Annual returns for employment related securities – 6 July 2018 deadline

Companies should remember to submit an annual return by 6 July 2018 in respect of their employment related security arrangements for the tax year ended 5 April 2018. HMRC will not issue filing reminders or notices to file and they will impose an automatic penalty for failing to make a return by the 6 July 2018 deadline.

Companies that have adopted new plans during the last tax year will need to remember to register their arrangements first with HMRC’s online employment related securities service before they will be able to file their annual return. This process can take up to 10 days, so companies should ensure they undertake the registration process in enough time to meet the 6 July 2018 deadline for filing the annual return.

Companies must file a separate return for each tax-advantaged scheme which they operate but can choose whether to file separate returns for each non-tax advantaged arrangement or a single return to report on them all. The link below has the templates, technical notes and some guidance notes which may help in completing the online annual returns:

https://www.gov.uk/government/collections/employment-related-securities

New provisions for HMRC to tax EBT loans made as far back as 1999

You may have seen in the press that the so called “disguised remuneration” provisions have been extended to cover loans that were made to employees at any time during the last 20 years.

What is the 2019 loan charge?

Under the 2019 loan charge, if a loan was made by a third party (usually an employee benefit trust or “EBT”) to an employee then, unless settlement terms are agreed in advance with HMRC, the amount of the loan outstanding at 5 April 2019 will be subject to PAYE income tax and national insurance contributions.

Whilst in limited circumstances the liability for the tax may be transferred to the employee in question, in the majority of cases it will be the employer who is primarily liable under PAYE. Recovery of these amounts from the relevant employee may cause issues especially where the arrangements are historic and the employees in question have ceased employment. In many cases companies may not know about past loans, in particular where there have been changes in ownership in the intervening period.

HMRC are offering a settlement facility for those who wish to settle before the charge comes into effect in April 2019. Those wishing to settle should register their interest with HMRC as soon as possible and provide documentation relating to the loans to HMRC by 30 September 2018.

What should you be doing now?

It will be important to look back through your files in order to understand whether any relevant arrangements were entered into by your company, its subsidiaries or any acquired companies during the last 20 years. Whilst such planning is considered to be aggressive in today’s climate, these type of arrangements were popular for a time and so it is not inconceivable that something similar may have been established in the past to reward senior executives.

If you do discover the existence of any of these types of arrangement then it is important to seek advice as soon as possible.

Comment

There has been much coverage in the press about the fairness of the 2019 loan charge as an unjust retrospective tax. This is, in particular, in relation to self-employed contractors who in some cases face bankruptcy as a result. Indeed an early day motion has been tabled at Parliament challenging the retrospective nature of the charge. Watch this space!

European Commission renews State Aid approval for EMI

On 15 May 2018, the European Commission (EC) renewed the State Aid approval for one of the UK’s tax advantaged share option schemes know as the Enterprise Management Incentive Scheme (EMI).

The importance of the State Aid approval is that it allows eligible companies to take advantage of the relief from class 1 employer National Insurance contributions as it mitigates the tax charges which will occur when taxing employment related income.

HMRC’s bulletin did not expressly dispel the doubt over the availability of the tax advantages for options granted from 7 April 2018 (which is when the previous approval expired) to 15 May 2018. However the EC’s full decision states that the approval is for the prolongation of the State Aid approval and so it appears that any EMI options granted between 7 April 2018 and 15 May 2018 will still benefit from the tax advantages. HMRC has confirmed this to us informally, and it may be that they will issue a further update confirming this position in the coming weeks.

The EC’s decision applies until such time as the UK ceases to be a member of the EU. However, this is also subject to any transitional arrangements which might be in place at that time.