Following the end of the 2015/16 tax year, companies have until 6 July 2016 to file their share schemes annual returns.
Filings are required for Employment Related Securities where:
- Options are granted, exercised or released for consideration;
- Shares or other securities are acquired by employees (even if the employees have purchased the shares at market value);
- Restrictions on employees’ shares are lifted or varied;
- Shares or securities are converted into another class or type of security; and
- A return may also be needed if an employee disposes of shares or if he or she has received a benefit from holding those shares.
The reporting obligation applies to options, shares and securities held by current and former employees and directors.
A company will also have to file separate returns if it has granted EMI options, or has a Share Incentive Plan (“SIP”), Sharesave (also known as a Save As You Earn plan or “SAYE”) or has a Company Share option Plan (“CSOP”).
The reporting of Employment Related Securities and the annual returns for EMI, SIP, SAYE and CSOP will need to be filed electronically. This will require applicable companies to be registered with HMRC for the ERS Online Service.
If the online form is not submitted before the 6 July 2016 deadline, companies may suffer a penalty of up to £700 per entry (for example, if an employee is granted an option, exercises it and then sells the shares for more than their market value, there will be three line entries for that one employee) and if the delay is protracted, HMRC can apply for a daily penalty of £10 per line entry to be levied until the return is made.
Similar penalties apply to the returns for EMI, SIP, SAYE and CSOP, with the added risk that non-compliance could threaten the tax-favoured status of these plans.
In practice these penalties are rarely levied, with HMRC focusing on stubborn defaulters. However, these returns are factored-in when HMRC is assessing the risk rating of a company and, where a company is undertaking a transaction, purchasers and investors will ask for sight of them as part of their due-diligence process (we are aware of cases in which a prospective purchaser has cited poor compliance among their reasons for seeking to reopen negotiations on pricing).
Companies need to ensure that they identify whether they have a filing obligation and to begin collecting the information needed to file the returns. Our team has comprehensive experience of assisting with the preparation and filing of these returns, if you need assistance please contact Sean Eastwood in the first instance.