• Companies who operate any employee/director share incentive arrangement or have issued shares, granted options or made other forms of share or loan note award to directors and/or employees must report such activity to HM Revenue & Customs by 6 July following the end of the tax year (subject to any deadline extension announced by HMRC).
  • The reporting obligations catch a wide range of share related and other activities in relation to directors (including non-executives) and employees.
  • Automatic penalties apply for non-compliance.
  • Non-compliance brings risk of heightened HMRC and due diligence scrutiny. 

Method of reporting

Relevant employee share related/other activity must be reported to HMRC on the appropriate return through the PAYE Online service.

Before returns can be filed online, employers must register their arrangements with HMRC via the PAYE Online service. The registration process will generate a unique registration number which is needed to submit the relevant return. It is therefore recommended that employers register as soon as possible (to the extent that this has not already been done) to ensure that they are in a position to meet the deadline.

The detail

Many companies find HMRC’s returns complex, time consuming and easy to get wrong. Importantly, companies do not have to be operating what they might consider to be a formal share scheme and just one stand-alone event will give rise to the reporting obligations.

The scope of the returns is surprisingly broad and catches all or most:

  • Issues/transfers of shares to directors (including non-execs) and employees; 
  • Grants, exercises and releases of share options and variations to options; 
  • Existing HMRC approved plans – even if there is no new activity during the year;
  • Disposals of shares which are subject to leaver provisions and/or lifting of restrictions; 
  • Conversions of shares into other classes; and/or 
  • Other post-acquisition events including variations of rights and disposals for amounts in excess of market value.

What happens if the deadline is missed?

In the past HMRC has not focused as much attention on share reporting as they could have done. This has now changed and HMRC apply automatic penalties for late filing. This includes an initial fixed penalty of £100 if returns are late, followed by additional fixed penalties if returns remain outstanding on 6 October and 6 January following the deadline. If returns remain outstanding more than 9 months after the deadline (i.e. 6 April in the following year), a penalty of £10 per day can be imposed. Penalties of up to £5,000 can also be imposed for a material inaccuracy in a return which is not corrected “without delay”.

Moreover, and perhaps more significantly, HMRC have recently identified the issues covered by the returns as a key area of tax risk and significant additional resource has been directed towards compliance. We believe this is only set to continue. Non-compliance in this area is likely to lead to increased HMRC scrutiny above and beyond employment tax compliance and the company having a heightened risk profile in the eyes of any future investor or purchaser.

How can we help?

Our team of share plan specialists can ease the burden for you if:

  • You haven't completed the returns before; 
  • You need assistance with the registration of your share plans or other arrangements;
  • Your share plans or other activities are complex; 
  • There has been a corporate transaction in the year; and/or
  • You do not have sufficient time or resource to complete the returns.