Employee share plan reporting 2021/22: the deadline approaches
The 2021/22 Employment Related Securities annual returns should be filed on or before 6 July 2022.
The 2021/22 Employment Related Securities annual returns should be filed
The deadline for filing the 2021/22 Employment Related Securities (ERS) annual returns is now just over a month away. This second article in our series on 2021/22 share plan reporting highlights what you should prioritise now to ensure you’ve enough time to prepare and file accurate returns by 6 July 2022.
What should employers focus on now?
If you’ve yet to file, there are several issues to focus on as the deadline approaches:
- If you have not yet registered new share plans established in 2021/22, do so now urgently – this can take time and could delay filing;
- Identify the relevant stakeholders in the business (HR, payroll, tax, company secretarial, legal) and collate the data required to complete the forms; and
- Review that data, identify reportable events and any areas where further information is required.
Why is this important?
HMRC can use the annual returns to identify errors or discrepancies in:
- Payroll withholding on share based awards;
- Statutory corporation tax relief for employee share acquisitions; and
- Employees’ personal tax returns.
It is therefore vital that employers ensure their ERS annual returns are accurate and agree with their PAYE and NIC records. Where completing ERS returns highlights errors in the 2021/22 payroll compliance, any relevant PAYE should be recovered from employees on or before 4 July 2022 to minimise the risk of ‘tax on tax’ charges arising (see below).
Employers who fail to register or file on time will incur automatic penalties, and awards granted under tax advantaged Save As You Earn, Company Share Option Plans and Share Incentive Plans could potentially lose their preferential tax treatment.
The following aspects of share plan reporting can present challenges.
Internationally Mobile Employees (IMEs)
Identifying your IMEs is key to ensuring accurate returns. This includes assignees as well as permanent movers both into and out of the UK. It’s important to capture your entire population and confirm that awards have been taxed and subjected to social security appropriately. Where they haven’t, this should be disclosed to HMRC and corrected.
Net settled awards
It is important to confirm whether share awards were ‘net settled’ by paying cash in respect of the payroll withholding due and settling only the ‘net’ award in shares. If so, the relevant awards should be reported in two separate lines on the return to disclose the net number of shares acquired and the cash payment received. Net settling share awards also reduces any statutory corporation tax relief available in respect of employee share acquisitions. Whether awards are net settled can sometimes be difficult to determine and specialist advice might be required.
Transactions
Acquisitions and mergers often give rise to a significant number of employee share transactions to report. Companies should collate this data as soon as possible as confirming the appropriate disclosures can be both challenging and time consuming.
New or amended share plans
It’s advisable to review new share plans, or amendments to existing plans, to confirm the specific reportable events, which section of the return needs to be completed, and the statutory corporation tax relief available.
Correcting payroll errors
If payroll errors in 2021/22 are identified when completing the ERS returns, the priority is to ensure that on or before 4 July 2022 affected employees make good any PAYE on share-based awards that hasn’t already been recovered by the employer. If employees don’t make good any under withheld PAYE to their employer by that date, it could in effect be taxed as a benefit in kind, giving rise to additional ‘tax on tax’ charges.
We’ll consider what other steps employers should think about to correct payroll errors identified during the 2021/22 share plan reporting process in a future article.
Do you need to register employee trusts too?
As mentioned in our earlier article on 2021/22 share plan reporting, employee trusts have been required to register with HMRC’s Trust Registration Service (TRS) since June 2017 if they incur certain UK tax liabilities (e.g. Stamp Duty Reserve Tax when acquiring shares in a UK registered company for an employee share plan). However, some employee trusts without a relevant UK tax liability might now be required to register with the TRS by 1 September 2022. This is discussed in our dedicated article on the separate TRS obligation.
