Employment Related Securities Reporting

• Published date: 15 June 2020
• Author: Mr Tim Shaw and Helena Kanczula
• Subject Matter: Corporate/Commercial Law, Consumer Protection, Tax, Corporate and Company Law, Consumer Credit, Corporate Tax, Securities
• Law Firm: Blick Rothenberg

All companies have an obligation to inform HM Revenue & Customs (HMRC), the UK's tax, payments and customs authority, about transactions in Employment Related Securities (ERS) that relate to their employees who are undertaking duties in the UK.

The definition of ERS is widely drafted and, although it does include typical share and share/stock option awards, many alternative arrangements may be covered by these rules, even beyond formal employee share schemes. The due date for filing the annual return for the 2019/2020 tax year is 6 July 2020. Events which take place during the year ended 5 April 2020 need to be detailed on the ERS return, which is then filed through the HMRC ERS online system.

Reportable events

Most security transactions involving UK employees and directors will be reportable. Therefore, as well as company incentive plans, the issue of shares or options to UK employees and directors (including future or past employees) needs to be reflected in an ERS return.

Even where an employee has paid market value for the securities or the securities have a modest value, the acquisition is almost certainly reportable. There are very few exceptions.

Apart from the issue of shares, other transactions in securities, or the right to acquire securities, are reportable. These events include and are not limited to:

• The grant and exercise of options
• The award of restricted stock units (RSUs)
• Changes to the rights of securities
• Acquisitions for more than market value e.g. under good leaver provisions if an employee receives the amount paid for shares, and their value has decreased
• Share or option cancellations in exchange for consideration

Information required

A significant amount of information may be required depending on the type of transaction being reported.

This is not an exhaustive list but for an issue of securities or exercise of options the return must include details of:

• The company issuing the shares, including its address
• The names and National Insurance numbers of the employees
• The number and type of securities awarded
• Any restrictions that could affect the market value of the shares
• Whether the employee has agreed to be taxed as though restrictions did not apply
• The market value of each security and amounts which employees have paid for the shares
• Whether payroll taxes have been applied (some share acquisitions, such as listed shares, are subject to PAYE and NICs)

The reporting of securities which are subject to PAYE and NICs and are 'net...