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UK employee share schemes: new templates for companies' annual online returns

Out-Law Analysis | 31 Mar 2016 | 2:18 pm | 3 min. read

FOCUS: The updated templates that employers should use to make their mandatory annual returns regarding employment-related shares and securities for tax year 2015/16 have now been published by HM Revenue and Customs (HMRC).

HMRC announced its plans to make changes to the existing forms some time ago, so the publication puts an end to any worries that there would not be sufficient time left to prepare to use the new forms ahead of the 6 July 2016 submission deadline. Companies and scheme administrators will also be relieved that the templates show few changes from last year's versions, although some aspects of the changes are rather unclear.

Companies that operate employee share schemes or award employees with shares or securities will use these templates, or their own versions of them, to make their mandatory annual returns. They may wish to do so well in advance of the submission deadline, since the online filing system failed under pressure in the run-up to last year's deadline. Preparing to make the returns can also be a time-consuming process, especially for large employers and groups.

The new templates and guidance notes can be downloaded from HMRC's website.

Changes to the templates

Significant changes have been made to aspects of the Enterprise Management Incentive (EMI) template; and to the 'Other ERS' template, which collects the information formerly returned on 'Form 42'.

EMI options template

HMRC apparently now intends that the EMI 'Options Adjusted' worksheet should only be completed if the EMI options were amended in tax year 2015/16 following an adjustment of the relevant company's share capital - a return to the position which applied before tax year 2014/15.

Although the removal of a reporting requirement for other option adjustments would be a welcome change, inconsistent aspects of the worksheet's drafting - and that of the accompanying guidance - raises some doubts, which hopefully HMRC can readily clarify.

Other ERS template

The material amendments to this template relate to three aspects of share schemes:

  • unrestricted market value of securities at the time of acquisition is now required, even if the securities are neither restricted nor convertible (see the 'other acquisition' worksheet). This is an important change for employers to note, given that they may now need to return information that they did not need to report last year;
  • actual market value, i.e. the restricted value, of restricted securities at the time of acquisition is no longer required if a section 431(1) joint election has been made by the employee and employer, which is sensible (again, see the 'other acquisition' worksheet);
  • internationally mobile employees (IMEs). Questions on seven of the eight worksheets that previously asked whether pay as you earn (PAYE) had been adjusted for amounts subject to the remittance basis now refer to PAYE adjustment for amounts subject to apportionment for residence or duties outside the UK. This reflects the changes to IME taxation that came into effect from the start of tax year 2015/16.

HMRC may have missed a chance to help employers with IMEs cope with these changes. The template and associated guidance seem to lack any prominent reminder that the IME changes will bring some employee shares and share awards into the scope of these annual returns for the first time in 2015/16. Employers who may be affected should bear this in mind.

Guidance and technical notes

HMRC's guidance and technical notes have been expanded for all types of share scheme. The technical notes are also more readily accessible for this year as they can be downloaded, rather than needing to be requested from HMRC. In addition, they take the form of a specific note for each type of return.

Employers should not overlook the technical notes, even if they plan to use HMRC's templates rather than made their own. Although the notes are expressly aimed at helping technical staff create bespoke return templates, they include information that could be very helpful when completing the HMRC templates.

Despite improvements, there are aspects of the notes that users may not find as helpful or as clear as they could be. Companies and scheme administrators should bear this in mind when consulting them.

For all types of return, there remain a couple of practical issues that template users would have liked to have seen improved. There is still no HMRC template for scheme participating company details, so large groups will need either to enter them all on the online return screen or create their own attachment for the purpose - or to re-use a file or files that they created last year, amended as necessary.

In addition, there is also still no capacity to submit Excel template files without first converting these to the .ods format used by the free spreadsheet software that HMRC prefers to use.

Suzannah Crookes and Graeme Standen are share plans and incentives experts at Pinsent Masons, the law firm behind Out-Law.com.