Employment Related Securities (ERS) Online Return – don’t miss the filing deadline!
We were recently contacted by a company asking for advice regarding an online return to be filed with HM Revenue & Customs (HMRC). The online return was in relation to employment related securities (ERS) which has a filing deadline of 6 July following the end of the tax year. This means that there is only a 3 month window available from the end of the tax year to file the online return. For example, if you granted ERS to employees during the 2022/23 tax year (tax year ending 5 April 2023), you would need to file an ERS return for that tax year by 6 July 2023.
The following note provides further information on what is an ERS, the filing obligations and the penalties for non-compliance. What follows is a brief overview and it should be noted that the ERS provisions are quite far reaching and it is not possible in this note to list every transaction that will be caught or discuss the provisions in full.
What are Employment Related Securities (ERS)?
An employment-related security is defined as a right or opportunity to acquire securities made available by the employer or a person connected to him. Essentially, employment related securities are shares and similar financial ‘securities’ held by employees and directors. These include shares, share options and loan notes.
Ordinarily, an income tax charge does not arise on the grant of an ERS but will arise on the issue/exercise of employment related securities and the ERS online return provides an opportunity for HMRC to monitor and ensure that an income tax charge is levied on such securities.
Who is responsible for filing the ERS return?
The employer (or host employer).
How is the ERS return filed with HMRC?
The employer will need to register a PAYE gateway account and then register for the ERS service, which usually takes time for HMRC to process. This gateway account and ERS service is then used to file the ERS return online.
What should be reported on the ERS return?
In short, any share or securities related transactions in the employer company or group. For example, an employer awarding shares or granting share options to an employee during the relevant tax year. As per the ERS legislation, please see below for what is caught as a ‘security’.
- Stocks and shares in companies.
- Debentures, debenture stock , loan stock, bonds, certificates of deposit and other instruments creating or acknowledging indebtedness.
- Warrants and instruments entitling their holders to subscribe for securities.
- Certificates and other instruments conferring rights in respect of securities held by persons other than the persons on whom the rights are conferred and the transfer of which may be effected without the consent of those persons.
- Units in a collective investment scheme.
- Options and futures.
- Rights under contracts for differences or contracts similar to contracts for differences.
- Rights under certain contracts of insurance.
Special situations?
A few of these as follows:
- ERS will not apply in certain situations to include where the employment related security is provided in the normal course of the domestic, family or personal relationship. For example, a father who is the controlling shareholder and director of a company and the company issues shares to his daughter. If the issue of these shares is by virtue of the personal relationship between the father and the daughter then there will be an exception from the ERS provisions.
- The ERS provisions can apply where a fellow employee/director transfers securities to another employee. In this case, the employee receiving the securities could be subject to an income tax charge and the employer having a responsibility to report the transfer on an ERS online return.
Failure for non-compliance
If the ERS online return is not filed by 6 July, an initial £100 penalty will be issued. A further penalty of £300 will be charged if the return is still outstanding three months after the due date, and a further £300 if it is still outstanding six months after the due date. If a return is still outstanding nine months after the due date, daily penalties of £10 a day may be charged.
Final words
Due to the complexity of analysing whether a transaction is caught by the employment-related securities provisions and the time it takes to register a PAYE gateway account, employers should act now and seek advice with regards to filing the ERS online return.
Prager Metis has considerable experience with filing these returns and we would be pleased to assist employers with these.
