Getting year-end ready: employee share plan reporting 2023/24

Certain events concerning employment-related securities and options must be reported to HMRC following the end of each tax year. For 2023/24, employers must register any new employee share plans or other reportable arrangements and submit the required returns (including ‘nil’ returns) on or before 6 July 2024. Automatic penalties apply to late returns, and a penalty of up to £5,000 can be imposed for any material inaccuracies in submitted returns that are careless, or which are not corrected without delay. This article looks at what employers should consider as they prepare for their 2023/24 employment-related securities reporting.

Any share plans, or other arrangements involving employment-related securities or options, established during 2023/24 should be registered with HMRC in time for the relevant year-end returns to be filed on or before 6 July 2024. Any new plans or other reportable arrangements must be registered by the reporting company (and not by its agent). We recommend taking advice on whether a new registration is necessary – often an existing share plan registration can be used, which can be administratively easier and minimise the scope for late filing penalties.

It’s important to ensure that employee share plans are registered under the correct category (for example, despite sounding generic, ‘Company Share Option Plan’ (CSOP) and ‘Share Incentive Plan’ (SIP) refer to specific types of tax-advantaged share plans.

It’s vital that any new tax-advantaged Save As Your Earn (SAYE) plans, CSOPs and SIPs are registered with HMRC by the deadline, as late registration without a reasonable excuse can mean that only awards made from 6 April 2024 will qualify for income tax relief. For 2024/25 and subsequent years, the grant of Enterprise Management Incentive (EMI) options should be notified to HMRC on or before 6 July following the end of the tax year (i.e. EMI reporting is now fully aligned with other tax-advantaged plans). This is a change to the prior requirement to notify individual EMI option grants within 92 days of the date of grant.

Some events outside an employee share plan (e.g. stand-alone share awards, and acquisitions of shares or options on a change of control or other transaction) must also be reported to HMRC. Employers should take care 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.

Note that events that did not give rise to an income tax charge can still be reportable (e.g. an employee acquisition of shares at market value). Further, in cases where no ‘section 431(1) election’ was made, the disposal of shares by employees can also be reportable.

Additionally, in October 2023 the Supreme Court handed down its decision in the Vermilion case, which employers should also consider in relation to their year-end reporting. In summary, the Supreme Court confirmed that statutory rules which deem securities and options that an individual acquires from their employer to be ‘employment-related’ must be interpreted strictly. Employers should therefore take care to identify all acquisitions of securities and options that, though as a matter of fact not connected with an office or employment, are deemed to be ‘by reason of employment’ under these rules. This can be a particular issue for family companies, where shares acquired by working family members can fall within the scope of these deeming rules.

HMRC can use the annual share plan returns submitted by employers to check:

• The PAYE, NIC, and Apprenticeship Levy operated on share awards;
• Any corporation tax relief claimed in relation to employee share acquisitions; and
• The amounts reported on employees’ self-assessment returns.

Employers should therefore ensure that their employment-related securities annual returns are complete, correct, and consistent with their payroll and corporation tax compliance positions.

Completing the annual share plan returns is 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, as part of overall year-end employer compliance.

Share awards held by internationally mobile employees, where the reporting, payroll and corporation tax requirements do not completely align, can present challenges. Employers should therefore review their mobile workforce carefully to identify any such issues and decide how to address them.

Identifying and correctly reporting ‘cash cancelled’ and ‘net settled’ share-based awards – where employees acquire cash rather than shares in respect of some or all of the award which can affect the availability of corporation tax relief – can also be challenging. HMRC published new guidance on the corporation tax treatment of ‘cash cancelling’ or ‘net-settling’ employee share awards in July 2023, which employers should review as part of their 2023/24 employment-related securities reporting to ensure that the submitted returns are consistent with that guidance, if applicable. Note for this purpose that specific reporting of ‘net-settled’ share awards is required in the ERS return.

Employers can prepare for the 2023/24 share plan reporting and, where required, begin the registration process (ideally before the end of April), by considering the following points:

• Were any new plans or other reportable arrangements established in 2023/24 and, if so, is a new plan registration required?
• Were changes made to existing SAYE, CSOP, SIP or EMI plans that affect their tax-advantaged status?
• Is the operation of the share plans fully understood, for example:
  • If a plan provides for conditional share awards (otherwise known as Restricted Stock Units or ‘RSUs’), should these be reported as securities options (this can be a complex question with wider implications)?
  • If a plan provides for both RSUs and ‘Restricted Stock Awards’, how are actual awards structured?
  • Are the shares acquired subject to restrictions (this is common in private companies and continental plans)? and
  • Are awards ‘cash cancelled’ or ‘net settled’ (and if so, how does this affect the UK corporation tax relief position and are calculations consistent with HMRC’s guidance published in July 2023)?
• Which reportable events have occurred, and which stakeholders (e.g. HR, payroll, tax, legal, company secretarial) have the data required?
• Is the information needed to report easily accessible and robust, particularly concerning mobile employees?
• Are UK and overseas data protection compliance positions concerning employee share plans adequate, in particular where personal data will be transmitted internationally to allow completion of the annual returns?
• Where employees with share-based awards do not have National Insurance Numbers (NINOs), can dates of birth and the reason a NINO is not held be confirmed to enable correct reporting? and
• Are payroll withholding positions robust – for example:
  • For private companies, are the company’s shares ‘readily convertible assets’ within the PAYE regime (this must be kept under regular review)?
  • Do the payroll reports reconcile to share plan data held by the group reward team and, where relevant, the share plan administrator?
  • Have all leavers in the tax year (with both good and bad leaver status) been correctly captured across each share plan and dealt with correctly?
  • Have the relevant tax accrual accounts been reconciled against the payroll submissions detailing remittances to HMRC?
  • Are there any potential PAYE underpayments, and/or amounts that need to be recovered from employees? and
  • Are processes robust enough to ensure all areas are compliant and adhere to the requirements of Senior Accounting Officer (SAO) reporting, if this is relevant?

At Tax Administration and Maintenance Day on 18 April 2024, the Government might announce the outcome of last year’s consultations on potential improvements to tax-advantaged SAYE plans and SIPs, and potential changes to the tax regimes for employee ownership trusts (and other employee benefit trusts).

Employers who operate an SAYE plan should also consider how they might respond to the further halving of the CGT annual exemption from 6 April 2024, and its potential impact on SAYE plan participants.

Given that the dividend allowance also reduces to £500 from 6 April 2024, would it be helpful to prepare employee guidance notes to help employees with tax reporting of any share plan dividends or gains?

How will the proposed repeal of the ‘non-domicile’ rules and replacement with the new ‘Foreign Income and Gains’ regime due to take effect from 6 April 2025 affect employee share plan participants?

Though not linked to 2023/24 employment-related securities reporting, employers should monitor these potential developments, and what they might mean for employee share plans as part of their employee value proposition, and for how those share plans operate.

KPMG in the UK 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 review prior years and assist with any remediation that might be required.

For further information please contact:

• Lorna Jordan
• Alison Hughes