6 April 2023
All employers operating share plans in the UK must submit an employment related securities (ERS) return to HM Revenue & Customs (HMRC) by 6 July following the end of the tax year. The deadline for filing the ERS return for the 2022/23 tax year, which ended on 5 April 2023, is Thursday 6 July 2023. As the registration and reporting process can take some time, we recommend that employers prepare and file their return with HMRC as soon as possible.
New for 2023 – updated ERS return templates
In January 2023, HMRC announced prospective changes to the end-of-year ERS return templates and corresponding guidance notes. At the end of February 2023, HMRC published the updated guidance notes that distinguish between the approaches for ERS returns submitted before and from 6 April 2023. The new forms of the ERS return templates for use from 6 April 2023 have now been published on the UK Government website here.
The main change is that the following data fields that, prior to 6 April 2023, were optional in certain of the ERS return templates, have become mandatory:
- The employing company’s PAYE reference.
- Whether PAYE is operated (yes/no).
- The National Insurance (NI) number of the employee (where this is not available, an alternative reference that is derived from the employee’s date of birth should be used for ERS returns purposes only).
In addition, certain of the column headings in the ERS return templates have been updated.
It was also announced in the UK Spring Budget in March 2023 that the grant notification process for tax advantaged “enterprise management incentive” (EMI) options will be changed, with effect for options granted from 6 April 2024. The ERS return template for EMI plans has therefore not been updated this year for this change, but is set to be updated again in a year’s time.
What do I need to do?
Register any new plan or arrangements well in advance of the filing deadline
- Before you can submit your ERS return, all relevant share plans must have been registered online with HMRC via the registration service found here. To do this, you will need a Government Gateway user ID and password. Your UK payroll team will typically have these details.
- You do not have to have a separate registration for each non-tax advantaged plan or arrangement. All current non-tax advantaged plans may be covered by a single registration (and return), (although you can choose to make plan-specific registrations if preferred). Please note, however, that each UK tax advantaged plan must be registered individually and have its own return submitted.
- UK tax advantaged Share Incentive Plans (SIPs), Save As You Earn plans (SAYE plans) and Company Share Option Plans (CSOPs) must also be ‘self-certified’ online as being compliant with applicable UK tax legislation.
- You will not need to register your plan again if it has already been registered. Only new plans implemented during the 2022/23 tax year will need to be registered. Within 7 days of registering, you should receive a unique scheme reference number for the plan.
File the ERS return – including any nil returns
- Once you have the unique scheme reference number for your plan, you will be able to file the ERS return.
- To file the return, you must complete the relevant online template.
- Each template asks for prescribed information in connection with relevant ‘reportable events’.
- The template that you must use will depend on the plan that you are completing the return for. There are particular templates for each of the UK tax advantaged plans, while plans that are non-tax advantaged will utilise the "other ERS schemes and arrangements" template.
- Once you have completed the template, you can run it through a formatting check and then submit the return here.
Key points to look out for
- Mobile employees: make sure you capture all of your plan participants who have been in the UK at any relevant time and have any UK income tax position in relation to their awards.
- Net-settled awards: HMRC has issued specific guidance on the reporting of net-settled awards (where awards are partially settled in cash to meet applicable tax liabilities). You may need to check processes carefully to determine whether tax on awards is funded by net-settlement or a “sell to cover” arrangement, and then organise reporting accordingly.
- Transactions: make sure the relevant entities are reporting share award activity related to any corporate transaction and, if your group has acquired a business or company, make sure any share awards in that entity are included in reporting where appropriate.
- No plan activity: where you have registered a plan, you must continue to file a return even where there has been no plan activity in the relevant tax year. In these circumstances, a ‘nil return’ should be filed.
- Templates: you will need to download the new templates from here rather than using previously downloaded templates. The templates are format sensitive so generally no changes should be made. The checking service found here allows companies to check for formatting errors prior to filing the completed templates. We recommend using this service as it is very helpful in pinpointing particular formatting issues so these can be corrected before making any attempt to submit the templates.
- Terminated plans: if you no longer use a share plan, you will still need to make an annual return for outstanding awards. Once all awards have been settled, you can stop filing but only after you have informed HMRC that the plan has terminated. Further information on this is available here.
Why is it important to register and file accurate returns on time?
Failure to register and/or file the return on time can have serious consequences:
- Financial penalties may be applied for returns that are materially inaccurate (potentially including both careless as well as deliberate errors).
- Financial penalties automatically apply if you fail to file your ERS returns by the 6 July deadline, even if no reportable events occurred in the tax year.
- Newly adopted UK tax advantaged plans will not benefit from tax advantaged status if you fail to register and self-certify them by the deadline where awards have been granted in the 2022/23 tax year. This means that any awards granted under new SIPs, SAYE plans and CSOPs on or after 6 April 2022 would not be tax advantaged.
For many companies with UK share plans participants, the online ERS return process is now an established part of the annual cycle of share plans activity. Up until 6 April 2023, the form of the ERS return template and the data fields that were mandatory had not changed for a number of years. Therefore, employers may have been in the habit of reusing templates and approaches from previous years. Such an approach will not work this year as the new forms of the templates must now be used.
We expect that the HMRC system will reject returns submissions if they are not on the revised form of the templates or do not contain the relevant mandatory information.
Therefore, whether or not you are new to the process, the message continues to be to plan ahead and allow plenty of time for gathering data in the correct format and checking the content.
In particular, now that NI numbers are mandatory, where employees do not have these their employers should ensure that they have their dates of birth to hand to be able to generate the relevant alternative reference.
The additional mandatory information required by HMRC may also be used to support their cross checks to other share plan related tax touchpoints, such as the PAYE income tax and NI contributions operated by an employer on share awards and any corporation tax deductions it has claimed in respect of them. It therefore continues to be important for share plans teams to work together with payroll and corporate tax colleagues to ensure that the data used is consistent.
If you have any questions on any of the matters raised in this alert, please do contact us and we would be happy to help
Suzannah Crookes and Paul Abthorpe