Employment related securities – a ticking time bomb?

This is a busy time of year for finance departments, who are often preoccupied with month end accounts, audits and payroll reporting.  However, failing to submit an Employment Related Securities (“ERS”) annual return before the 6 July 2019 deadline could prove costly.    

Not only does non-compliance result in hefty penalties, ERS reporting is also an increasingly common matter considered in due diligence, when it comes to selling a company. 

Is a return required? 

Any company whose directors or employees have an interest in its shares, particularly where changes have occurred during the year ended 5 April 2019, is likely to have a reporting obligation.   

This is because ERS returns are not limited to formal share schemes, such as EMI schemes – they also capture unapproved share schemes and virtually any other director or employee share transaction, including one-off arrangements such as share transfers or gifts. 

How does online filing work? 

Assuming the company is already registered to use HMRC’s Online Services, all share schemes and ERS arrangements must be registered before an annual return can be filed online (the registration process can take up to seven days, so this should be done in plenty of time). 

It is then necessary to consider what type of ERS return is required – this will depend on whether there are any reportable events:

  • Reportable events – if there have been any reportable events in the tax year (including the grant, exercise or lapse of share options, or the transfer or gift of shares), details of these must be reported in the return. 
  • No reportable events – if there have been no reportable events in the tax year, the company is still required to complete a “nil” return. 

What are the penalties for non-compliance? 

The penalties for the late filing of an ERS return are:

  • One day late – £100
  • 3 months late – a further £300
  • 6 months late – a further £300
  • 9 months late – a daily penalty thereafter of £10 until online filing is completed.

An inaccurate ERS return could incur a penalty of up to £5,000.

How can RG help? 

We can help companies with all aspects of ERS reporting, including:

  • Helping you to determine whether a particular arrangement is reportable;  
  • Registering a share scheme or ERS arrangement with HMRC; and
  • Filing ERS returns. 

Where relevant, we are also able to advise on the corresponding personal tax implications, company PAYE or NIC implications and share valuation, as well as assisting with the disclosure of ERS arrangements that have not previously been correctly reported. 

Please get in touch with your usual Ryecroft Glenton contact on 0191 281 1292 if you would like to discuss any of the above in further detail. 

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