What are employment related securities (ERS)?
Employment related securities (ERS) are when employees or directors (including non-executive directors) are connected with transactions involving shares, options, or other securities by reason of their employment.
If a transaction of this nature occurs then reporting may be required.
A transaction does not need to be part of a formal share plan to be reportable and could instead be a one-off transaction with no income tax charge.
Common types of reporting
Annual returns will be required where a company operates any of the following tax-advantaged share schemes:
- Enterprise Management Incentives (EMI)
- Company Share Option Plan (CSOP)
- Share Incentive Plan (SIP)
- Save As You Earn (SAYE)
Additionally, what is known as an “Other” return, is required for filing any other ERS arrangements. Some of these arrangements are:
- Non-tax advantaged share options
- The acquisition, disposal or conversion of shares or other securities
- The lifting of restrictions on restricted securities
- Restricted stock units (RSUs) and restricted stock awards (RSAs)
- The variation of rights attached to securities
- Post acquisition benefits provided from securities
When does reporting need to be done?
- Following the end of each tax year (this runs from 6 April to 5 April), transactions need to be reported on an end of year return by 6 July.
How is reporting completed?
- Share schemes need to be registered online via HMRC’s ERS online service if not already done so. It is crucial that the correct scheme type is created and is registered in respect of the correct tax year(s) of activity.
- We are not able to register schemes on the company’s behalf, however, we can provide instructions for doing so and can offer a call where we can share screens to assist with this crucial step of the process.
- Following this, we can obtain online authorisation so that we can liaise directly with HMRC with regards to ERS filings. This includes the preparation and submission of in year notifications and end of year returns.
Why is ERS reporting important?
- The company can obtain a corporation tax deduction in some instances when shares are acquired
- HMRC could enquire into share scheme returns or a specific transaction and the appropriate filings being submitted on time by a professional advisor is crucial.
- If your company is the subject of a due diligence exercise in the future on a potential sale / exit, then having the required documentary evidence of ERS reporting will be important. Failure to have this may impact the sale price on exit.
- There are significant late filing penalties for late or inaccurate filings of ERS returns.
Potential exemptions
There are some potential exemptions from ERS reporting requirements. However, if any dubiety, please contact a member of our team and we can confirm the position. Some of the exemptions from filing are:
- Shares acquired on (or shortly after) incorporation of a company.
- Transfers of shares made in the normal course of domestic family or personal relationships
- Residents’ shares in flat management companies
- Members’ clubs formed as companies
- Share for share exchanges
- Rights issues
- Bonus issues
- Scrip dividends
- Dividend reinvestment plans (DRIPs)
- Shares acquired independently by directors and employees
- Acquisitions by employees who are not UK resident
How we can help
- Planning -We can advise on which type of share scheme would suit your company’s needs and ambitions
- Implementation – We can assist with the scheme implementation to ensure that the company and employees are aligned in their goals and objectives and incentivised to perform well and grow the business.
- Employer awareness and employee engagement – We can provide guides advising on chargeable events and potential pitfalls for whichever share scheme you choose.
- Ongoing support – We offer continuous support and an open dialogue such that the share scheme can be adapted as your business changes and can assist with any questions you may have.
- Share valuations – it’s crucial that the company’s shares are valued correctly so that share schemes are robust, and the tax position is clearly defined. Our in-house corporate finance team are on hand to assist the tax team with valuing your company and its shares.
Questions and more
If you need clarification, have questions or would like to chat anything through, contact us via entrepreneurialtax@ct.me.
