Employer Compliance – Spring Statement 2023 Update & Reporting Employment Related Securities

In this article for employers, we have highlighted the key aspects of the Chancellor’s Spring Statement from 21 March in relation to employee share schemes and summarised how this will affect employers. We have also set out below some of the key tax deadlines coming up for employers, in relation to these schemes.

SPRING STATEMENT 2023 – UPDATE FOR EMPLOYERS

There was some welcome news for companies incentivising their staff with EMI options. In addition to relaxing certain technical aspects on how these options are documented from 6 April 2023, the time period for notifying the grant of the options to HMRC will be moved to the 6 July following the tax year in which the options were granted. The change to the notification deadline will apply to options granted from 6 April 2024 (note this is still 12 months away so the current 92 day deadline will need to be met until then).

Currently employers are required to notify HMRC within 92 days of grant – a deadline which can easily be missed but which HMRC take very seriously. The new deadline for notification will tie in with the annual reporting deadline for all share-based employee incentive arrangements – see below. This is a sensible approach which will reduce administrative time and costs for companies offering employees these particularly tax-efficient share options.

The above changes were implemented following a call for evidence on EMI options. A similar call was made in respect of CSOP options which also resulted in positive changes that were re-confirmed in the Budget, including an increase in the value of shares under option from £30,000 to £60,000 per employee, and a widening of the type of shares over which CSOP options can be granted. A call for evidence on the remaining tax-advantaged share schemes, the Share Incentive Plan and the Save As You Earn scheme was also announced within the Budget, with further details to follow.

REPORTING FOR EMPLOYEE SHARE SCHEMES

Employers must report annually any events that occur in relation to Employment-Related Securities (“ERS”), which include any shares or other securities that are acquired by reason of employment.

For the 2022/23 tax year, the deadline is 6 July 2023. However, filing the ERS return involves several key tasks that are essential in submitting the return to HMRC and we recommend that employers start looking at this now, to ensure they meet the deadline.

The key points to remember include:

1. Registering new plans: For new share plan arrangements (including simple acquisitions of shares by employees and directors including non-executive directors) that occurred in 2022/23, companies must first register “a plan” online with HMRC via the ERS Online Services page. This process can take time and shouldn’t be left to 5th July.
2. Verify or self-certify the tax-advantaged plans in place including Enterprise Management Incentive Plans (EMIs), Share Incentive Plans (SIPs), Save As You Earn (SAYE) plans and Company Share Option Plans (CSOPs). If you do not verify them, you risk the beneficial tax treatment being lost.
3. Submit annual returns with all reportable events: The list of potential reportable transactions/events includes (but is not limited to) any acquisition of shares or securities (e.g. loan notes, carried interest, etc.) made by employees or directors, the grant of share options to (or exercise of share options by) employees or directors and certain disposals of securities (where these events have given rise to income tax).
4. Nil returns: Remember to submit a nil return for all open tax-advantaged and non-tax advantaged plans even if there have been no reportable events in the tax year. Employers should also submit a nil return for the year of grant of EMI options (assuming none of the options are exercised or lapse in the same year), in addition to separately notifying grant of those options.

CHANGES TO THE ANNUAL RETURN TEMPLATE

HMRC recently published Employment Related Securities Bulletin 47, which set out changes to the end of year template for these returns. The templates will be updated from 6 April 2023, with the main changes including:

• The PAYE reference for the employing company will become mandatory, as will the question about whether PAYE has been operated for non-tax-advantaged schemes.
• The NI number field for each employee will be mandatory.  If the employee does not have an NI number, the following format must be used which will generate a reference number specifically for the return template:

1. ‘TN’ to indicate an ERS reference that cannot be used for any other purpose;
2. The employee’s date of birth; and
3. A ‘no NI number reason identifier’.

Further information can be found in HMRC’s bulletin, a link to which is provided below.

HMRC has also updated the guidance notes to the templates to give more information about registering for ERS online, registering a share scheme and notifying the end of a scheme.

The additional mandatory requirements will place further administration burdens on employers, during what is already a challenging compliance timetable. We await further details from HMRC on the finer points, particularly the NIC number for employees.

Employment Related Securities Bulletin 47 (January 2023) – GOV.UK (www.gov.uk)

COMMON ISSUES

Some of the most common errors/issues we see arising in relation to ERS returns include:

• Using the wrong currency in the ERS return template which will cause the price paid for the shares to be incorrectly reported.
• Failing to include those individuals that are not UK-based employees but carry out duties in the UK during the period of the award.
• Excluding non-executive directors from the “Other” return for non-tax advantaged plans.
• Failing to review, analyse and report correctly any restrictions attached to the shares.
• Failing to report exercises and lapses of EMI options correctly.

PENALTIES

Late ERS filings will result in penalties from HMRC as follows:

A penalty of up to £5,000 can also be charged for a material inaccuracy in an ERS return which is not immediately addressed and resolved.

HOW CAN WE HELP?

At Alvarez & Marsal Taxand, our Reward and Employment Tax team have extensive experience in advising employers on their ongoing employment tax and NIC obligations.

We can offer a range of advice and services to assist employers in respect of ERS and tax-advantaged share schemes annual return compliance. Please contact your usual A&M point of contact or Louise Jenkins, Chris Prout, Aya Ishikawa, Samantha Lenox, Anita Eunson, Kathy Lloyd or Linda Cameron.

https://www.alvarezandmarsal.com/insights/employer-compliance-spring-statement-2023-update-reporting-employment-related-securities