Background
Where an individual acquires or receives a security in a company, either in the form of shares or other type of security, by virtue of their employment then it falls under the legislation of Employment RelatedSecurities (“ERS”). Companies have a requirement to report to HM Revenue & Customs (HMRC) in respect of almost all share and securities acquisitions in any circumstances by a director, company officer or employee.
The scope of transactions caught by the disclosure rules is very broad, and the exemptions from the requirement to submit a return are quite limited. Even where no tax liability is likely to arise from the transaction it may still need to be reported.
The deadline for reporting any transaction falling under ERS legislation for the year ended 5 April 2023 is 6 July 2023 and this must be done online.
Detail
Companies are likely to have an obligation to complete an ERS Return (formerly known as Form 42) if any employee, director or other company officer has been party to a transaction in shares or securities as a result of, or connected to, their employment during the year. The reference to employment applies to not just present employment with the company but also past or future employment, as well as any links by family or other associate.
Transactions that require reporting are very broad and include, but are not limited to the following:
– Acquisitions, disposals, transfers or gifts of shares or securities
– Grant, release, variation or exercise of share options
– Transactions relating to any tax advantaged share scheme (EMI, CSOP, SIP, SAYE)
– Alterations in share rights or lifting of restrictions
– Transactions involving loan notes
Even when no tax liability arises from the transaction there may still be the obligation to report the event. In addition, the company itself does not need to have been party to the transaction in order to have a filing obligation. For example, one director independently gifting or selling their shares to another director may still need to be reported by the company.
The most common instances where a return may be required are likely to include the following circumstances: the incorporation of a business, the gift (or other acquisition) of shares to/by an employee, a new issue of shares or a share for share exchange.
Broadly the only exceptions from the reporting requirement are the transfer of initial subscriber shares when a new company is incorporated or if the transfer is in the course of a normal family or personal relationship.
Returns must be completed online and are due by 6 July following the end of the tax year in which a transaction occurred. Therefore the deadline for reports for the year ended 5 April 2023 is 6 July 2023. Failure to submit a form can lead to an initial penalty of £100, rising to £400 after 3 months, £700 after 6 months and daily penalties after 9 months. It is therefore important that the forms are completed for each tax year but they can easily be overlooked.
If a company has a reporting requirement it will first need to register with HMRC and this cannot be done by an agent. Once a scheme is notified to HMRC then the company can appoint an agent to complete the return on their behalf but this can take up to six weeks, therefore it is important that should a company wish an agent to prepare the return for them that they start the ERS process as soon as possible in order to meet the 6 July deadline. Once registered there will then be an annual requirement to submit a return until the scheme is closed.
For those companies who have a scheme open with HMRC and have previously submitted an ERS return then even if they have nothing to report for 2022/23 HMRC will still expect a nil return to be submitted.
If you would like more information on Employment Related Securities or if you require our assistance completing an ERS form please contact our Tax Director, Jenny Marks.
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