Employers of Record (EORs) and client employee share plans

Do you understand how your client’s share plans work?

A UK EOR has payroll withholding and reporting obligations in respect of any shares that its employees acquire under a client company’s share plans.

The first step for an EOR in discharging these obligations correctly is to understand how those client company share plans operate. This is necessary to determine what taxable events will arise, their timing, and how the relevant employment income is calculated, for UK income tax purposes.

The way in which the overseas employee share plans are structured and operate can present particular challenges for UK payroll compliance. For example, because a client company is not part of the EOR’s corporate group, income tax charges can arise under the ‘disguised remuneration’ legislation if and when the client company ‘earmarks’ existing shares to satisfy EOR employee share awards.

Robust and timely information flows are key

Once the EOR understands how its client company share plans operate, robust arrangements should be put in place for the information needed to operate the UK payroll to be provided on a timely basis. Accurate and timely information flows from the client company to the EOR are necessary to ensure that the relevant payroll withholdings can be calculated, withheld and remitted to HMRC in line with the usual PAYE and NIC filing deadlines.

This can potentially be challenging, as the timing and content of information to be provided to the EOR for UK payroll purposes might potentially differ from that which the client company prepares for its own overseas payroll and reporting purposes. Some adaptations of the client company’s own systems and processes might therefore be necessary.

The cost of getting it wrong

Where an EOR fails to operate PAYE and NIC correctly, interest will be due on late payment of the relevant payroll withholdings. If the EOR cannot demonstrate that it took reasonable care to discharge its obligations (e.g. by reviewing the relevant share plan rules to confirm the UK tax analysis and putting effective procedures in place to obtain the necessary payroll information), penalties can also arise based on the tax at stake and reasons for the inaccuracy.

Additionally, if the employee does not ‘make good’ to the EOR any PAYE in relation to share based awards within 90 days of the end of the relevant tax year, further amounts can count as employment income giving rise to ‘tax on tax’ charges.

Information reporting obligations also arise

The EOR also has an obligation to file annual share plan returns with HMRC in relation to any client company share plans that extend to the EOR’s employees. This requires the EOR to register any new client company share plans or other reportable arrangements and submit the relevant returns (including ‘nil’ returns) on or before 6 July following the end of each tax year (for more details on this annual obligation please see our article on reporting for 2025/26).

Automatic penalties apply for late filing and further penalties can be imposed for inaccurate information returns.

Corporation tax relief for employee share acquisitions

As the EOR is not a member of the client company’s corporate group, the EOR would not qualify for a statutory corporation tax deduction when its employees acquire client company shares.

However, a general principles corporation tax deduction might potentially be available to the EOR for any charges it is required to recognise in its income statement in respect of client company share plan awards to the EOR’s employees. This would require a careful analysis of the relevant accounting standards and client company share plan to determine the availability, quantum and timing of any such deductions.

What should EORs consider?

HMRC are aware of the particular share plan compliance challenges that EORs can face and these might receive additional HMRC scrutiny (see the updates to their manual on share reporting as outlined above).

Points for an EOR to consider if a client company wishes to extend participation in its share plans to the EOR’s employees include:

• How the client company’s share plans operate as a matter of fact and overseas law;
• When amounts will count as employment income for participants in those share plans and how they will be calculated for UK tax purposes;
• What information the client company must provide – and when – to allow the EOR to operate PAYE and NIC correctly under the PAYE Real Time Information regime;
• What additional compliance and other operational costs might arise (e.g. employer’s NIC on client company share awards to EOR employees) and how these should be factored into the commercial agreement with the client company;
• If required to do so on a compliance review, how the EOR could demonstrate to HMRC that it has taken reasonable care to establish its UK payroll and information reporting obligations in relation to the client company share plans and discharge these appropriately; and
• Whether and on what basis corporation tax deductions might be available in respect of any accounting charges recognised in connection with client company share plan awards to the EOR’s employees.

How KPMG can help

We can help EORs confirm the UK payroll obligations associated with their employees participating in client company share plans, and to design, implement, and operate robust systems and processes to ensure effective compliance.

Please speak to the authors or your usual KPMG in the UK contact to discuss how KPMG could support your share plan compliance.

For further information please contact:

• Lorna Jordan
• Alison Hughes