Key Changes to Incentive Plans and ERS Annual Return Filing Requirements

Changes to Enterprise Management Incentive (EMI) Schemes

The Spring Budget 2023 made various changes to simplify share schemes and incentives arrangements:

• As of 6 April 2023, companies no longer need to include a summary of the restrictions that apply to option shares within an EMI option agreement. This is a welcome simplification.
• Additionally, option holders will no longer need to sign a working time declaration when they are issued an EMI option. Similarly, companies will not be required to make any declarations or give copies of the same to relevant individuals within seven days. However, it is important to note that employees will still be required to meet the working time requirement to qualify as a participant for EMI purposes.
• EMI notifications still need to be filed within 92 days of the date of grant for the 2023/2024 tax year. However, from 6 April 2024, the time limit will change from the current 92 days of the date of grant, to 6 July following the tax year-end when an EMI option is granted. This is a helpful administrative change which gives companies, and their agents, further time to submit EMI notifications to HMRC. Currently, a failure to submit notice within 92 days could result in the loss of favourable tax treatment for participants, which is undesirable for companies that aim to grant tax-efficient incentives for their key employees.

Changes to Company Share Options Plan (CSOP) Schemes

• As of 6 April 2023, the individual limit on the value of CSOP shares increased from the current £30,000 to £60,000. Additionally, the requirement for CSOP shares to be ‘employee control shares’ or ‘open market shares’ has been removed for companies with more than one class of share.
• These changes undoubtedly make CSOP a more attractive scheme than it was previously, however caution should be exercised if using alongside an EMI scheme because the CSOP limit contributes to the individual limit for EMI options, which must not exceed £250,000. If an individual has an EMI option and is granted a CSOP option and the total market value of shares under the CSOP and EMI options combined is more than the EMI individual limit then this would disqualify the EMI option, resulting in a loss of tax relief.
• In each case, these limits are calculated by reference to actual market values as at the relevant grant dates.

By way of a reminder, as of 6 April 2023, the Capital Gains Tax annual exempt amount reduced from £12,000 to £6,000. This will be further reduced to £3,000 after 6 April 2024.

Filing requirements – annual returns

Companies that operate employee share schemes such as EMI, CSOP, Share Incentive Plans (SIP), Save as you Earn (SAYE) or any non-tax-advantaged or ‘unapproved’ schemes and arrangements must file an annual return with HMRC. A separate return is required for each scheme operated during the tax year.

The return for the tax year 2022/23 is due on or before 6 July 2023. It is important to diarise this date because you will not receive any filing reminders directly from HMRC. Automatic financial penalties will be issued for late filings starting at £100 and increasing to £300 if the return is still not filed within 9 months of 6 July. Daily penalties can apply thereafter.

We recommend filing any annual returns online via HMRC’s Employment Related Securities (ERS) Service as soon as possible to avoid penalties being incurred. The submission of annual returns can either be carried out by the company or via an agent that is authorised to act on behalf of your company.

Reportable events

All ‘reportable events’ that have taken place during the last tax year must be notified to HMRC on the annual return. ‘Reportable events’ include (but are not limited to) the grant of new options; any adjustments made to existing option terms; the release, lapse or cancellation of options (i.e. where an employee has ceased their employment with the company or waived their option); and the taxable or non-taxable exercise of options. 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 this, Birketts can help.

Nil return

Even where there has been no activity or there are no outstanding options under a registered scheme, you will still be required to file a ‘nil return’.

Closing a scheme

You should also consider taking steps to close any registered scheme if there are no existing options in issue and no further options that are likely to be granted under the scheme in the future. This is an important step to avoid the administrative burden of filing an annual return for each year the scheme remains inactive or ultimately incurring any financial penalty for non-compliance if the obligation to file a return is not complied with.

Assistance with annual returns

The Employee Incentives Team at Birketts is happy to assist with filing annual returns for share schemes to HMRC so please do get in touch if this would be of interest to you. For further information or assistance regarding the online submission of EMI notifications or ERS annual returns, please contact Olivia Sherman in our Employee Incentives Team.