ERS share scheme annual returns & changes to EMI notification requirements

Your 2023/2024 ERS annual returns are now due

Following the close of the 2023/2024 tax year, all companies operating an employee share scheme or arrangement must file an annual return with HMRC on or before the deadline of 6 July 2024.

You will not receive any filing reminders directly from HMRC and automatic financial penalties will be issued for each late filing, so it is important to make sure that your annual returns are filed ahead of this deadline.

All companies who have registered an employee share scheme with HMRC’s Employment Related Securities (ERS) Service have an ongoing obligation to file an annual return against the scheme following the close of each tax year in which it remains active. This includes both HMRC tax-advantaged share schemes such as EMI, CSOP, SIP and SAYE and any non-tax-advantaged or “unapproved” schemes or arrangements such as the direct issue of shares to employees and share options which do not qualify to be granted under one of the tax-approved schemes. Each registered share scheme requires a separate annual return to be filed. 

All “reportable events” that have taken place during the last tax year must be notified to HMRC on the annual return. This includes (but is not limited to) the grant of new share options, any adjustments made to existing option terms; the release, lapse, or cancellation of options i.e. in the event an employee has ceased employment with the company or any other disqualifying events; and the exercise of options during the previous tax year. 

It is also important to note that if companies have issued any shares directly to employees within the last tax year these will also constitute employment related securities and the acquisition of these shares must also be reported to HMRC by way of an annual return.

The matters to be reported will differ depending on the type of scheme or arrangement you currently operate and if you have any questions in relation to ‘reportable events’ please get in touch. We would be pleased to assist you to meet your reporting obligations.

If you have registered a share scheme or arrangement with HMRC but there has been no reportable activity in the previous tax year, you will still be required to file a ‘nil return’ to avoid any financial penalties being issued for non-compliance.  

You should also consider taking steps to close any registered scheme if there are no existing options in issue and no further options are likely to be granted under the scheme in the future.  This would avoid the administrative burden of filing an annual return for each year the scheme remains inactive.

The online submission of annual returns can either be carried out by the company directly or by an agent appointed by the company to act on its behalf. 

Birketts’ Employee Incentives Team can act as your agent to file ERS annual returns on your behalf or assist you with any related ERS filing queries so please do get in touch if this would be of interest to you.

Extension to EMI notification period as of 6 April 2024

In an attempt to simplify the grant of EMI options, the Government has extended the period in which companies have to notify HMRC of the grant of any new EMI options as of 6 April 2024. Any EMI options granted after this date will no longer need to be notified to HMRC within 92 days of grant but instead must be notified on or before 6 July following the close of the tax year in which those options are granted.

A company can still notify HMRC of EMI options granted during the tax year in which they were granted if this is preferrable. However, this is a helpful change to the EMI legislation as it will result in companies having more time to complete a notification to HMRC and therefore lower the risk of the options losing the tax favourable treatment of EMI.

Are you getting the most out of your employee share schemes or arrangements?

It is good practice to reflect on existing share schemes and incentive arrangements to assess whether these remain fit for purpose, align with the company’s current business objectives, and continue to deliver the incentive value to employees that was envisaged at the outset.

• Do you understand the terms of the current schemes or arrangements you have in place?
• Are participants motivated by the incentive?
• Are performance-related targets still relevant and achievable?
• If the exercise of share options was contingent upon a sale of the business in the short to medium term, does this remain a realistic prospect?   
• Do the terms of the scheme still align with your overall business objectives?

If the answer to any of these questions is no, then your current share scheme or arrangement may not be working for you. 

We would welcome the opportunity to discuss this with you and explore how we can help to ensure that you are getting the most out of your employee incentive arrangements. Please get in touch with Birketts’ Employee Incentives Team should this be of interest.