You need to do the following by the deadline of 6 July 2020:
- complete end of year reporting for share plans and arrangements
- register all new share plans and arrangements on the HMRC online system
- self-certify new tax-favoured share plans.
If you don't take the above actions in time, you will be subject to automatic penalties and will lose the tax-favoured treatment for certain share options.
The following automatic penalties will apply:
- immediate £100 penalty for filing after the deadline of 6 July 2020
- additional £300 if filing is 3 months late
- additional £300 if filing is 6 months late.
There is also a £10 per day penalty if the filing is more than 9 months late and HMRC decides to impose such daily penalty.
There is a penalty of up to £5,000 for a material inaccuracy in a return which is not immediately addressed.
What do you need to do?
If any reportable events have taken place in relation to either tax-favoured plans or non tax-favoured plans and arrangements during the 2019/2020 tax year, you will need to report them. "Arrangements" includes the acquisition of employment-related securities by employees and directors generally, not just under a formal plan.
Reportable events include the following:
- grant of options
- the exercise of options
- certain lapses of options
- the acquisition of shares
- events under the restricted shares legislation and anti-avoidance rules.
You will need to register all new employee share plans and arrangements online. You will also need to self-certify that any new tax-favoured share plans (EMI, CSOP, SIP and SAYE) meet certain requirements.
Nothing to report?
If you have previously registered a plan or arrangement but have no reportable events for the 2019/2020 tax year, you must submit a ‘nil return’ to avoid automatic penalties arising for non-filing.
COVID-19
Against the backdrop of the disruption caused by COVID-19, we would recommend that you leave additional time to complete your annual returns, as it may be more difficult to gather the required data.
If you have not used the HMRC online site for employment-related securities already, you will not be able to complete your end of year reporting until you have registered your plan or arrangement with HMRC. In normal circumstances, this can take over two weeks, so you do not want to leave it until the last minute! HMRC has simplified this process due to COVID-19.
HMRC has announced that they will not postpone the 6 July deadline due to COVID-19. They have stated that if penalties are imposed, you could appeal them on the basis of COVID-19 being the reason for late filing, but you would have to explain how COVID-19 affected you.
Don't forget!
- You must take screenshots at all stages of your end of year reporting, and for all other activity on the HMRC online site (e.g. the notification of EMI option grants), for your records.
- EMI option agreements must include details of any restrictions attaching to the shares subject to the option. Please note that if you have changed your articles of association / shareholders resolution or constitution as part of a funding round, the summary of restrictions will need to be updated for new EMI options.
- Your EMI option agreements must include a Working Time Declaration.
- To check that the company is still fully compliant with current EMI rules when granting new EMI options.
- If you have granted options over shares in a non-UK company to employees of a UK subsidiary, it will be simpler for the UK subsidiary to be responsible for the online registration, self-certification and end of year reporting.
- To check your option plan rules and option agreement carefully when employees are ceasing employment to ensure that the correct treatment is followed and that the tax implications are appreciated.
- To consider the impact of furloughing employees on their share / option awards (particularly EMI options). HMRC has recently given guidance on some of the plans, but not on EMI.
Please get in touch with a member of our team if you need assistance or further information.
