Employee share plan reporting 2020/21: Are you ready for the deadline?

The 2020/21 Employment Related Securities annual returns should be filed on or before 6 July 2021.

The 2020/21 Employment Related Securities annual returns should be filed

The deadline for filing the 2020/21 Employment Related Securities (ERS) annual returns is now just under a month away. This second article in our series on 2020/21 share plan reporting looks at what you should prioritise now to ensure you have enough time to prepare and file accurate returns by 6 July 2021.

What should employers focus on now?

As the filing deadline approaches, there are several issues to consider:

  • If you have not yet registered new share plans, do so as a matter of urgency – this can take time and could delay filing;
  • Identify the relevant stakeholders in the business (HR, payroll, tax, company secretarial, legal) and collate the data required to complete the forms; and
  • Review that data, identify reportable events and any areas where further information is required.

What can present challenges?

HMRC use the annual returns to identify errors or discrepancies in:

  • Payroll withholding on share based awards;
  • Statutory corporation tax relief for employee share acquisitions; and
  • Employees’ personal tax returns.

It’s therefore important to ensure they are accurate, and to use the process of completing them to review the 2020/21 payroll compliance, so any errors can be identified and any relevant PAYE recovered from employees before 6 July 2021 to minimise the likelihood of ‘tax on tax’ charges arising (see below).

If you fail to register or file on time, automatic penalties will be incurred and awards granted under tax advantaged plans could potentially lose their preferential tax treatment.

The following aspects of share plan reporting can present challenges.

Internationally Mobile Employees (IMEs)

Identifying IMEs is key to ensuring accurate returns. This includes assignees as well as permanent movers both into and out of the UK.

It’s important to capture the entire population and confirm awards have been taxed appropriately. Where they haven’t, this should be disclosed to HMRC and corrected.

The position might be more complex in 2020/21 due to the coronavirus outbreak. 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 were internationally displaced by the pandemic could trigger unexpected UK payroll withholding and social security obligations. This could occur where mobile employees unexpectedly establish UK tax residence or have more UK work-days than anticipated. Employers should review their mobile workforce, identify any such exposures, and determine how these should be addressed.

Net settled awards

It’s important to confirm whether share awards were ‘net settled’ by paying cash in respect of the payroll withholding due and settling only the ‘net’ award in shares. HMRC have confirmed that ‘net settled’ share awards should be reported in two separate lines on the return to disclose the net number of shares acquired and the cash payment received.

Net settling share awards also reduces the statutory corporation tax relief available. Whether awards are net settled can sometimes be difficult to determine and specialist advice might be required.

Transactions

Acquisitions or mergers often give rise to significant additional share transactions to report. Companies should collate this data as soon as possible as this can be both challenging and time consuming.

New or amended share plans 

It’s advisable to review new share plans, or amendments to existing plans, to confirm the specific reportable events, which section of the return needs to be completed, and the statutory corporation tax relief available.

Correcting errors

If payroll errors in 2020/21 are identified when completing the share plan returns, the priority is to ensure that before 6 July 2021 affected employees make good to their employer any PAYE that wasn’t correctly withheld. If employees don’t make good any under withheld PAYE within that time limit, the relevant PAYE could in effect be taxed as a benefit in kind, giving rise to additional ‘tax on tax’ charges.

The employer can correct 2020/21 payroll errors with HMRC via an amended Full Payment Submission (Earlier Year Updates were withdrawn for 2020/21 and subsequent years). However, depending on the circumstances, an alternative approach to correcting any errors might be preferable. We’ll consider this further in our final article on 2020/21 share plan reporting, which will be published in July 2021.