Employee share plan reporting 2022/23: getting ready for the deadline

The deadline for filing the 2022/23 Employment Related Securities (ERS) annual returns is just over a month away. This article in our series on 2022/23 share plan reporting looks at what employers should prioritise now to ensure there’s sufficient time to prepare and file accurate returns by 6 July 2023.

For employers who have yet to file, there are several issues to focus on as the deadline approaches:

• If you’ve not yet registered new share plans or other reportable arrangements that were set up in 2022/23, you should do so now as a priority – this can take time and might delay filing;
• Identify the relevant stakeholders in the business (e.g., HR, payroll, tax, company secretarial, legal) and collate the information required to complete the forms, noting that for this year’s returns certain information is now mandatory (discussed in our earlier article); and
• Review that data, identify all reportable events and highlight any areas where further information is required.

HMRC can use ERS 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’s therefore important 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 2022/23 payroll compliance, any relevant PAYE should be recovered from employees on or before 4 July 2023 to minimise the risk of additional ‘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 (‘SAYE’ or ‘sharesave’) plans, tax-advantaged Company Share Option Plans (CSOPs) and tax-advantaged Share Incentive Plans could potentially lose their preferential treatment.

Some aspects of share plan reporting can present particular challenges, which can benefit from close attention in advance of the filing deadline. These are discussed below.

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.

In particular, any amendments to ‘key features’ of tax-advantaged share plans require the employer to declare that all qualifying conditions for tax-advantaged status continue to be met. Ensure that enough time is left to obtain professional advice on this where required.

Identifying IMEs is key to ensuring your ERS returns are accurate. This population includes assignees as well as permanent movers to and from the UK. It’s important to capture all your IMEs and confirm that awards have been taxed and subjected to social security appropriately. If they haven’t, this should be disclosed to HMRC and corrected.

Where share-based awards held by IMEs are also subject to overseas reporting (e.g., to the Irish Revenue or to the Australian Tax Office), it’s important to ensure that entries on the UK ERS returns correctly reflect the sourcing position taken for income tax and social security purposes and can be reconciled with the relevant overseas returns.

It’s important to confirm whether any share-based awards were ‘net settled’ by paying cash in respect of the payroll withholding due and settling only the ‘net’ value of the 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 by the employee, but immediately withheld to cover the PAYE and employee’s NIC due.

Net settling share awards reduces any statutory corporation tax relief that would otherwise be available in respect of employee share acquisitions. It’s therefore important to ensure that net settled awards are identified to ensure corporation tax relief is claimed on the correct basis. Whether awards are net settled can be difficult to determine and specialist advice might be required.

Acquisitions and mergers can give rise to a significant number of reportable employee share transactions. As confirming the appropriate disclosures can be both time consuming and complex, companies should collate this data as soon as possible.

If payroll errors in 2022/23 are identified when completing the ERS returns, the priority is to ensure that on or before 4 July 2023 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 to their employer any under withheld PAYE by that date, it could give rise to additional ‘tax on tax’ charges (by, in effect, being taxed as a benefit in kind even if subsequently repaid).

We’ll look at what other steps employers should consider to correct payroll errors identified during the 2022/23 ERS reporting process in a future article.

As well as the 2022/23 ERS return filing deadline, the new tax year brought important changes to tax-advantaged share plans that some employers might need to consider:

• The limit on the initial market value of shares subject to unexercised tax-advantaged CSOP options has doubled to £60,000 per employee – making CSOPs more attractive to employers that might have rejected their use in the past due to the lower financial limit in prior years;
• Restrictions on the types of shares that can be subject to CSOP options have been relaxed, meaning that CSOPs are available to more companies with multiple share classes for the first time and, in particular, might now offer an attractive alternative to Enterprise Management Incentives (EMI) for companies that do not meet the EMI qualifying conditions;
• The Capital Gains Tax annual exemption has reduced to £6,000 (and will further reduce to £3,000 from 6 April 2024), which could affect how employees benefit from SAYE options – but affected employers can consider certain actions to ensure their SAYE plan continues to deliver for their employees; and
• There will be some administrative easements for EMI (though compliance risks remain, for example concerning the use of Board discretion due to a change of HMRC guidance).

We have extensive experience supporting companies to complete and submit their ERS annual returns, and ensure compliance with the relevant PAYE, social security, and corporation tax rules. We can also help you to identify any compliance risks, ensure your share plans remain appropriate for your business, and assist with any remediation or changes that might be required.

Please contact the authors, or your usual KPMG contact, to talk through how we could support you with your employee share plan arrangements.

For further information please contact:

• Liz Hunter
• Lorna Jordan