U.K. employers must register any new reportable arrangements and file all Employment Related Securities (ERS) annual returns with the U.K. tax authorities on or before 6 July 2022.1
Employers have an annual obligation to report any notifiable events that occur in relation to ERS (i.e., shares or other securities that are acquired by reason of employment), or rights to acquire ERS (such as employee share options).
Any notifiable events must be reported to HM Revenue & Customs (HMRC) by submitting the relevant return(s) through ERS Online Services on or before 6 July 2022. This requires prior registration. HMRC uses the information provided in the annual returns to help identify any errors in employer payroll withholding on equity awards, errors in U.K. corporation tax relief claimed in relation to qualifying employee share acquisitions (e.g., where awards are ‘net-settled’), and errors or omissions in employees’ personal tax returns.
Why this matters
Automatic penalties will arise if an employer does not submit the relevant ERS return(s) (including any required ‘nil’ returns) by 6 July 2022.
Employers must be confident that the information provided in the annual returns is complete and correct and can be reconciled with their payroll and corporation tax compliance positions.
Early preparation of the returns should give employers a greater opportunity to make any required corrections to end-of-year payroll withholding. It should also allow any historical errors to be identified and proactively managed through voluntary disclosures to HMRC.
Reporting Obligations
Overview
In summary, employers have an annual obligation to report any of the following events that occur in relation to ERS during a U.K. tax year (a U.K. tax year runs from 6 April to 5 April):
- Grants of rights to acquire shares or other securities (e.g., options or long-term incentive plan awards);
- Acquisitions of shares or other securities; and/or
- The lifting of restrictions (such as a risk of forfeiture) from shares or other securities.
These obligations also apply to certain other reportable events involving shares or other securities which are acquired, or treated as having been acquired, by reason of employment. This applies regardless of where the issuing company is incorporated, resident, or listed.
Events that occur outside a formal employee share plan, such as an acquisition of shares or grant of options during a change of control or other transaction, can also give rise to reporting obligations.
Reporting U.K. Tax-Advantaged and Non-Tax-Advantaged Plans
Separate reporting obligations arise in relation to non-tax-advantaged plans (or other arrangements), and each type of U.K. tax-advantaged employee share plan. Note that plans which attract non-U.K. tax advantages, such as U.S. qualified employee stock purchase plans or Irish Approved Profit-Sharing Schemes, will be ‘non-tax advantaged’ for U.K. reporting purposes.
KPMG NOTE
For non-tax-advantaged arrangements, no reporting obligations should arise in relation to ERS awards held by individuals who were not U.K. resident and had no U.K. duties both (i) on the date of grant, and (ii) throughout the vesting period of the relevant award. However, share-based awards should be reported where the employee had U.K. duties at any point in time over the vesting period of the relevant award.
Steps for Employers to Consider
Confirm Whether Registration Is Required
In order to file the relevant returns, employers that have a reporting obligation for 2021/22 must register each plan or other arrangement with HMRC’s ERS Online Services (part of HMRC Online Services), if this has not already been done.
U.K. tax-advantaged plans (which are known as CSOP, SAYE, SIP, and EMI plans) must each be registered separately. Other arrangements (including plans that do not qualify for U.K. tax advantages) can be included under a single registration.
For U.K. tax-advantaged CSOP, SAYE, and SIP plans established during 2021/22, on or before 6 July 2022 employers must submit an online declaration that the conditions for tax-advantaged status are met. If this is not done, the relevant tax advantages may be lost.
Employers should review their ERS return registration status to confirm which registrations (if any) were made in previous years and whether any additional registrations are required.
KPMG NOTE
As new registrations can potentially take some time, it is preferable to begin the process in April or May, to allow registration to be completed in good time to allow all relevant submissions to be made on or before 6 July 2022.
Employers are advised to consult with their qualified tax professionals to confirm their reporting obligations and understand the registration process. They may also wish to seek assistance with completing and submitting the annual ERS returns.
Review the Information Required to Complete the Returns
ERS return templates and associated HMRC guidance are available by clicking here.
Employers should download and review any required returns’ templates as soon as possible to confirm whether they hold the information required to complete and submit those returns by the deadline.
Should Any Employee Trusts also Register with HMRC?
Employee trusts, including those established to operate employee share plans, have been required to register with HMRC’s Trust Registration Service (TRS) since June 2017 if they incur certain U.K. tax liabilities (e.g., a Stamp Duty Reserve Tax charge on making an unconditional agreement to acquire shares in a U.K. registered company). However, some employee trusts without a relevant U.K. tax liability might now be required to register with the TRS by 1 September 2022. This separate reporting obligation is discussed in our other GMS Flash Alert published today, 2022-083 (15 April 2022).
KPMG NOTE: IMPACT OF CORONAVIRUS AND DISPLACED WORKERS
The impact of the coronavirus outbreak might mean more time is needed to source and review data not normally required for the year-end returns.
For example, as in 2020/21, mobile employees who were internationally displaced by the coronavirus pandemic could cause unexpected U.K. payroll withholding, social security, and employee share plan reporting obligations (e.g., if they unexpectedly established U.K. tax residence or had more U.K. work-days than anticipated).
Employers should therefore leave enough time to address any such complications.
Late Filing Penalties
Where a plan or other arrangement has been registered with ERS Online Services (either for this year or for the previous tax year), and the employer does not submit an ERS return by 6 July 2022, an automatic penalty of £100 per registration will arise.
Additional penalties will arise where submissions remain outstanding by 6 October 2022 (an additional £300) and 6 January 2023 (a further £300). HMRC has discretion to impose further penalties in relation to any returns that remain outstanding after 6 April 2023.
If no reportable events occur during a tax year in relation to a registered plan, a ‘nil’ return must be submitted by the filing deadline to avoid a penalty.
Registrations that are no longer required should be closed to avoid penalties for inadvertent non-filing arising.
1 For additional information, see HMRC, “Tell HMRC about your employment related securities” (published 1 January 2014 and last updated 10 January 2020).
Contacts
Footnotes
1 For additional information, see HMRC, “Tell HMRC about your employment related securities” (published 1 January 2014 and last updated 10 January 2020).
Disclaimer
The information contained in this newsletter was submitted by the KPMG International member firm in the United Kingdom.
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