If your business offers UK employee share plans, you need to do the following by 6 July 2021 for the 2020/21 tax year:
- 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 2021
- additional £300 if filing is three months late
- additional £300 if filing is six months late.
There is also a £10 per day penalty if the filing is more than nine months late and HMRC decides to impose such daily penalty.
There is also 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 concerning either tax-favoured plans or non tax-favoured plans and arrangements during the 2020/2021 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 2020/2021 tax year, you must submit a "nil return" to avoid automatic penalties arising for non-filing.
Factor in COVID-19
Due to the ongoing 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 website 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 don't want to leave it until the last minute!
- Take screenshots at all stages of your end of year reporting, and for all other activity on the HMRC online site (eg the notification of EMI option grants), for your records.
- Ensure that EMI option agreements 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.
- Include a Working Time Declaration in your EMI option agreements.
- 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.
- 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.
- If you are planning on using any board or other discretions to allow option exercises in your option plan or agreements, we recommend contacting us for advice as this is an area currently being looked into by HMRC.
Future changes in EMI?
At Spring Budget 2021, the UK government published a Call for Evidence to examine whether to expand the current EMI scheme to more companies. In particular, the government sought views on the following aspects:
- whether the current scheme is succeeding in helping SMEs to recruit and retain employees to help them to grow and develop
- whether high-growth companies that have outgrown the current qualification limits for the scheme are experiencing problems in recruiting and retaining employees
- whether the current scheme should be expanded to support high-growth companies and how
- whether other forms of remuneration could provide similar benefits for retention and recruitment for high-growth companies.
The Call for Evidence has now closed. We await an announcement from the government on next steps, although this may not be until the Autumn Budget.
Here to help
Please get in touch with a member of our Employee Incentives team if you need assistance or further information.