At the end of each tax year, employers must report specific events connected to employment-related securities and options to HMRC. Thus, for the 2023/24 tax year, employers must register any new employee share option plans and other reportable arrangements for the first time and file the required returns, including nil returns, by July 6, 2024. Employment-related securities reporting submitted late is automatically assessed with penalties, and incorrect returns may impose fines of £5,000 in the careless or untimely corrected event.
The following article outlines the main considerations that employers need to consider regarding the 2023/24 employment-related securities reporting.
What Employers Should Do?
Any new share plans or employment-related securities arrangements established during 2023/24 require prompt registration with HMRC by the employer. This is essential for correct year-end employment-related securities reporting, for which filing is due by July 6 2024. Registrations should be filed by the reporting company, not its agent, wherever possible, leveraging existing share plan registrations to reduce administration and potential penalties.
Moreover, plan registration should be appropriately categorized this year—registration of tax-advantaged plans, including Save As You Earn and CSOPs, should be submitted before the deadline for income tax relief eligibility. Regarding EMI option grants, reporting for 2023/24 should be aligned with other tax-advantaged plans: submit to HMRC by July 6 after the tax year’s end without the need for serial registration within 92 days of the grant.
Lastly, non-employee share plan events – stand-alone share awards, acquisitions during a change of control, etc.- require careful identification by legal specialists, reward experts, and tax teams. Many reportable events, such as employees’ acquisitions of shares at market value or share disposals without a “section 431(1) election,” will have no income tax charge.
Lastly, it is recommended that employers follow the Supreme Court’s stricter interpretation of the statutory rules Gazette, 2023, keeping in mind the Vermilion case from October 2023. It is crucial to identify all related acquisitions, not just direct employment connections. For example, shares acquired by family members who own a family company and work for the employer should be reported in the ERS return.
How does this reporting interact with other tax compliance issues?
HMRC carefully scrutinizes companies’ yearly share scheme filings to confirm several critical facets:
- Whether PAYE, national insurance contributions, and the Apprenticeship Levy were properly applied to stock awards bestowed upon personnel.
- Furthermore, they validate that claims for corporate tax relief concerning workers obtaining shares lined up with stipulations.
- Lastly, amounts documented as relating to employees’ self-assessment returns are checked for consistency with what was presented.
Employers must be sure that their annual submissions covering securities linked to work are exhaustive, correct, and in alignment with obligations involving payroll processing as well as corporation duty.
Failure to complete these annual ERS returns potentially means the payroll is not confirmed as compliant or that employees have paid their PAYE due to the share awards being made. This raises the risk of additional tax bills on employees. There is also a risk of inquiry, particularly where a company does not operate PAYE settlement agreements.
Assessing correctly ‘cash-cancelled’ and ‘net-settled’ shares is another complicated issue. With ‘net settled’ shares, the employee receives cash instead of shares. In recent years, HMRC has issued a new guide to the corporate tax treatment of these awards.
What do employers need to do now?
To gear up for the looming 2023/24 share plan reporting deadline and kickstart the registration process beforehand, employers would be wise to focus on several crucial considerations:
- ·Assessing any novel plans or notable arrangements enacted in the recent reporting period would be prudent, ensuring supplementary registrations are submitted punctiliously if necessitated.
- A meticulous review of alterations to established tax-benefited plans such as SAYE, CSOP, SIP, or EMI schemes is also prudent, confirming continued adherence to statutory requisites.
- Gaining thorough familiarity with the intricate dynamics of share distribution schemes, including the handling of conditional allotments like RSUs while configuring precise allocations – especially in instances involving RSUs and Restricted Stock Awards – would be judiciously advised.
- Additionally, scrutinizing any stock procurements subject to binding constraints that are prevalent in privately held entities and continental models could proactively identify potential reporting requisites.
- Examining whether allotments are monetarily voided or net-settled would be sagacious, considering implications for UK corporate tax relief while ensuring observance of HMRC directives remains uncompromised.
- Identify reportable events and stakeholders with necessary data, including HR, payroll, tax, legal, and company secretarial departments.
- Ensure the required information is accessible on mobile devices while remaining robustly secure.
- Review compliance with data protection regulations for both UK and international operations, particularly regarding cross-border transmission of employee personal data for annual returns.
- Some employees lack national insurance numbers; confirm dates of birth and reasons in these instances, and check for any share-based awards.
- Validate payroll processes, including evaluation of ‘readily convertible assets’ for privately held company stocks and reconciling payroll reports with employee share plan participation records.
- Make certain to accurately handle employee departures across all share plans, considering classification as good or bad leavers.
- Reconcile appropriate tax reserve accounts with submissions to HM Revenue & Customs. Address potential underpayments to and recoveries from the payroll tax authority.
- Establish rigorous processes to guarantee conformity with Senior Accounting Officer reporting obligations, if applicable.
What else should employers consider in relation to employee share plans?
On Tax Administration and Maintenance Day, April 18, 2024, the Government could, for example, announce the conclusions of last year’s consultations on possible changes to certain tax-beneficial SAYE plans and SIPs or change the tax code regime of employee ownership trusts (EOT) and other employee benefit trusts.
Employers with SAYE plans may also need to consider their reaction to another reduction in the CGT annual exemption to £5,000 from April 6, 2024, and its impact on SAYE participants.
This proposal will also reduce the dividend allowance to just £500 from April 6 2024, so employee guidance notes that assist employees in reporting any share plan dividend or gain accurately may be useful.
What effect will the proposed withdrawal of the ‘non-domicile’ mechanics and introduction of the new ‘Foreign Income and Gains’ regime on April 6, 2025, have on employee plan participants?
Not linked to 2023/24 reporting of employment-related securities, employers should monitor these provisions for potential implications, as well as what they indicate for employee share option plans viewed as part of one’s employer value proposition and how they operate.
How can TaxCan Accountants help?
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