If you operate any share incentive arrangement or have issued shares, granted options or made other forms of share or loan note award to directors and/or employees during the 2016/17 tax year you must report such activity to HM Revenue & Customs by 6 July 2017.
Method of reporting
Relevant employee share related/ other activity must be reported to HMRC on the appropriate return through the PAYE Online service.
Before returns can be filed online, employers must register their arrangements with HMRC via the PAYE Online service. The registration process will generate a unique registration number which is needed to submit the relevant return. It is therefore recommended that employers register as soon as possible (to the extent that this has not already been done) to ensure that they are in a position to meet the deadline.
Many companies find HMRC’s returns complex, time consuming and easy to get wrong. Importantly, you do not have to be operating what you might consider to be a formal share scheme and just one stand-alone event will give rise to the reporting obligations.
The scope of the returns is surprisingly broad and catches all or most:
- Issues/transfers of shares to directors (including non-execs) and employees;
- Grants, exercises and releases of share options and variations to options;
- Existing HMRC approved plans – even if you have had no activity during the year;
- Disposals of shares which are subject to leaver provisions and/or lifting of restrictions;
- Conversions of shares into other classes; and/or
- Other post-acquisition events including variations of rights and disposals for amounts in excess of market value.
What happens if you miss the deadline?
In the past HMRC has not focused as much attention on share reporting as they could have done. This has now changed and HMRC apply automatic penalties for late filing. This includes an initial fixed penalty of £100 if returns are late, followed by additional fixed penalties if returns remain outstanding on 6 October and 6 January following the deadline. If returns remain outstanding more than 9 months after the deadline (i.e. 6 April in the following year), a penalty of £10 per day can be imposed. Penalties of up to £5,000 can also be imposed for a material inaccuracy in a return which is not corrected “without delay”.
Moreover, and perhaps more significantly, HMRC have recently identified the issues covered by the returns as a key area of tax risk and significant additional resource has been directed towards compliance. We believe this is only set to continue. Non-compliance in this area is likely to lead to increased HMRC scrutiny above and beyond employment tax compliance and a heightened risk profile for any future investor or purchaser.