12 May 2023

The Employment Related Securities Bulletin 50 has been published by HM Revenue and Customs (HMRC). The guidance outlines any changes to restrictions in Enterprise Management Incentives (EMI) options agreements and working time declarations.

Limited companies may gift company shares to employees (including directors) as a method of reward or incentive. These are known as Employee Related Securities (ERS). An employee not paying tax or National Insurance (NI) on the value of the share(s) received can be seen as a tax advantage.

Some ERS schemes with this tax advantage include:

  • Share Incentive Plans (SIP)
  • Save as You Earn (SAYE)
  • Company Share Option Plans (CSOP)
  • Enterprise Management Incentives (EMIs).

On the other hand, a non-tax advantaged scheme means employees are liable to income tax when they exercise the option on the shares granted to them.

Below are the key points covered in the HMRC guidance.

Year-end reporting deadline

An end of year ERS return must be filed if an employee share scheme is operated.

  • for the 2022/23 tax year an end of year ERS return must be submitted (on or before) 6 July 2023
  • a return or nil return must be submitted for every scheme that has been registered on the ERS online service
  • the scheme must be ceased, if registered in error or if it is no longer operating. However an annual return for the tax year in which the final event date falls must still be filed.

Penalties

  • a £100 penalty will be issued automatically if the end of year ERS return, including nil returns is not submitted by 6 July 2023
  • additional automatic penalties of £300 will be charged if the return is still outstanding three months after the original deadline of 6 July, and a further £300 if it’s still outstanding six months after that date
  • if the initial penalty has been received and paid, an end of year or nil return still must be submitted to meet filing obligations.

EMI: changes regarding restrictions in option agreements and working time declarations

The below changes were announced by the government, at the Spring Budget on 15 March 2023. These changes are also set out in ERS Bulletin 49.

Restrictions in EMI option agreements:

  • employer companies are no longer required to set out within the option agreement, details of any restrictions on the shares that can be acquired for EMI options granted on or after 6 April 2023. This change also applies to EMI options granted before 6 April 2023 which have not yet been exercised
  • before entering into an option agreement, it is still necessary for an employee to be aware of all the terms and this includes any restrictions on the shares that can be acquired.

EMI working time declarations:

  • employer companies will no longer need to declare that an employee has signed a working time declaration when they are issued an EMI option, for EMI options granted on or after 6 April 2023
  • from 6 April 2023, there will be no requirement for an employee who has acquired EMI options to sign a working time declaration
  • the changes also apply to EMI options granted before 6 April 2023 which have not yet been exercised

However, employees must still comply with the working time requirement. Further details about the working time requirement are at Enterprise Management Incentives (EMI): Eligible employees: Working time commitment.

The Employee Tax Advantaged Share Scheme User Manual (ETASSUM) has also been updated to reflect EMI changes.

Changes to the dividend allowance

  • from 6 April 2023, the government reduced the dividend allowance from £2000 to £1000. From 6 April 2024, it will be reduced to £500. This means that employees who receive dividends from shares acquired through a share scheme, including Share Incentive Plans (SIP), may be liable to pay tax on dividends where they were not before
  • employees who have received taxable dividends will need to report them to HMRC
  • the changes to the dividend allowance do not affect dividend shares acquired through a SIP, where dividends received from SIP shares are used to buy further shares through the scheme. These dividends are not taxable.

Information provided in this news article may be subject to change. Please make note of the date of publication to ensure that you are viewing up to date information. 

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