French Duncan warns employers over share scheme reporting penalties

Stephen Oates

As share schemes become a more common way of rewarding staff employers need to be aware of the stringent reporting requirements which these schemes attract.

There is also the concern that failure to fulfil this reporting carries hefty penalties which are strictly imposed by HMRC.

As Stephen Oates, tax director with French Duncan, explains: “Since April 2014 HMRC has required all reportable share schemes to be registered online under Employment Related Securities (ERS) which is part of the Employers PAYE online services. There are several tax advantaged schemes including the Enterprise Management Incentive Plans (EMI), Share Incentive Plans (SIP), Company Share Option Plans (CSOP), Growth Share Plans (GSP) and Save As You Earn (SAYE) and the employer is responsible for all annual returns, submissions, and declarations.”

“New grants of EMI options must be notified to HMRC within 92 days of the date of grant through the ERS online service. If the registration deadline is missed the tax advantages of qualifying as an EMI option could be removed thus resulting in the tax treatment for the option being the same as that for a non-tax advantaged share option.”

Mr Oates continues: “Annual returns must be submitted to HMRC by 6th July following the tax year in which a new scheme has been established or an existing scheme is continuing and has not been closed. Many employers make the mistake of not closing a scheme once it has ended. If it is not formally closed, then this can lead to large penalties accruing and HMRC seldom takes a common sense approach and will rigorously enforce any penalties raised.”

“If the 6th July deadline is missed there is an automatic £100 penalty and further penalties of £300 for every three months the return is outstanding up to nine months. After that daily penalties of £10 are applied.

“There are further rules for non-tax advantaged arrangements where employees receive options or subscribe for shares. In such cases HMRC must be notified and an annual return must be completed and submitted. HMRC do not send reminders to file a return, but they will issue automatic penalties for failure to file on time. A return is needed each year following the registration of the scheme or arrangement.”

Mr Oates added: “While HMRC are strict in their application of the rules and penalties it is important that you don’t assume that you cannot appeal. Appeals can be made through appropriate channels but must be submitted within 30 days of the penalty being applied. If the 92-day notification deadline is missed for EMI purposes it is possible to make a reasonable excuse claim (REC) to HMRC and if this is accepted by HMRC none of the tax advantages will be lost. However, negotiating the claims procedure with HMRC can be tricky so if in doubt please take advice on these schemes, which are an important tool in staff remuneration, but which can be difficult and costly if not administered correctly.”