Find out information and updates on employment related securities, including tax advantaged employee share schemes.
Employment related securities (ERS) bulletins give information and updates on developments relating to employment-related securities, including the tax-advantaged employee share schemes.
We publish ERS bulletins when:
- articles or updates are available
- HMRC has any item to bring to your attention quickly
Any reference to Income Tax (Earnings & Pensions) Act 2003 (ITEPA) is to the amended legislation.
Newly registered tax advantaged share schemes
Incorrect scheme type selected
HMRC continues to find that many new registrations on the ERS online service are showing an incorrect scheme type. In particular, the scheme type Company Share Option Plan (CSOP) has been incorrectly selected for non tax advantaged schemes and arrangements.
In some cases other tax advantaged scheme types such as Schedule 2 Share Incentive Plans (SIP) have been registered under this category. When registering an employee share scheme or arrangement for the first time, companies are reminded to consider the How to identify your scheme type guidance before selecting the appropriate scheme type.
Common errors in scheme documents
The following errors were found in the rules or other scheme documents in more than one newly registered CSOP or Save as You Earn (SAYE) scheme. These errors are generally considered to be less serious and can be corrected by an amendment to the scheme rules.
If corrections are made within the statutory time limit, the scheme retains its tax advantages. We encourage companies and their agents to eliminate these errors from their documents. This will reduce the need for HMRC compliance interventions and minimise the possibility of statutory penalties for the scheme organiser.
The schemes do not allow share options to be granted by deed or for consideration. If no contractual obligation exists for options that have supposedly been granted already, we might regard the error as serious.
It’s a requirement that a contract is formed between the grantor of the option and the employee, so that the employee obtains a legally binding right to acquire shares.
SAYE Option schemes
The scheme allows share options to be exercised in certain circumstances where the options have been held for less than 3 years, contrary to Schedule 3 ITEPA 2003.
Paragraph 34(3) Schedule 3 ITEPA 2003 allows a SAYE Option scheme to specify whether options may be exercised when the scheme related employment ends for ‘any other reason’.
This is a reason not included in sub-paragraph (2) of para 34. If the scheme does allow exercise in these circumstances, para 34(4) advises that it can only do this for options granted more than 3 years before the termination date.
Some schemes allow early exercise when the employment ceases because of a change in control of the employing company (on a sale of that company out of the scheme organiser’s group). This used to be an acceptable provision under para 34(5)(a) until that sub-sub-para was deleted by Finance Act 2014.
There is some similarity with para 34(2)(d) but rules based on this provision must follow it precisely.
CSOP and SAYE Option schemes
The ‘company events’ when share options may be exercised or ‘rolled over’ into an acquiring company’s shares are not within the scope of sections 979 to 982 or 983 to 985 Companies Act 2006.
Both Schedules 3 and 4 of ITEPA 2003 include the following - ‘The scheme may provide that share options relating to shares in a company may be exercised at any time when any person is bound or entitled to acquire shares in the company under sections 979 to 982 or 983 to 985 of the Companies Act 2006 (takeover offers: right of offeror to buy out minority shareholder)’.
A scheme is not allowed to extend the provision to other Companies Act provisions, for example sections 974 to 978 covering takeover offers.
How to identify your scheme type
Tax advantaged SAYE Option Scheme
Pre 6 April 2014 SAYE schemes approved by HMRC will have a reference number like SRS012345 and you would have completed an annual return Form 34. Post 6 April 2014 your scheme must meet the requirements of Part 2 to 7 of Schedule 3, ITEPA 2003.
Tax advantaged CSOP
Pre 6 April 2014 CSOP plans approved by HMRC will have a reference number like X012345 and you would have completed an annual return Form 35. Post 6 April 2014 your scheme must meet the requirements of Part 2 to 6 of Schedule 4, ITEPA 2003.
Tax advantaged SIP
Pre 6 April 2014 SIP plans approved by HMRC will have a reference number like A012345 and you would have completed an annual return Form 39. Post 6 April 2014 your scheme must meet the requirements of Part 2 to 9 of Schedule 2, ITEPA 2003.
Tax advantaged Enterprise Management Incentive (EMI) share options
Before 6 April 2014 you would have completed an annual return Form 40 and completed a paper EMI1 to notify a grant of qualifying options and submitted them to HMRC within 92 days. After 6 April 2014 your grant of EMI options must meet the requirements of Schedule 5, ITEPA 2003.
Non tax advantaged ‘other’ schemes and arrangements
For pre 6 April 2014 schemes or arrangements notified to HMRC you’ll have been given a reference number like U012345 and you would have completed an annual return Form 42. After 6 April 2014 these events are reported under section 421K of Part 7, ITEPA 2003.
How to cease an incorrectly registered scheme
To cease a scheme you must access the ERS online service through the company’s PAYE for Employers account.
- When you’ve accessed the account you’ll need to scroll down to the bottom of your screen and select ‘View schemes and arrangements’.
- Select the relevant scheme and enter a date of final event in the next screen.
To cease an EMI scheme
- Access the account and scroll down to the bottom of your screen and select ‘View schemes and arrangements’.
- Select the relevant scheme.
- Select ‘End of year returns’.
- Select ’provide a date of final event’ and enter the date. This can be a date in the past but remember that an annual return must be submitted for the tax year in which the final event date falls.
ERS agents do not have the function in their agent ERS online service to enter the date of final event so this can only be completed by companies.
If you’re still not sure why a scheme was registered on the ERS online service you’ll need to speak to the company secretary or seek professional advice.
Please note a scheme can only be registered by someone in the company who has access to the company’s HMRC online services account.
Number of schemes that can be registered
Each tax advantaged CSOP, SAYE and SIP scheme must be registered separately and only once. Do not register these schemes under each subsidiary company participating in the scheme. You provide that information as part of the annual return process.
Only register EMI schemes once for all grants of EMI options.
Two or more non tax advantaged schemes or arrangements can be registered as one scheme or as separate schemes. You’ll need to make an annual return for each scheme you have registered.
Incorrect or failed registration of tax advantaged schemes
Pre 6 April 2014 HMRC approved SAYE and SIP schemes will no longer be tax advantaged so awards or grants made from 6 April 2014 onwards will not get tax advantages. SAYE and SIP awards or grants made before 6 April 2014 will be protected.
Pre 6 April 2014 HMRC approved CSOP schemes will no longer be tax advantaged so awards or grants made from 6 April 2014 will not get tax advantages. Grants made before 6 April 2014 will not be protected.
How to register a tax advantaged scheme from 6 April 2014
Each CSOP, SAYE and SIP tax advantaged scheme must be registered online first but this can only be done for tax year 2017 to 2018. There is no option to select an earlier tax year after 6 July 2017 in the ERS online service.
You must then contact the HMRC Employee Shares and Securities Unit confirming you’re registering a tax advantaged scheme late and provide the scheme registration date. We’ll then request further information from you.
Incorrect scheme registration and annual return submission
This could mean a penalty of up to £5,000 and the loss of tax advantages on awards and grants made from 6 April 2014. For CSOP it could mean the loss of tax advantages on un-exercised options granted before 6 April 2014.
Contact HMRC about ERS bulletins
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