self-assessment filings.

Employers must therefore be confident not only that the information provided in the annual returns is complete and correct, but that it is consistent with their payroll and corporation tax compliance positions.

Share awards held by Internationally Mobile Employees (IMEs), where the reporting, payroll and corporation tax requirements are not completely aligned, can present particular challenges.

Completing the annual share plan returns is a good opportunity to confirm that payroll compliance is accurate and, in particular, PAYE due on share awards has been made good in full by employees to prevent additional ‘tax on tax’ charges arising.

Identifying and correctly reporting ‘cash cancelled’ and ‘net settled’ awards – where employees acquire cash rather than shares in respect of some or all of the award – can also be challenging.

This is often done to facilitate payroll withholding, and can affect the corporation tax relief due to the employer (see our previous article on net settlement).

Penalties

An automatic penalty of £100 per plan registration will arise in relation to a late submission.
Additional penalties arise where submissions remain outstanding by 6 October 2020 (an additional £300) and 6 January 2021 (a further £300).

Further penalties of £10 per day can be imposed if a return has not been submitted by 6 April 2021.

A penalty of up to £5,000 can be imposed in respect of material inaccuracies in returns which are careless, or which are not corrected without delay.

What can I do to get ready?

HMRC will accept share plan returns for 2019/20 only from 6 April 2019. However, there are practical steps employers should consider taking now to get ready:

  • Check whether any new reportable arrangements were established in 2019/20 and begin the registration process – ideally this should be started before the end of April to allow for potential delays);
  • Confirm whether changes were made to existing SAYE, CSOP, SIP or EMI plans in 2019/20 and, if so, whether these affect their qualifying status;
  • Understand how the plans operate, for example:
    • If a plan provides for both ‘Restricted Stock Units’ and ‘Restricted Stock Awards’, is the distinction understood?
    • Can you establish which employees have been granted which type of award – who holds this data and is it robust?
    • Are shares acquired subject to restrictions (this is common in some private company and continental European plans)?
    • Are awards ‘cash cancelled’ or ‘net settled’ (and how does this affect the corporation tax relief position)?
  • Review the reportable events and understand which stakeholders in the business (e.g. human resources, payroll, tax, legal, company secretarial) hold the relevant information – is the data accessible and robust for reporting purposes, particularly in relation to IMEs?

How KPMG can help?

KPMG can assist employers to complete and submit plan returns, review their payroll and corporation tax compliance processes for employee share plans and confirm tax-advantaged plans’ qualifying status.

If you have any queries, or would like to discuss how KPMG can assist you, please get in touch with your normal contact or email employersclub@kpmg.co.uk.

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