A quick reminder on reporting If a director or employee acquires shares or share options in a tax year (to 5 April), the company needs to make a report to HMRC by 6th July immediately following the end of the tax year. Other related transactions may need to be reported (see below). The company reports the transactions regardless of whether any tax or social security is due. It is alsonecessary to file nil-returns, where appropriate, for HMRC approved share/option schemes.
Please note that it is now only possible to complete the required return electronically, which means the employer will need to have set up online access, which takes a few weeks. The Employment Related Securities (ERS) service is part of the PAYE Online for employers’ service. To use the ERS service employers will need access to HMRC online service. Registration can be made online.
What transactions do I report?
Acquisition, conversion, variation of restrictions, sale for more than market value, receipt of related benefits, discharge of notional loans.
Grant, exercise, assignment and release
The above list is not exhaustive and we recommend you consult with a professional adviser to ensure you have returned all relevant transactions and events.
Which form(s) do I need?
There are four HM Revenue & Customs approved employee share schemes as follows:
SHARE INCENTIVE PLAN (SIP) Form 39 (From 30 for the PSS plan)
COMPANY SHARE OPTION PLAN (CSOP) Form 35
SAVE-AS-YOU-EARN (SAYE) Form 34
ENTERPRISE MANAGEMENT INCENTIVES (EMI) Form EMI40
For anything else (unapproved):
EMPLOYMENT-RELATED SECURITIES Form 42
All the above forms, together with written guidance, are available from HRMC’s website.
Related corporate benefits and reporting requirements
If an employee has been subject to income tax on a share/option gain during the year, the company may be able to offset the same taxable gain against its profits chargeable to corporation tax, subject to meeting certain conditions.
Share options and some share plans will likely need to be disclosed in the accounts, and there may also be a charge to the profit and loss account under FRS20/IFR2 (your accountant should be aware of this).
Examples of why shares or share options are offered to employees:-
- Gains on sale of shares may be subject to capital gains tax at 20% (10% if Entrepreneurs’ Relief applies although income tax rates can apply in certain circumstances).
- Dividends are generally more tax efficient than remuneration.
- Motivates key employees and aligns their interests with that of shareholders.
- Helps employers to attract the best people on the market.
- Locks in key individuals, reducing the risk of them moving to a competitor.
- Business succession planning.
What are the barriers to diversifying share ownership?
- Up-front tax and/or funding costs for employees.
- Valuation issues and costs.
- Complexity of legal and tax rules surrounding shares.
- Dilution of existing shareholders and reduced control.
There is a whole raft of ideas and share/option plans out there and Harbour Key can provide the company with an appropriate incentive plan to drive the business forward. Harbour Key are specialists in employee share schemes and will guide you through every step of the process.
Should you require any further details on the items contained in this guide or tax advice in general, please do not hesitate to contact Harbour Key Limited. If you wish to sign up to our regular update please go to our website.
Harbour Key Limited
8 June 2016