17 June 2021
All employers operating employment related securities (ERS) plans in the UK, including share plans, must submit an ERS return with HM Revenue & Customs (HMRC) by 6 July following the end of the tax year. The deadline for filing the ERS return for the 2020/21 tax year, ending 5 April 2021, is Tuesday 6 July 2021. As the registration and reporting process can take some time, we recommend that employers prepare and file the returns with HMRC as soon as possible.
What do I need to do?
Register the plan
- Before you can submit your ERS return, all relevant share plans must have been registered online with HMRC via the registration services found here. To do this, you will need a Government Gateway user ID and password. Your UK payroll will typically have these details.
- 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.
- If your plan has been registered and self-certified (if relevant) previously, you will not need to register it again. Registration will only be required for new plans implemented during the 2020/21 tax year. You should be provided with a unique scheme reference number for the plan within 7 days of registration.
File the ERS return
- 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 located on the UK Government website here.
- 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. Plans that are not UK tax advantaged plans will use the “other ERS schemes and arrangements” template and there are specific templates for each of the UK tax advantaged plans.
- Once you have completed the template, you can run it through a formatting check and then submit the return here.
What are some of the key points to look out for?
- Don’t leave it to the last day: we recommend that you complete and file your returns (and, if needed, register and self-certify) well in advance of the 6 July deadline. Once a plan is registered, it normally can take up to 7 seven days before the unique scheme reference number is provided to enable the filing to be made and the filing cannot be made before you have that. It can also take some time to work through the template, gather the necessary information to complete it and then carefully check it to ensure that there are no mistakes. Clients typically also have a few questions that they want to run by us before submitting the returns and so that would need to be factored into the timeline.
- Non-tax advantaged plans: you do not need to register and file a return for each non-tax advantaged plan separately. A single registration and return covering all existing non-tax advantaged plans will be sufficient. Please note, however, that all UK tax advantaged plans must be registered separately with separate returns filed.
- 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.
- Outages: in previous years, the website where the return is submitted has experienced outages. The web page that is found here will notify users of any current and planned issues or outages.
- 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 ‘paid out’, you can stop filing but only after you have informed HMRC that the plan has terminated. Further information on this is available here.
- Templates: we recommend that you always download the most recent templates from here and avoid using previously downloaded templates. The templates are format sensitive. You should not alter the template in any way, e.g. by deleting tabs or columns, altering the format or changing its name. Altering the template will result in an error message and the gateway will not allow you to upload it. The checking service found here allows companies to check for formatting errors prior to filing the completed templates. We recommend using this service to avoid delays in filing.
- Template file names: the file names for the templates still have “2015-6” in the title because they have not been renamed since they were first made available by HMRC. However, the templates available online are the latest versions and HMRC has confirmed that the templates should continue to be used and the format must not be changed (do not even attempt to expand the column sizes).
- EMI plans: there are different (and more onerous) requirements and deadlines for UK tax advantaged Enterprise Management Incentive (EMI) option plans. Please get in touch if you operate, or are intending to operate, an EMI plan.
Why is it important to register and file the return on time?
Failure to register and/or file the return on time can have serious consequences:
- Financial penalties automatically apply if you fail to register your plans (and, for certain tax advantaged plans, self-certify that they are compliant plans) by the deadline.
- Financial penalties automatically apply if you fail to correctly 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 lose their tax status if you fail to register and self-certify them by the deadline where awards have been granted in the 2020/21 tax year. This means that any awards granted under new SIPs, SAYE plans and CSOPs on or after 6 April 2020 would not be tax advantaged.
The memories of HMRC’s benign approach to late paper based returns fade into folklore, as told by elder share plan lawyers to wide eyed novices, who know nothing but automated penalties levied for late registration and filings. The move to online reporting has meant HMRC will fine companies who do not submit returns on time without a good excuse. We suspect, unlike last year, HMRC will be much less willing to accept Covid-19 related excuses for lateness.
The online registration and reporting system is still unwieldy and often confusingly counterintuitive. It can take time to ensure a plan is registered before the return for that plan is submitted. HMRC’s dogmatic approach to terminology can be confusing, so that the actual preparation of a return can be much more complicated and time consuming (and stressful) than an unsuspecting share plan manager might expect. For example, issues like net settlement of awards require a specific reporting approach which is far from clear when confronted by the return template in isolation.
If you have not yet done so, take time to ensure your plans are registered and that you are familiar with the requirements of the return(s) you need to file so that the 6 July deadline can be met.
We assist a number of clients with their ERS registrations and returns each year. If we can assist you with this, please let us know.
Matthew Hunter and Chris Fallon