With the 2025/26 Employment Related Securities (ERS) annual return deadline approaching, this article outlines key steps businesses should take now to ensure returns are complete and accurate ahead of the 6 July 2026 filing date.
Key areas to focus on
If you have not filed your ERS returns yet, consider prioritising the following:
- Register any new share plans or reportable arrangements established in 2025/26 promptly, as this process can be time-consuming and may delay filing (but check whether a new registration is necessary or whether an existing registration can be used);
- Identify key business stakeholders (e.g. HR, payroll, tax, company secretarial, legal and – for UK based Employers of Record – overseas client companies) and collate the information needed to complete the returns; and
- Review the collected data, identify reportable events, and highlight any areas requiring further information.
Some aspects of ERS reporting can be complex and are best addressed in good time prior to the filing deadline. Set out below are some key areas to consider.
New share plans and amendments
Review any new share plans, and any changes to existing plans, to confirm the reportable events and determine which section of the relevant return requires completion.
For tax-advantaged plans, changes to ‘key features’ require the employer to confirm that all qualifying conditions for tax-advantaged status continue to be met. Allow sufficient time to obtain professional advice if necessary.
Identifying Internationally Mobile Employees (IMEs)
Accurate identification of IMEs is essential to ensure the ERS returns are complete and correct. IMEs include assignees and permanent movers to and from the UK. Although HMRC have now confirmed that ‘Appendix 4’ IMEs do not need to be reported, all other relevant IMEs should be captured, and it should be confirmed that awards have been subject to the appropriate income tax withholding and social security treatment through payroll.
Where this has not occurred, the position should be disclosed to HMRC and rectified. For share-based awards held by IMEs that are also subject to overseas reporting (e.g. to the Irish Revenue or the Australian Tax Office), UK ERS returns should reflect the correct sourcing position for income tax and social security purposes and should reconcile to the corresponding overseas returns.
Net-settled share awards
Some organisations ‘net settle’ share-based awards by cash cancelling part of the award to fund payroll withholding and delivering only the remaining (net) shares to employees. Employers should identify any 'net-settled' share awards held by employees, as HMRC require these to be reported in a specific manner (read our previous article for a discussion of how reporting net-settled awards is changing for 2025/26).
Net settlement can restrict the statutory corporation tax deduction; therefore, accurate identification is essential to ensure any corporation tax relief is claimed correctly. Assessing whether awards are net-settled can be complex and specialist advice may be required.
UK based Employers of Record (EORs)
HMRC recently updated their published guidance to remind UK EORs whose employees participate in overseas client company share plans that, in addition to operating payroll withholding on the relevant awards, those UK EORs must file the appropriate ERS returns.
Key ERS reporting considerations for UK EORs are discussed in this recent article.
Reporting transactions during the year
Transactions such as company acquisitions and demergers can generate numerous reportable employee share transactions. Verifying the associated disclosure obligations can be complex and time-consuming, so companies should collate this data as early as possible.
The importance of accurate ERS returns
HMRC utilise data from ERS annual returns to review:
- Payroll withholding on share-based awards;
- Statutory corporation tax relief for employee share acquisitions; and
- Employees' personal tax returns.
HMRC can request detailed information and supporting documentation, such as plan rules, to substantiate the operation of PAYE and NIC withholding on employee share plans.
Employers should therefore ensure that ERS annual returns are complete, accurate and reconcile to the corresponding PAYE and NIC records (and we have seen some recent indications that HMRC might be increasing their scrutiny of ERS returns as part of their compliance and enforcement activities).
Where payroll errors from 2025/26 are identified during the ERS return preparation process, employers should prioritise ensuring affected employees 'make good' any PAYE on share-based awards by 4 July 2026. Failure to do so may result in additional 'tax on tax' charges, effectively taxed as a benefit in kind even if the amount is repaid at a later date. Future articles will consider the practical steps employers may need to take to rectify any payroll errors identified during the 2025/26 ERS reporting process.
Additional points for Enterprise Management Incentives (EMI)
Companies operating an EMI scheme should note that options granted during 2025/26, including replacement options, must be notified to HMRC by 6 July 2026 to qualify for EMI tax relief. This notification is a separate filing requirement from the EMI plan annual return, and reflects a change introduced with effect from 6 April 2024 (before that the deadline was 92 days after grant date of the option).
How KPMG can assist
KPMG has extensive experience in supporting companies with ERS annual returns, helping to ensure compliance with PAYE, social security and corporation tax requirements. We can help identify and manage compliance risks, ensure share plans remain fit for purpose, and support any remediation or changes required. Contact the authors or your usual KPMG UK contact to discuss how we can support your employee share plan arrangements.
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