Find out about the Non-statutory clearance process, share scheme catch all rules, Enterprise Management Incentives, Shared Incentive Plans and penalties.
Employment related securities (ERS) bulletins give information and updates on developments relating to ERS, including the tax-advantaged employee share schemes.
ERS bulletins are published when:
- articles or updates are available
- HMRC have items to bring to your attention quickly
Any reference to Income Tax (Earnings & Pensions) Act 2003 (ITEPA) is to the current legislation as amended.
Non-statutory clearance process
As you know self-certification of employee share schemes and arrangements went live in April 2014. This saw the removal of the Statutory or Non-statutory approval or clearance procedure previously provided.
Although HMRC confirmed that we would respond to general questions of principle following the Finance Bill 2014 changes, it is now considered that most of the requests submitted to HMRC are for advice that would fall within the scope of the general Non-statutory clearance procedure.
You should therefore now start following the Non-statutory clearance process where advice is required in relation to changes to or proposed transactions in employee share schemes and arrangements for which you consider there is no clear guidance or you are uncertain about HMRCs interpretation of the relevant tax legislation. You should provide all of the necessary information as set out in the various annexes contained within the Non-statutory clearance guidance.
Note that if you have an allocated Customer Relationship Manager then all Non-statutory clearance requests should be sent directly to them.
Catch all rules
The following applies where companies operate a main share scheme and create a sub plan to operate a tax advantaged share scheme. For the sub plan to be a qualifying tax advantaged scheme, it must meet the specific requirements of the relevant legislation.
To achieve compliance with the legislation some companies have been using catch all rules, for example any rules of the main plan which would jeopardise the status of the sub plan as being a tax advantaged scheme do not apply to the sub plan.
Companies introducing a tax advantaged sub plan need to make sure the sub plan scheme rules are clear and define which rules of the main plan will apply. Using a catch all rule may result in the scheme being viewed as non-qualifying.
Enterprise Management Incentives (EMI) replacement options
When EMI replacement options are granted, the replacement options must be notified within 92 days using ERS.
Further information on the replacement options must then be provided within the next annual return.
More information can be found in the Employee Tax Advantaged Share Scheme User Manual.
EMI – options granted between 6 April 2018 and 15 May 2018
HMRC will treat share options granted between 7 April 2018 and 15 May 2018 as continuing to receive the tax advantages offered by EMI. Furthermore, HMRC will waive the 3 year limit in relation to any cancelled options should a company which issued share options during this period, wish to cancel those options and start again.
EMI options and notifying errors within 9 months of notification being given to HMRC
Employers should let HMRC know if they identify errors in EMI options already granted within 9 months of the date that the original notification was given to HMRC.
Read the Enterprise Management Incentives (EMI): Option notifications: Correction of notice by HMRC manual for more information.
To notify corrected options outside of the 92 day deadline you will need a reasonable excuse code from HMRC.
To generate this code we need the following information:
- date of the grant of options
- name of company
- scheme name
- unique scheme reference number (as allocated by ERS service)
The code that HMRC provides will then allow you to re-notify corrected options (outside of the 92 day dead line) via the input of this code.
You must then remember to cancel the originally issued incorrect options when you complete and file your ERS annual return.
EMI – options capable of exercise after a person’s death
HMRC have received an increased number of questions about options being capable of exercise after a person’s death. If the intention is for the EMI option to be capable of being exercised after the person’s death, this provision must be written into the EMI option agreement at the date of grant.
Adding this provision after the date of grant would be providing a new exercise trigger right and would be treated as a fundamental change. A fundamental change results in the option being re-granted.
Option agreements which allow for options to be exercised for a longer period than 12 months after a person’s death, do not meet the requirements of the legislation to be qualifying EMI options.
See the Employee Tax Advantaged Share Scheme User Manual for more information.
Share Incentive Plans (SIPs) and Stamp Duty
As announced at Budget 2018, the government will, in Finance Bill 2018-19, make a minor correcting amendment to section 95 of the Finance Act 2001 concerning Stamp Duty and Stamp Duty Reserve Tax relief for SIPs.
References to approved SIPs in section 95 Finance Act 2001 are replaced with Schedule 2 SIPs.
This puts the legislation onto the basis we already operate and confirms that the existing and long standing Stamp Duty relief for SIPs continues to apply. The basis on which the relief is available is unchanged.
The amendment will have effect from 6 April 2014, when similar changes were introduced to Income Tax (Earnings and Pensions) Act 2003.
Common return errors identified
The most common return errors are:
- using drag and drop to fill in the return templates like the PAYE reference column where Excel then applies an auto increment
- entering outdated or incorrect PAYE reference numbers
- not using pounds currency in the return template so the price paid to acquire the shares is an inflated value
The number of penalties issued based on a 2017 to 2018 ERS return not being filed is:
- number of first penalties issued is – 9253
- number of second penalties issued is – 6014
One thousand penalty appeals have been received so far.
Can all companies check they have filed a return and that their address, and contact details are correct.
Most common ERS issues and top things to remember
Make sure you include the relevant share scheme reference number if you have one when contacting share schemes. We may have to return your post if the share scheme reference has not been provided.
See ERS Bulletin 25 on how to identify your share scheme reference number.
More information about common ERS issues and top things to remember can be found in ERS Bulletin 26 (March 2018).
Contact HMRC about ERS Bulletins
Email: firstname.lastname@example.org if you have any questions, feedback or suggestions for future articles.