Employee share plan reporting 2022/23 – time to get ready!

Employers must file their 2022/23 employment-related securities returns on or before 6 July 2023 – this year more information is mandatory.

Get ready for employee share plan reporting

Employers must report certain events concerning employment-related securities and options to HMRC each year. There are two key tasks: (i) registering new employee share plans and any other reportable arrangements; and (ii) submitting the completed returns (or ‘nil’ returns where no report is due). From 6 April 2023 the number of mandatory data fields in share plan returns increases. Employers who have not previously completed all fields in their returns as a matter of course need to ensure they can source the additional now mandatory information for 2022/23 and subsequent tax years. Returns that do not include this mandatory information could be rejected on submission. Automatic penalties arise on late returns, and a penalty of up to £5,000 can be imposed for any material inaccuracies that are careless, or which are not corrected without delay. This article outlines the obligations, how these interact with other employer compliance, and what employers can do now to prepare.

What are the deadlines?

Any share plans or other arrangements involving employment-related securities or options, established during 2022/23 should be registered with HMRC online in time for the necessary returns to be filed on or before 6 July 2023. The process of registering any new plans must be completed by the reporting company (and not an agent) and should begin as soon as possible to ensure that an active registration is in place to allow the required returns to be filed by this deadline. It is important to ensure plans are registered under the correct category (for example, ‘Company Share Option Plan’ and ‘Share Incentive Plan’ are not generic names in this regard, but refer to specific statutory tax-advantaged plans – see below).

For new tax-advantaged Save As Your Earn (SAYE) plans, Company Share Option Plans (CSOPs) and Share Incentive Plans (SIPs), late registration without a reasonable excuse can mean that only awards made from 6 April 2023 can qualify for income tax relief. It’s therefore vital that any such new plans are registered with HMRC by the deadline.

Tax-advantaged Enterprise Management Incentive (EMI) plan registration and option grants must be reported to HMRC within 92 days of options being granted to qualify for tax advantages. In addition, an annual return needs to be filed by the 6 July deadline (though this will be a ‘nil’ return if the only action has been an EMI grant already notified). Arrangements without UK tax advantages, such as overseas share plans with UK participants (including those with overseas tax advantages), can be registered individually or included under a single registration.

Some events outside a formal employee share plan (e.g. one-off share awards, and acquisitions of shares or options on a change of control or other transaction) must also be reported to HMRC, and might need to be registered as a separate ‘plan’. Care should be taken to identify all arrangements that fall into this category, which might require a joint review of the position by relevant stakeholders in the group’s legal, reward, and tax teams.

Newly mandatory information

From 6 April 2023, certain data fields in the employment-related securities returns that were previously optional will become mandatory.

These include reporting:

  • The employer’s PAYE reference (the employer should be the company that has the obligation to operate PAYE in relation to the relevant employee);
  • Whether payroll withholding was operated; and
  • The employee’s National Insurance Number (NINO) or, where no NINO has been issued, a special code based on the employee’s date of birth and why a NINO has not been issued.

HMRC will publish further technical guidance on these changes during February.

Interaction with other employer compliance issues

HMRC can use the annual share plan returns to check:

  • PAYE and NIC operated on share awards;
  • Corporation tax relief claimed on employee share acquisitions; and
  • Employees’ self-assessment returns.

This will be enhanced by the new mandatory reporting of the employer’s PAYE reference, whether payroll withholding was operated, and the employee’s NINO. Employers should therefore ensure that their annual returns are complete, correct and consistent with their payroll and corporation tax compliance positions.

As part of overall year-end employer compliance, completing the annual share plan returns is therefore an opportunity to confirm that payroll compliance is accurate, and that employees have ‘made good’ PAYE due on share awards to prevent additional ‘tax on tax’ charges arising.

Share awards held by internationally mobile employees, where the reporting, payroll and corporation tax requirements are not completely aligned, can present difficulties. Employers should therefore review their mobile workforce carefully to identify any such challenges and determine how these should be addressed.

Identifying and correctly reporting ‘cash cancelled’ and ‘net settled’ awards – where employees acquire cash rather than shares in respect of some or all of the award which can affect the corporation tax position – can also be challenging.

What should employers do now?

Employers can get ready for this year’s share plan reporting and, where required, begin the registration process (ideally before the end of April), by asking the following questions:

  • Were there any new plans or other arrangements which must be registered, established in 2022/23?;
  • Were changes made to existing SAYE, CSOP, SIP or EMI plans and, if so, did these affect their tax-advantaged status?;
  • Do we understand how our share plans operate, for example:
    •  If our plan provides for both ‘Restricted Stock Units’ and ‘Restricted Stock Awards’, do we understand the distinction?;
    • Are the shares acquired subject to restrictions (this is common in private companies and continental European plans)?; and
    • Are our awards ‘cash cancelled’ or ‘net settled’ (and if so, how does this affect our UK corporation tax relief position)
  • Which reportable events have occurred, and which stakeholders (e.g. human resources, payroll, tax, legal, company secretarial) hold the relevant data?;
  • Is the information required to report accessible and robust, particularly in relation to mobile employees?
  • Are we satisfied with our UK and overseas data protection compliance positions in relation to our employee share plans, in particular where employees’ personal data will be transmitted internationally to allow completion of the annual returns?
  • Can we access information for the newly mandatory disclosures (e.g. employee’s NINOs, whether payroll withholding was operated) if this was not part of our routine process in prior years?
  • Where employees with share-based awards do not have NINOs, are we able to confirm their dates of birth and the reason a NINO is not held to enable this to be reported correctly? and
  • Are we satisfied that our payroll withholding position is correct – for example:
    •  Do the company payroll reports reconcile to the share plan data held by the group reward team and, where relevant, the share plan administrator?
    • Have we correctly captured all relevant leavers in the tax year (both good leaver and bad leaver status) across each of the share plans and dealt with their award correctly?
    • Have we reconciled the relevant tax accrual accounts against the payroll Real Time Information/Employer Payroll Submission detailing the payroll remittances to HMRC?
    • Are there any potential PAYE underpayments, and/or amounts the need to be recovered from employees, that should be corrected before the end of the current tax year?
    • Are we satisfied that our processes are robust enough to ensure all areas are compliant and adhere to the requirements of Senior Accounting Officer reporting, if this is relevant to your company?

Have you registered your employee trusts?

Certain employee trusts, including those established to operate employee share plans or act as shareholding nominees for employees or directors, might be required to register with HMRC’s Trust Registration Service (TRS), separately from the annual share plan returns, if they incur certain UK tax liabilities (e.g. Stamp Duty Reserve Tax) or meet other registration criteria. This separate reporting obligation is discussed in more detail in our earlier article.

How can KPMG help?

KPMG has extensive experience supporting companies to complete and submit their annual employee share plan returns, and ensuring compliance with the relevant, PAYE, social security, and corporation tax rules. We can also health-check prior years and assist with any remediation that might be required.