26/03/2015

By Suzy Giele, Employee Share Schemes expert at Excello Law


Many SMEs are unaware that by 6 July they will need to have registered all employee share schemes with HMRC and filed online returns in relation to them. Failure to do so means companies could face penalties yet many will overlook the new requirements because share arrangements with employees can be fairly informal and may be languishing in the bottom drawer, having been agreed years before.

Any type of employee share incentive scheme over an employer’s shares is potentially covered by the new rules introduced in 2014, even those that are not part of HMRC’s tax advantaged schemes.

Up until now, companies were only required to report employee share schemes to HMRC if they had statutory tax advantages or where some kind of taxable event had occurred during the relevant tax year. Taxable events include where an employee receives employer shares or is granted an option or other right to acquire them, but can also extend to wider circumstances such as where an employee sells the shares or his share option is cancelled.

Following changes announced in the Finance Act 2014, potentially any employee rights over shares in their employer – including those which were in existence before these changes came into force - must now be registered online with HMRC and annual returns filed in relation to them. Once a scheme has been registered, a return must be filed in relation to it each year, even if there has been no taxable event for that year.

HMRC has made clear that employers must submit the annual return information in relation to each scheme, including nil returns, by 6 July following the end of the relevant tax year, otherwise automatic penalties will apply. In order to submit the online annual return for a share scheme, a business first needs to register at HMRC Online Services and then register each share scheme with HMRC. This registration process can take a few days, and therefore companies should keep this in mind when planning to meet the 6 July filing deadline.

For the tax year 2014/15 onwards, penalties of up to £700 can be imposed for a late return, with an additional £10 per day if the return is still outstanding after nine months. In addition, HMRC can impose a penalty of £5,000 for a material inaccuracy in a return which is not corrected without delay.

Whilst larger corporates with more formal arrangements will generally have this covered, many SMEs are not aware of the changes and need to get on top of this to avoid being caught out. Companies should review all existing share incentive agreements with employees (and former employees) to ensure relevant arrangements are registered with HMRC in time for the annual returns to then be filed before the deadline.