Out-Law / Your Daily Need-To-Know

UK employee share plans: the online annual filing regime

Out-Law Guide | 02 Jun 2021 | 2:24 pm | 6 min. read

Companies must submit their year-end returns in relation to their UK employee share plans and share awards/acquisitions through the online administration service set up by HM Revenue and Customs (HMRC). 

The deadline for submission of year-end returns is 6 July following the end of the relevant tax year, and HMRC now routinely imposes automatic penalties for late filing. In addition, it has been widely reported that the volume of HMRC enquiries into share plans year-end reporting has increased significantly over recent years, with the returns being used in some cases by HMRC as an indication of whether the company is correctly calculating its associated UK corporation tax deductions.

The e-filing regime replaced and updated the previous paper forms, from 2015.

In order to use the service, companies must ensure that all their employee share plans and arrangements are registered with HMRC via the Pay as You Earn (PAYE) online services portal. Following registration, companies must file their share plans annual returns online, also via the PAYE online services portal.

Registration

The deadline for online registration of any employee share plans and arrangements that existed during the 2020-21 tax year is 6 July 2021.

As part of the online registration process, plans that benefit from tax advantages in the UK also need to be formally 'self-certified' to benefit from tax-favoured status. If awards were made under a new tax-advantaged plan in the 2020-21 tax year, the plan must be self-certified on or before 6 July 2021 in order for the 2020-21 awards to benefit from the tax advantages. This will apply to Company Share Option Plans (CSOP), Sharesave/Save As You Earn (SAYE) and Share Incentive Plans (SIP), but not to Enterprise Management Incentive Plans (EMI), for which self-certification is not required for the plan, although there is a separate online notification required for each EMI option grant.

Registration must be done by the company itself, and cannot be done by a tax agent for the company. Similarly, the termination of a plan can only be registered by the company. Agents can, however, file annual returns.

Companies need to take care to record and retain the contact information and login details for the PAYE portal and the registration details for each plan. This can be a challenge, for example, for a large company or group, and when the originally responsible staff member leaves the company.

If a plan is registered in error, or multiple times, HMRC will expect to receive at least a nil return for each registration and every tax year, until the tax year after termination of the plan is registered. Penalties can be incurred for late filing, which HMRC may waive, but managing the process will be time-consuming, at the least.

Online annual filing

The online administration regime also requires companies to file their annual returns online, via the government's PAYE online portal, with one annual return required for each plan or arrangement registered. In order to submit an annual return online, the relevant plan to which the return relates must already have been registered and, where relevant, self-certified.

There are specific returns for UK tax-advantaged plans. There is also a return called 'Other Employment Related Securities (ERS)' return, to cover all other share plans and arrangements. Only one registration is required to cover all non-tax-advantaged arrangements, although companies can choose to have one registration per plan, if preferred.

What is the deadline for online annual filing?

Annual returns for the 2020/21 tax year must be submitted to HMRC via the online portal by 6 July 2021.

Companies would be well advised to register, and to self-certify where relevant, their plans and arrangements well in advance of this deadline to ensure that there is sufficient time to complete both the registration and the annual filing.

There can be substantial penalties for failure to file, or late filing of, the annual returns.

Who should make the online annual filing?

The online filing can be completed by someone in the company; or by an 'agent', authorised by the company and registered with HMRC to act on behalf of the company for these purposes.

The company secretary is required to make certain declarations within the annual return, although in practice these can be given by someone acting on the company secretary's behalf. An agent, or the employee within the company completing the annual return, will want to make sure that they are comfortable that they have sufficient authorisation from the relevant company secretary in order to complete the filing and make the declaration(s) on the company secretary's behalf.

How do I provide the information for the online annual return?

The online returns are primarily made up of information provided in spreadsheets, with a different spreadsheet for each return; although certain further information is also required at the time of submitting the filing online. Template spreadsheets are available on HMRC's website.

Completing the annual return spreadsheets

In order to be accepted when uploaded as part of the online filing, the spreadsheets must conform exactly to HMRC's requirements including formatting. Companies should use the template spreadsheets available on HMRC's website where possible, or build their own spreadsheets based on HMRC's compatibility data. HMRC has issued a 'technical note' to assist companies who wish to build their own systems.

Some companies may have their share plans administered by professional third parties, which may be able to provide the information required in a compatible format. Companies should liaise with their administrators in relation to this.

HMRC has released a 'checking service' for companies, allowing them to test whether their spreadsheets will be compatible when uploaded to HMRC's online portal without actually sending any of the data to HMRC. If there are any compatibility issues, an error report will be generated giving details of the fault and where it is located within the spreadsheet. The checking service is available via the plan registration pages within the online portal, and it may be helpful to use this service to correct any errors before attempting actual submission.

HMRC's guidance on what should be included in a non-tax advantaged return is very broad and includes some items that companies may not consider to be share plans, including independent acqusitions of shares on the market by directors of AIM companies.

How do I file the annual return?

In order to file the annual return online, the company or its agent must access the PAYE online services portal and select the registered plan/arrangement in relation to which it wants to file the return. Once selected, you will see a 'start' page, which lists the information that you will need in order to file the return.

After this, you will be taken through various screens which will allow you to make a nil-return or upload the spreadsheets containing the reportable information. You will also be required to give details about the company filing the return and any other group companies covered by it.

For tax-advantaged plans other than EMI, you will also have the opportunity to declare if there has been an alteration/variation that needs to be notified to HMRC and to confirm whether the requirements of the relevant legislation governing the plan continue to be met.

At the end, you will be shown a summary page with the information provided in the return although not the information in the spreadsheets themselves. Once you have completed the filing by confirming that the information in the return is correct and complete, you will see a confirmation page with an individual submission reference. This can be downloaded as a PDF and saved onto your system. Once you get to this point, as long as the return has been filed within the deadline, there will be no penalties for late submission.

You will need to complete this process for each return required in relation to each plan or arrangement.

After approximately 48 hours, the plan registration pages within the PAYE online portal should be updated to show the return as having been successfully submitted.

If you realise that you need to make changes to any of the information you have uploaded as you go along, you should use the 'edit' function from the summary page near the end of the return rather than trying to use the backspace.

Once you have submitted the return, you will not generally be able to see the information that you have included within the filing. You should therefore keep careful records, including screenshots, of the final information submitted.

Companies must file nil returns for all inactive plans until the year after the tax year in which the termination of the plan is registered.

In respect of the 2019-20 tax year, HMRC noted that employers and their agents may have had difficulties meeting their filing obligations because of Covid-19. Whilst there was no extension of the filing deadline, HMRC did state that if a company had to delay filing because of Covid-19 it would consider this under the 'reasonable excuse' rules. It remains uncertain as to whether this will also apply to the 2020-21 annual returns due by 6 July 2021, and therefore companies should do all they can to meet the deadline.

HMRC has published specific guidance on how a company should report net settling in the annual return of non tax-advantaged plans.

HMRC has identified three common errors in annual returns:

  • using drag and drop to fill in the return templates where Excel then applies an auto increment, for example in the PAYE reference column;
  • entering outdated or incorrect PAYE reference numbers; and
  • not using pounds currency in the return template so the price paid to get the shares is an inflated value.