Giving or awarding shares (securities) in your limited company through an Employment Related Securities scheme can be a good way for employers to reward, retain, or provide incentives to employees.
As an employer, if your company provides (or transfers) shares to employees or directors, it’s likely you’ll need to submit information about these changes on an Employee Related Shares (ERS) return to HMRC.
ERS schemes and returns can be a complex area, so we’d usually recommend getting advice from an accountant. If you’re a Crunch client, you can speak to your client managers about our Crunch ERS service. If you want to understand a bit more, here’s what you need to know.
What is an Employment Related Security scheme?
ERS schemes are a method of transferring shares to employees of the company (including directors). ERS schemes can either be tax-advantaged or non-tax advantaged. The following ERS schemes are classed as tax-advantaged:
- Share Incentive Plans (SIP)
- Save as You Earn (SAYE)
- Company Share Option Plans (CSOP).
For more information about these types of scheme, you can visit the Gov.uk Tax and Employee Share Schemes resources, but they aren’t the focus of this article.
For most contractors running a limited company or “close companies”, the above schemes are overly complex for a straightforward transfer of shares.
However, if your company provides (or transfers) any shares to employees or directors, in certain circumstances, HMRC will see the transfer as an ERS scheme and require you to submit an ERS return.
There are circumstances where an ERS return is not required - for instance, a share transfer in the normal course of domestic, family, or personal relationships (such as between spouses) does not need a return. However, it’s always worth checking with an accountant.
You don’t need to file an ERS return if the share transfer is to shareholders who are not employees or directors, or if the transfer of shares takes place before the company starts trading.
For Crunch clients, if you wish to use the Crunch ERS return filing service for the 2022/23 tax year, you’ll need to contact us before May 2023.
If you want to file an ERS yourself, please be aware this is a complex process and you’ll need to liaise with HMRC directly. If you’re a Crunch client we can arrange a discussion with one of our accountants to get you started.
When to register your ERS scheme with HMRC
As an employer, you’ll need to register all new ERS schemes with HMRC and file an Employment Related Security (ERS) return each tax year whether you transfer shares or not. The deadline for returns is the 6th July each year following the end of the tax year.
You should use the Gov.uk website to let HMRC know about your ERS scheme.
So, that means the deadline is 6th July 2023 for any company share transfers made in the 2022/23 tax year. If you don’t submit a return when due, HMRC will impose penalties (see below).
When to submit your ERS return
Each year you have to submit your ERS return to HMRC by 6th July following the end of the tax year, or you may have to pay a penalty.
Once your ERS scheme is registered, you’ll need to submit an ERS return (or nil return) each year even if:
- there haven’t been any transactions
- you’ve appealed a late filing penalty
- the scheme has been registered in error or there’s a duplicate scheme
- you didn’t get a reminder from HMRC.
You must also let HMRC know about any ERS scheme that has ceased, you’ll need to use the Gov.uk site to tell HMRC about the cessation of your ERS scheme, you’ll need the Government Gateway user ID and password you used when you first told HMRC about the scheme.
You’ll need to provide a “final event date”, and you must submit any outstanding returns until the date of cessation.
How to file an Employment Related Security (ERS) return
The following instructions show the steps needed to file an ERS return. They assume that you‘re a limited company director and that you’ve awarded or transferred shares to a director or an employee.
You’ll need to have an HMRC Government Gateway account for your limited company, and you also need to have an existing PAYE scheme. If you don’t have an HMRC Government Gateway account or an active PAYE scheme, you’ll need to set them both up. Again, if you’re a Crunch client, you can speak to your client managers to help you with this.
To file an ERS return online, the main steps are:
- On your company HMRC Government Gateway account, activate “PAYE for employers” online
- Get a valuation of the shares and awards (depending on circumstances)
- Complete the relevant HMRC spreadsheet template. (There are a range of ERS return templates and technical notes available from the Gov.uk site. For most limited company contractors the relevant form will be the Other ERS schemes and arrangements template)
- Register your scheme, file your return, and unless you are intending to make another award or transfer of shares soon, we recommend you close your ERS scheme immediately.
How to get a valuation of your company in order to calculate the value of shares awarded or transferred
In most cases, you’ll need a valuation for the shares being transferred or awarded. If the company has been in existence for a period of six months or more and has been trading, the shares are likely to be worth more than when the company was first formed, so it’s best to get an up-to-date, independent valuation. HMRC can dispute a valuation if they’re not satisfied it is accurate.
If the company is very new or has been in existence for a while but never traded, it can easily be argued there is no value in the company, so a “nil” value can be used.
For a valuation, you can:
Seek professional advice (contact Crunch if you want a referral) or
Do it yourself with HMRC guidance.
Stay on top of your responsibilities as a director
Employment Related Securities are just one of the filings you may need to make as a director. We’ve got an article explaining all the dates and deadlines you need to be aware of.