Year end reporting for Employment Related Securities

Transcription

1 Year end reporting for Employment Related Securities Now that the 2016/17 tax year has come to an end, there are a variety of tax filing obligations on employers. One of these obligations is that if employees (including directors) have any transactions involving shares or similar securities in their employing company (or company in their employer s group), then the employer may have to make additional year-end reports to HMRC. This note sets out a summary of when you might have to make a report, how this is done, and how PKF Francis Clark can help. STOP PRESS: Deadline extended to 24 August 2017 Supporting you and your business

2 Why do I need to tell HMRC about these arrangements? In the past, shares and other employment related securities (ERS) have been used by some taxpayers as a mechanism for reducing their tax bills. Anti-avoidance legislation relating to shares has arisen as a result and HMRC now monitors their use more carefully. Reporting of ERS moved online three tax years ago and automatic penalties can be imposed for late filing and non-completion. If you have reportable events, or you have previously registered to report, then you will need to file online. Online filing is intended to provide better information for targeted reviews, making timely and accurate completion more important now than ever before. The ERS returns do not themselves collect any tax - they are merely a monitoring system. This does however mean it can be necessary to report even innocent transactions where no tax arises. As with all tax returns, ultimately it is the tax payer s responsibility to determine whether they have reportable transactions and therefore if a return is needed. The purpose of this briefing sheet is to help you identify if you have a reporting obligation. How can PKF Francis Clark help? If you would like assistance, PKF Francis Clark can help you with the process of filing these returns. Unfortunately, determining whether or not a return is needed can be dependent upon information that may simply not be available to us; therefore it is important that you read through this guide and carefully consider for yourself whether it might apply. HMRC provides online help with completing the forms. However, whilst this is a straightforward process for many, some situations can inevitably be complex. If you have any questions after reading through this guide, please do get in touch, with either your usual PKF Francis Clark contact or one of our share plan specialists listed below. We will be happy to discuss how we can help you.

3 Transactions in shares, options and other securities by employees and directors may need to be reported to HMRC. ERS year end reporting: what is it? The returns If you have an approved plan in place (e.g. an EMI plan) there are plan specific annual returns required. The ERS returns are accessed through the same online portal that you use for your usual payroll filings. Your business is probably already registered as an employer, but if going online for the first time you ll need to first register for online services via the HMRC website by selecting PAYE for Employers and following the instructions. Within your account you can register your share schemes in the ERS section, which is where you ll find the various forms (see The registration process below for more information on how to do this). HMRC s guidance can also be accessed through this online portal. You will receive a scheme reference number in respect of each share scheme you have, which is needed in order to prepare and submit the relevant returns. These are: Form 34 for Save as you Earn (SAYE) Form 35 for Company Share Option Plan (CSOP) Form 39 for Share Incentive Plan (SIP) EMI40 for Enterprise Management Incentive (EMI) Other ERS Return (formerly known as Form 42) for unapproved arrangements. If you have in place one or more of the tax advantaged share plans listed above, i.e. EMI, SAYE, CSOP or SIP, then you will have to complete the relevant form for each plan. Information on registering and submitting returns is below. Everything else reportable goes on the Other ERS Return. When to report For unapproved arrangements, you need only register the scheme with HMRC once a reportable event occurs for the first time, and this must be done by 6 July following the end of the relevant tax year. Once a scheme has been registered, a return will be required for each subsequent tax year, regardless of whether there have been any reportable events during that year. This deadline is especially important now that HMRC no longer issues notices or reminders to file online. HMRC will issue automatic penalties both for returns filed after this date and for returns not made electronically. Please note, HMRC confusingly refers to all such arrangements as schemes. There are in fact a wide variety of reportable transactions, some of which may come as a surprise. For a summary of these, please see the section below. What are securities? The word securities describes a wide range of financial instruments and includes, among other things, government and corporate bonds, loan stock and shares. When are securities employment related? Sometimes it is obvious when a security is employment related, such as where a manager is rewarded with shares for good performance. However, securities are deemed to be employment related if acquired by a current, former or prospective director or employee. Due to the wide range of the deeming provision, even founder shares are caught. There may be a limited exception if you can show the transfer is by reason of a family or domestic relationship.

