Time to get ready for share plan reporting!

Time to get ready for share plan reporting!

Employers should take steps now to avoid last minute issues ahead of the 6 July 2021 deadline.

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Employers must report certain events concerning employment-related securities and securities options to HMRC each year.

What do I need to do?

In summary, employment-related securities year-end reporting involves:

  • Registering any new employee share plans or other arrangements with HMRC; and
  • Completing and submitting returns disclosing reportable events (or a ‘nil’ return where no report is due).

Registering new plans and other arrangements

Any new share plans, or other arrangements involving employment-related securities or options, should be registered with HMRC in time to allow the associated returns to be filed on or before 6 July 2021.

This is critical for new SAYE plans, CSOPs and SIPs established in 2020/21, as late registration without a reasonable excuse would mean that only awards made under the plan from 6 April 2021 qualify for income tax relief.

New Enterprise Management Incentive (EMI) options must be reported to HMRC within 92 days of being granted to qualify for tax advantages. This means that, in addition to the 6 July deadline, in practice new EMI plans must be registered in time for notifications to be filed within 92 days of the first grant of options.

Last year HMRC accepted that the coronavirus pandemic could give affected employers a reasonable excuse for late registrations and filings.

However, HMRC are yet to confirm whether they’ll take this approach for 2020/21, so it’s prudent to assume there will be no easement this year.

Certain events outside a formal employee share plan must also be reported and might need to be registered as with HMRC as a ‘plan’.

Examples include ad hoc share awards, and acquisitions of shares and/or options on a change of control or other transaction.

Completing and submitting returns

HMRC can use the returns to check:

  • PAYE and NIC operated on share awards;
  • Corporation tax relief claimed on employee share acquisitions; and
  • Employees’ self-assessment returns.

Employers must therefore be confident that the information provided in the annual returns is complete, correct and consistent with their payroll and corporation tax compliance positions.

Completing the annual share plan returns is therefore an opportunity to confirm that payroll compliance is accurate, and employees have made good PAYE due on share awards in order to prevent additional ‘tax on tax’ charges arising.

In particular, share awards held by internationally mobile employees, where the reporting, payroll and corporation tax requirements are not completely aligned, can present difficulties.

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

Automatic penalties arise on late submissions, and a penalty of up to £5,000 can be imposed for any material inaccuracies that are careless, or which are not corrected without delay.

What steps should I take now?

There are practical steps employers should consider taking now to get ready:

  • Check whether any new plans or other reportable arrangements were established in 2020/21 and begin the registration process – ideally before the end of April;
  • Confirm whether changes were made to existing SAYE, CSOP, SIP or EMI plans and, if so, whether these affect their qualifying status;
  • Understand how your plans operate, for example:
    • If a plan provides for both ‘Restricted Stock Units’ and ‘Restricted Stock Awards’, do you understand the distinction?
    • Are shares acquired subject to restrictions (this is common in private companies 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 data – is it accessible and robust for reporting purposes, particularly in relation to IMEs?

The impact of the coronavirus outbreak might mean more time is needed to source and review data not normally required for the year-end returns.

For example, information might be needed on equity awards held by individuals who were not UK resident in prior years, but who returned from an overseas secondment due to the outbreak, and so must be included in the 2020/21 return.

More broadly, employees who have been internationally displaced by the outbreak could cause unexpected UK PAYE or NIC obligations. This could occur where mobile employees unexpectedly establish UK tax residence or have more UK workdays than anticipated. Employers should therefore review their mobile workforce, identify any such exposures, and determine how these should be addressed.

Less common reportable events that don’t normally feature on the annual returns – e.g. the lapse of leavers’ tax advantaged share options or, in some circumstances, disqualifying events for EMI options – might also have occurred.

Employers should therefore leave enough time to address any coronavirus related complications.

How KPMG can help

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

We also assist employers with year-end P11D reporting and PAYE Settlement Agreements (PSAs). For many employers, new categories of coronavirus related expenditure (e.g. COVID-19 tests) and temporary new tax and NIC exemptions to support remote working (e.g. for home office equipment) will also affect this year’s reporting and the PSA. Year-end procedures therefore need to address these changes and capture reportable benefits and expenses accurately.

If you’d like to discuss how KPMG can support your share plan or broader year-end employer reporting, get in touch with your normal contact or email employersclub@kpmg.co.uk

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