The 2019/20 tax year has just ended, and employers should now begin to think about submitting their Employment Related Securities (ERS) Annual Return (formerly known as ‘Form 42’) for any new and existing share plans (HMRC tax advantaged and non-tax advantaged) for the 2019/20 tax year. HMRC will accept share plan returns from the 6th April 2020 and the deadline is 6th July 2020. We are not aware of any extensions being granted by HMRC to this deadline due to COVID-19 so employers should continue to prepare in the usual manner.  

What does the employer need to do?

Reporting on the ERS Annual Return involves a number of key tasks that are essential in submitting the return to HMRC. These include: 

1. Registering new plans: For new share plan arrangements (note, this includes simple acquisitions of shares by employees and directors) that occurred in 2019/20, companies must first register “a plan” online with HMRC via the ERS Online Services page. Once registered, HMRC will issue a unique reference number which is used to submit the return. Please note that this process can take up to 10 working days to complete so should not be left to the last minute. 
2. Verify or self-certify the tax-advantaged plans in place including Share Incentive Plans (SIPs), Save As You Earn (SAYE) plans and Company Share Option Plans (CSOPs). If you do not verify them, you risk the beneficial tax treatment being lost. 
3. Submit annual returns with all reportable events including nil returns. Reportable transactions/events are detailed below: 

• Any acquisition of shares or securities (e.g. loan notes, carried interest, etc.) made by employees or directors;
• The grant of share options to employees or directors; 
• Certain disposals of securities (where these events have given rise to income tax);
• Certain other events in relation to securities, and
• Events under the tax-advantaged plans (i.e. SIP, EMI, SAYE and CSOP).  

Penalties and interest for late filing/error in returns

Penalties 
It is important that returns are filed before 6th July 2020 as late filings will result in an automatic penalty from HMRC and will have significant consequences for tax-advantaged plans. Note that, if you are registering a new plan, we advise completing the registration well in advance of this deadline as the registration process can take several days to complete. 
 

A penalty of up to £5,000 can be inflicted for material inaccuracy in a return which is not immediately addressed and resolved. Therefore, we advise companies to get trusted, professional help while submitting the returns to ensure that they are filed correctly and in a timely manner. 

Be ready for any due diligences or HMRC enquiry 

Any review by HMRC or an advisor on a due diligence will ask for copies of ERS Annual Returns so have copies ready. Advisors will also check for evidence of self-verification and that notifications have been made for any tax advantaged plans to ensure that beneficial tax treatment is maintained. 

Common errors/issues that occur while filing returns 

• Using the wrong currency in the return template which will cause the price paid for the shares to be incorrectly reported. 
• Entering incorrect PAYE reference numbers.
• Failing to include those individuals that are not UK-based employees but carry out duties in the U.K. during the period of award. 
• Review, analyse and report correctly the restrictions attached onto the shares.
• Format – failure to get this incorrect will result in HMRC not accepting your return. 

How we can help? 

Alvarez & Marsal Taxand can offer a range of advice and services to assist employers in respect of the ERS Annual Return process, including: 

• Assessing whether returns are required;
• Electronic registration;
• Preparation of online returns for all types of share plans;
• Online submission, or
• Simply guide you through the process.

Please contact Aya Ishikawa or Nikki Wells from our Reward & Employment Taxes team for any assistance with the ERS reporting process.