Employment related securities – Annual reporting

Tax Compliance in the Wake of the Pandemic

Tax Compliance in the Wake of the Pandemic

UK employers must register any new reportable arrangements and file all Employment Related Securities (ERS) annual returns with HMRC on or before 6 July following the end of the tax year. Employers have an annual obligation to report any notifiable events that occur in relation to ERS (i.e. shares or other securities that are acquired by reason of employment), or rights to acquire ERS (such as employee share options). 

Any notifiable events must be reported to HMRC by submitting the relevant return(s) through ERS Online Services on or before 6 July. HMRC uses the information provided in the annual returns to help identify any errors in employer payroll withholding on equity awards, U.K. corporation tax relief claimed in relation to employee share acquisitions, and employees’ personal tax returns.

Last Summer, HMRC accepted that the pandemic provided affected employers with a reasonable excuse for late share plan registrations and year-end returns for the 2019/20 tax year. 

At the time of writing, HMRC has yet to confirm whether they will take this approach for the 2020/21 tax year, and so it would be prudent for businesses to proceed on the basis that there will be no easement this year. Employers should therefore ensure that new share plans are registered, and year-end returns are filed, on or before 6 July 2021. 

Nevertheless, experience has shown that for at least some employers the impact of the pandemic has meant that more time has been 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 to the UK from an overseas secondment due to the outbreak, and so must be included in the 2020/21 share scheme return.

Less common reportable events that do not normally feature on the annual returns may also need to be identified when preparing the 2020/21 returns. Examples include, the lapse of leavers’ tax advantaged share options or, in some circumstances, disqualifying events for Enterprise Management Incentive options.

Action for employers: It is advisable for employers to ensure that they leave enough time to address any coronavirus related complications, when preparing their annual share scheme reporting this summer.

Employer considerations:

  • In order to file the relevant returns, employers that have a reporting obligation for 2020/21 must register each plan or other arrangement with HMRC’s ERS Online Services (part of HMRC Online Services), if this has not already been done.
  • Non-tax-advantaged plans or other arrangements can be included under a single registration.  U.K. tax-advantaged plans (which are known as CSOP, SAYE, SIP, and EMI plans) must each be registered separately.
  • For U.K. tax-advantaged CSOP, SAYE, and SIP plans established during 2020/21, employers must submit on or before 6 July 2021, an online declaration that the conditions for tax-advantaged status are met.  If this is not done, the relevant tax advantages may be lost.
  • Employers should review their ERS return registration status to confirm which registrations (if any) were made in previous years and whether any additional registrations are required.

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