If an employee and/or director acquires shares in their employing company (or a company within the group), the company must submit an annual return to HMRC as the shares acquired will be employment-related securities.
The definition of what constitutes “employment-related securities” is wide and will broadly capture any shares if the right or opportunity under which they were acquired was available because of an employment (notwithstanding that the shares may have been purchased by the employee for market value).
In a private equity context, the reporting obligation covers a variety of situations, from management acquiring equity under an MBO to participation in growth share plans and performance share plans operated by portfolio companies.
Registration: Getting a unique scheme reference number
Annual reporting for each tax year must now be done online to HMRC.
In order to submit an annual return you will first need to register your “scheme” with HMRC’s Employment Related Securities (ERS) service (which is an add on to HMRC’s existing PAYE online service). What constitutes a “scheme” is wide ranging and will cover a one-off acquisition of shares by an employee.
When you register your scheme, the ERS service will allocate a unique scheme reference number. We recommend that you print this out and keep it for your records. An end of year annual return will be required for each scheme that has a unique scheme reference number.
To use the online service you must be registered for HMRC taxes and signed up as an organisation for online services. If you’re not registered you can sign by navigating to https://www.gov.uk/log-in-register-hmrc-online-services/register. Once registered, an activation code will be sent to the company address HMRC has on file for PAYE purposes (this may take up to two weeks).
On receipt, the activation code should be entered online and a PAYE online password set up. You will then be ready to use the ERS online service which can be accessed by navigating to https://www.tax.service.gov.uk/gg/sign-in?continue=/account.
Completing your annual return
Online filing of annual returns for employment-related securities is compulsory. All annual returns must be submitted by 6 July after the end of the relevant tax year (5 April). Reminders and notices to file will not be issued by HMRC.
HMRC provides templates for uploading data for the annual returns, which must be used and can be found at https://www.gov.uk/government/collections/employment-related-securities. The “Other” template should be used for unapproved arrangements (including growth share schemes), and there are separate templates for completion in respect of tax-advantaged plans (such as enterprise management incentives). The templates only need to be attached to the filing if there has been activity during the tax year in question, and then only the pages that are relevant. If there has been no activity for a registered scheme in respect of a particular tax year then a nil-return should be filed.
There are now automatic penalties for late or inaccurate filing. There is an automatic £100 penalty for a late return, with additional increasing penalties if the return remains outstanding for more than 3 months. In addition, if the return contains inaccuracies HMRC can impose penalties of up to £5,000 per return.