4 ERS year end reporting: what has to be reported? You will need to report changes to your approved plan, e.g. lapses and exercises of EMI options on the plan specific return. More generally, the other return broadly requires you to report acquisitions of shares and share options by employees and directors, as well as any situation where there might be an employment tax charge on shares or securities. Nil returns are required if you have previously registered and there are no events in the year. What are reportable events? The most common events that need to be reported are the purchase and sale of shares by directors and employees (this may include shares being bought back from, or sold by, a founder shareholder) and the award and exercise of share options. The transaction doesn t have to be between the Company and the employee - a sale by one employee/director shareholder to another can be caught. As the name suggests, reportable events are any events concerning ERS that HMRC needs to be notified about on an annual return. Whether a tax charge will arise is a separate issue and depends on the exact nature and circumstances of the transaction. Bear in mind that the ERS return is not the tax collection mechanism - this remains PAYE (or the employee s self-assessment tax return). The following events may not need to be reported: Newly incorporated companies: allocation of initial subscriber shares Newly incorporated companies: allotment of further shares Newly incorporated companies: shares acquired directly from the formation agents Events affecting securities in HMRC approved schemes Transfers of shares in the normal course of domestic, family or personal relationships For completeness, the following events may need to be reported: An acquisition of securities, an interest in securities or a securities option, acquired by reason of the individual s employment or by reason of the employment of any other person A chargeable event in relation to restricted securities and restricted interests in securities A chargeable event in relation to convertible securities and interests in convertible securities An event which discharges a notional loan relating to securities or an interest in securities Doing anything that artificially enhances the market value of a security Disposal of securities and interests in securities for more than their market value The receipt of a benefit giving rise to a taxable amount which counts as employment income The receipt of a benefit which is, or is regarded as being, received in connection with a securities option The assignment or release of a securities option acquired by reason of the individual s employment or by reason of the employment of any other person

5 ERS year end reporting: the registration process and deadlines The registration process In order to complete and submit a return, a scheme needs to be registered online. To register your schemes and arrangements, you need access to HMRC Online Services and PAYE for employers. Once you have access: Login to HMRC Online Services. Continue past the security message. Click on Services you can use in the left-hand menu. Click on PAYE for Employers. At the bottom of the page on the right-hand side there is a section called employment related securities. Click on Register a scheme or arrangement and follow the on-screen instructions. Deadlines and penalties Although PKF Francis Clark can assist in the preparation and submission of ERS returns, it is the company s responsibility to register the scheme first. In fact, it is not possible for us as agent to submit a return unless the company has first registered the scheme. All employee share schemes need to be registered by 6 July. As the process of registering a new scheme can take around two weeks, we recommend that the registration process is begun as soon as possible. We would also note that as penalties are geared to the failure to submit returns, we generally recommend registering the fewest number of schemes. It is usually possible to register a single scheme to cover all management shares for a whole group. The returns are all online and can be found on the same part of the HMRC online services website used to submit employers PAYE returns. You may need to register; this can take up to six weeks. The forms are due by 6 July STOP PRESS: Due to HMRC IT issues the 2017 filing deadline for ERS has been extended to 24 August 2017

6 Contact us If you would like further information, or help on any of the matters covered in this publication, please contact: Share Plans: Business Visitors: Martin Brown Scott Campbell Employment Reporting: Julia Clutterbuck We have offices in: EXETER NEW FOREST PLYMOUTH POOLE SALISBURY TAUNTON TORQUAY TRURO Please visit our website for your local office expert PKF-FRANCISCLARK.CO.UK If you would like to be added to, or deleted from our mailing list, please contact Peter Finnie, or sign up online at: PKF Francis Clark is a trading name of PKF Francis Clark LLP. PKF Francis Clark LLP is a limited liability partnership, registered in England and Wales with registered number OC The registered office is Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF where a list of members is available for inspection and at The term Partner is used to refer to a member of PKF Francis Clark LLP or to an employee or consultant with equivalent standing and qualification. PKF Francis Clark LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. This publication is produced by PKF Francis Clark LLP for general information only and is not intended to constitute professional advice. Specific professional advice should be obtained before acting on any of the information contained herein. Whilst PKF Francis Clark LLP is confident of the accuracy of the information in this publication (as at the date of publication), no duty of care is assumed to any direct or indirect recipient of this publication and no liability is accepted for any omission or inaccuracy.