Since April 2014 employers have been required to submit employment related securities (ERS) annual returns and file any notices online through the HMRC ERS online service. The ERS service covers tax advantaged share schemes, such as EMI, CSOP etc, non-tax advantaged schemes and where shares are gifted or purchased by reason of employment.
Since the ERS service went online it has proven to be less than user friendly. HMRC has also removed the ability to phone the ERS helpline making it difficult to get guidance in relation to submissions. The procedure for getting the online service set up can take up to 3 weeks while you wait for each set of authorisation codes. When deadlines are fast approaching none of this leads me to believe that this new procedure qualifies as tax simplification.
Due to the above issues we have found that employers have struggled with the completion of the annual returns and with the submission of the 92 day notification for EMI schemes, often leading to late submission penalties from HMRC. With annual returns, a return is required each year until the scheme is closed, even where no transactions take place during the year e.g. for an EMI scheme this will be where all options in the scheme are exercised. In all cases to cease a scheme through the ERS service a final event date must be entered online.
Missing a deadline and being charged a penalty can be punishment enough but where the EMI 92 day notification is missed this can be particularly destructive. Where the 92 day deadline is not met HMRC’s action is to ignore the fact that the conditions for an EMI scheme are met and to treat the scheme as a Non-Tax Advantaged Scheme. This effectively removes the beneficial tax reliefs available to the employees from an EMI scheme. An example of this effect is shown below.
Ex1
Shares = 100
MV at grant = £10
Price Paid = £10
MV at exercise = £50
If EMI treatment is lost the employee is treated as receiving earnings from their employment of £4,000 (£5,000-£1,000) and would pay income tax on this amount at 20%/40%/45% depending on whether they were a basic rate, higher rate or additional rate taxpayer. Whereas if the EMI treatment was not lost there would be no charge to income tax at date of exercise.
We have a 100% success rate in making reasonable excuse claims to HMRC to enable late notification of the EMI scheme and therefore allowing the employees to benefit from the EMI tax advantages. Although we have been successful to date, rather than wait until after the deadline is missed to get in touch, let us take care of the full administrative burden around Employment Related Securities for you and let you get back to growing the business. If you are looking for assistance please get in touch with Stephen Oates either by email to s.oates@frenchduncan.co.uk or call 0141 221 2984.