Introduction to Employment-Related Securities (ERS) Annual Returns

As the tax year draws to a close, companies in the UK are reminded of the looming deadline for filing their Employment-Related Securities (ERS) annual returns. These returns are crucial for reporting any share-related activities involving employees, directors, or their households. The deadline for submitting these returns is 6 July 2024, and failure to comply can result in significant penalties.

What are Employment-Related Securities?

Employment-Related Securities (ERS) include shares or securities awarded to employees as part of their compensation package. These can be in the form of tax-advantaged schemes like Enterprise Management Incentives (EMI), Company Share Option Plans (CSOP), Save As You Earn (SAYE), and Share Incentive Plans (SIP), or non-tax advantaged arrangements such as unapproved options or direct share issuances.

Importance of ERS Annual Returns

ERS annual returns are mandatory for all companies that have granted employment-related securities during the tax year. These returns help HMRC track and manage the tax implications of such securities. Even if there have been no reportable events, a "nil return" must still be filed to avoid penalties.

Types of ERS Schemes

• Tax-Advantaged Schemes:

• EMI (Enterprise Management Incentives): Designed for small and medium-sized enterprises, offering tax benefits for both employers and employees.

• CSOP (Company Share Option Plans): Allows companies to grant options to employees, providing tax advantages under certain conditions.

• SAYE (Save As You Earn): Enables employees to save a portion of their salary to purchase company shares at a discounted price.

• SIP (Share Incentive Plans): Offers tax benefits for employees who receive shares from their employer.

• Non-Tax Advantaged Schemes:

• Unapproved Options: These do not offer tax benefits but can still be used to incentivize employees.

• Joint Share Ownership Plans (JSOPs): Allow employees to jointly own shares with the company.

Key Information for Filing ERS Returns

To ensure compliance with HMRC regulations, companies must gather specific information depending on the type of ERS scheme they operate:

• For EMI, CSOP, and SAYE Schemes:

• Dates of new option grants.

• Number of grantholders.

• Unrestricted Market Value (UMV) and Actual Market Value (AMV) per share.

• Exercise price per share.

• Tax implications of each option exercise, release, lapse, or cancellation.

• For SIP Schemes:

• Type of shares awarded (e.g., free, matching, partnership, or dividend shares).

• UMV per share and total value of shares upon acquisition.

• Number of employees who met the individual grant limit.

• Date and tax implications of each withdrawal event.

• For Other ERS Schemes:

• Extensive details about employee, company, and grant specifics.

• Disclosure of non-standard activities, such as securities acquired below market value.

Registration and Filing Process

Before filing an ERS return, companies must register their schemes with HMRC. This process can take up to 10 days, so it's crucial to start early to avoid missing the deadline. The returns are filed online via HMRC's PAYE for Employers – Employment Related Securities section.

Late Filing Penalties

Missing the deadline can result in significant penalties:

• Initial Penalty: £100 for missing the 6 July deadline.
• Additional Penalties:
• £300 if the return is not submitted by 6 October.
• £300 if the return is not submitted by 6 January.
• £10 per day if the return is not submitted by 6 April of the following year.

Inaccurate returns can also incur penalties up to £5,000 per return.

Conclusion

With the deadline for ERS annual returns fast approaching, companies must ensure they are well-prepared to file their returns accurately and on time. Understanding the types of ERS schemes and the information required for each is crucial for compliance. Seeking professional advice can help navigate the complexities of ERS reporting and avoid costly penalties.

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