New online reporting requirements for share plans and other equity incentive arrangements
Companies operating employee share plans (whether tax-advantaged or not) and other equity incentive arrangements must take steps to comply with new HMRC online registration and annual reporting requirements by 6 July 2015.
Action may be needed whether you operate a tax-advantaged share plan or have simply put in place other share or share option arrangements involving the grant and exercise of share options (including EMI options), the acquisition of shares or other securities and subsequent transactions in them by employees, including directors.
Employers need to consider what is required by them now, as the 6 July deadline is approaching and satisfying the requirements is not an entirely straightforward process.
New online registration requirements for all equity incentive arrangements
New and existing schemes used by companies for the 2014-15 tax period, whether tax advantaged or not, must be registered through the Employment Related Securities (ERS) Online system (developed by HMRC as an “add on” to PAYE Online), in many cases before 6 July 2015.
Whilst both tax-advantaged and unapproved schemes need to be registered, unapproved schemes need not be registered until such time as there is a reportable event.
Once registered, the scheme will be allocated a unique scheme reference number which can then be used to submit annual end of year returns online – see further below.
Self-certification of tax-advantaged schemes
HMRC approval of tax-advantaged schemes was replaced in April 2014 with a new annual self-certification regime.
So companies with tax-advantaged plans (such as a company share option plan (CSOP), share incentive plan (SIP) or a savings related share option scheme (SAYE)) must also submit an annual declaration in which they self-certify that the plan meets the legislative requirements.
This applies to existing plans approved by HMRC under the old regime as well as newly adopted tax-advantaged plans.
All tax advantaged schemes must be registered, and the appropriate self-certification declaration made, by 6 July 2015, otherwise the tax advantages will be lost (even if the scheme had been approved by HMRC under the old rules).
Reporting EMI Option grants
New awards of EMI Options must now be notified online within 92 days of the date of grant. This replaces the previous requirement to file EMI 1 paper forms. The EMI scheme must be registered online first in order for the notification of grant to be able to be filed within the 92 day deadline.
Online filing of annual returns
Previously companies operating employee equity incentive arrangements were required to comply with annual paper reporting requirements, including submitting Form 40 (for EMI schemes) and Form 42 (for unapproved schemes).
Annual returns must now be submitted online, using the ERS Online system, in respect of each registered employment related securities scheme or arrangement by 6 July following the end of the relevant tax year. This includes any EMI schemes.
Returns must therefore be submitted by 6 July 2015 in respect of the tax year ending 5 April 2015.
The return must be accompanied by an attachment (templates for appropriate attachments are contained on HMRC’s website) if there have been reportable events.
If plans are not registered well in advance of the deadline the fact that it can take up to seven days for a unique scheme reference number to be generated may cause employers to miss the deadline for submission of annual returns, running the risk of penalties from HMRC.
What action do you need to take?
Employers should act now to register employee share plans and other equity incentive arrangements (including EMI schemes) online with HMRC so as to ensure that they do not lose any tax advantages and are ideally positioned to self-certify tax-advantaged schemes and submit annual returns by 6 July 2015.
The new online filing system is in its infancy and it can take some time for employers or their agents to successfully navigate and use it. The new HMRC rules require separate steps in the registration of the plan and the making of appropriate returns but there is an online checking service provided by HMRC for use before final submissions are made.
New penalties will be imposed if returns are submitted late or do not report information in the required format.
Companies operating these schemes should not wait until the deadline of 6 July 2015 but should start the process now since the new online reporting system is significantly more complex than the old paper one.
How to register
Companies without access to PAYE online will have to register themselves for PAYE online using their PAYE and Accounts Office references. An activation code will then be sent to the address on record with HMRC for PAYE purposes and ERS Online will then be accessible.
If agents are to complete the annual returns, you will need to allow sufficient time to register them also – but note that the employer, and not the agent, must register and self-certify schemes.
For more information on registration and self-certification please see the HMRC website.