Regime change: reporting employee share acquisitions, our experience so far

As we reported earlier in the year, the system for reporting on employee share options is has moved online and HMRC will no longer accept paper returns for transactions in employee shares that occur after 5 April 2014.

Alongside the annual returns that need to be made (the most familiar being Form 42 and EMI 40) the system for notifying HMRC of the grant of EMI options has also moved online.

EMI options need to be notified to HMRC within 92 days of the date on which they are granted, otherwise they lose their tax advantaged status and simply become unapproved options (and often the terms of the option will mean that the option lapses or is void if the notification is not given).

This has created difficulties for employers and for advisers. In the past an employer or adviser would simply send in a EMI1 form to HMRC as soon as an option was granted and, after waiting an ever-lengthening period of weeks, they would receive a written confirmation from HMRC that the options had been logged on their system.

Under the new system, an employer must first be set up on HMRC’s online PAYE system and the EMI plan itself needs to be registered before the individual option grants can be notified to HMRC.

Most employers should be set up to use the online PAYE system, but some smaller new employers and overseas employers may not have got that far at the time that they are putting together an EMI scheme.

The difficulty has come with HMRC’s requirement that it should be the employer itself, and not an agent, which registers the option scheme (presumably because the software platform has been built with the other statutory share plans in mind, which, unlike EMI, require an employer to self-certify that the plan is a qualifying plan).

Because an EMI plan must be registered before the individual options can be notified to HMRC, any grant of options will need to be planned. The employer and their advisors will need time to get the EMI plan registered and all of the permissions put in place for options to be notified within the time limit.

Our own experience so far has been that employers are finding the online system difficult to navigate and it appears that our clients are far from unrepresentative because HMRC has provided further guidance and clarification on the operation of the service in a recent news item on the gov.uk website.

In addition to considering the impact on the timing of EMI option grants, employers also need to bear in mind that they are going to have to file their share plan returns online in the future; we would advise employers to get themselves and their advisers set up on the online system well in advance of any share plan filing deadline.

For further information regarding employee share acquisitions, please call TaxDesk on 0845 4900 509 and ask for Thomas Dalby.