On-line reporting via the HMRC portal of transactions with your employees or directors involving shares or options is compulsory. Employers who do not report will face penalties and could face getting their schemes disqualified from tax advantages. Old style paper returns are not accepted by HMRC.
The deadline for submission of tax returns reporting share or option transactions is 6 July 2016.There are many other HMRC reporting deadlines but our focus for this update are tax returns for share and option awards – if you have queries on other matters please get in touch.
We have found our clients find the whole process utterly confusing and make mistakes. In response, for the first time this year we have introduced a new service whereby we will take care of filing for you. More details are set out below.
Your responsibilities
HMRC requires companies to file compliance reports via “ERS online”. ERS online is an add-on service to your existing PAYE reporting system. It applies to any share based award made to employees or directors including share issues, restricted shares, growth shares, unapproved options and tax approved options such as EMI. You may have to file more than one tax return. For example, if you have awarded an EMI option and given director shares and or unapproved options the awards fall under different tax returns and you will need to file two tax returns.
Reporting requirements for the year 6 April 2015 to 5 April 2016
First award made during the year 6 April 2015 to 5 April 2016 – if you have made an award of shares or options to your employees or directors during the year for the first time you will need to register with HMRC. If you do not register you will not be able to comply with your tax filing duties described below.
The implications of not registering are the tax benefits of HMRC approved plans such as EMI are lost. You may face claims from your employees. Furthermore, your company could lose out to deduction from corporation tax on exercise.
Awards made before the 5 April 2015 – you should already be registered with HMRC. There is no requirement to re-register. If you have not registered then there will be penalties but you must register even if late.
Requirements following registration
In outline, employers must report the grant and exercise of share options, the acquisition of securities and subsequent transactions in them by employees and directors. Under the legislation which catches “employment related securities” all employees and directors are caught including founders and owner manager shareholders. Potentially non-executives are caught depending upon the particular facts. There is little by way of very clear guidance published by HMRC adding to the complexities.
Do you need to report when nothing has changed during the period 6 April 2015 to 5 April 2016?
Yes. At the very least a company needs to submit a nil annual return to avoid penalties. So, if you made a share based award several years ago you will still need to file a return for the tax year ended 5 April 2016 by 6 July 2016.
What information needs to be included in the return?
HMRC requires a plethora of information including information about grant, exercise, cancellation and lapse of options and any adjustments to existing schemes. Forgetting to report minor changes can expose you to risk. You will be required to report the value of the shares in many cases.
What happens when tax returns are not filed or filed late?
The legislation imposes financial penalties on employers if they do not make their filings, with a late filing penalty of £100 and further penalties if the delay stretches beyond three, six and nine months. Finally, if returns are not submitted using the on-line system, a further penalty of up to £5,000 can be levied.
Our service to you – flat fee for preparation and filing of your tax return
We can complete your annual share award tax return for a flat fee of £400 plus VAT per tax return filed. The fee applies irrespectively of how many participants are involved. The fee does not include advice on the valuation of shares for tax purposes but we can quote if you need that service. HMRC are strict. Last year we found the software embryonic which caused difficulties. Best advice is not to leave this to the last minute. Please do get in touch and we can start the ball rolling.