Employment Related Securities Bulletin 31 (March 2019)

Read the latest updates on employment related securities.

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 current legislation as amended.

Contacting us for advice

When you contact us, make sure that you include the relevant share scheme reference number if you have one. We may have to return your post if you have not given the share scheme reference.

You can find out how to identify your share scheme reference number in ERS Bulletin 25.

IFRS 16 and impact on gross assets value for enterprise management incentives (EMIs)

HMRC intends to update its guidance published at ETASSUM52060 such that if a company uses IFRS for accounting purposes, then IFRS 16 will apply from January 2019, in determining the value of assets shown on the balance sheet.

Definition of ordinary share capital for employee share schemes

Certain tax advantaged share schemes have awarded interests in, or options over, particular types of instruments. As there is no direct English translation, these types of instruments are known as ‘jouissance shares’ (‘actions de jouissance’ in French and ‘Genuβscheine’ in German) and HMRC has previously approved such schemes.

Instruments of this type are generally issued by companies in Switzerland, Germany, Austria and France.

After careful consideration HMRC has concluded that such instruments do not satisfy the ordinary share capital conditions as provided for in various parts of the employment related securities legislation in ITEPA 2003. While ‘Genuβscheine’ and ‘actions de jouissance’ are frequently translated as shares, the better translation of ‘scheine’ and ‘actions’ is ‘certificates’. The concept of ordinary share capital is used elsewhere in the taxes acts and will be interpreted accordingly.

Share capital represents the ownership interest of members in the corpus or assets of a company reflected in its balance sheet after liabilities.

Although ‘Genuβscheine’ and ‘actions de jouissance’ carry an interest in dividends and in a winding-up to unpaid dividends, they do not carry an interest in company capital. This means they cannot be shares in share capital.

HMRC will honour existing advantageous Income Tax treatment in relation to interests in or options over such certificates or ‘shares’ already granted, but from 6 April 2019 we will no longer accept these as satisfying the ordinary share capital condition and as such the requirements of the employment related securities legislation will also not be satisfied.

HMRC has also concluded that building society permanent interest bearing shares (PIBS), which are in reality subordinated debt instruments, also should not have been accepted as ‘shares’ in capital.

However, Swiss Participation Certificates (with par value, as distinct from Profit Sharing Certificates) will qualify as shares in company capital.

With immediate effect, the ‘shares’ which are not shares in company capital will no longer be accepted as meeting the ordinary shares requirement for Corporation Tax relief under Part 12, CTA 09, on employee share acquisitions.

We will update our guidance and manuals to reflect this view.

Notifying errors in EMI options to HMRC

In ERS Bulletin 30 we published guidance on how employers should notify HMRC of errors in EMI options already granted. We can now further clarify this guidance.

Correcting option notifications before the 92 day deadline

If you realise you made a notification mistake within 92 days of granting the original options, then those options can simply be re-notified because it’s still within the 92 day deadline of grant. You should cancel the originally notified options in the next EMI annual return as if they were options cancelled for no payment.

Correcting option notifications outside of the 92 day deadline but within 9 months

If you realise you made a mistake after 92 days but within 9 months of granting the original option, then the guidance in ERS Bulletin 30 will apply and you should contact HMRC for a reasonable excuse code to use when completing your return that will allow you to re-notify the corrected options. You should then complete the annual return in line with the above.

Realisation of notification errors made more than 9 months after the EMI option grant

If you realise you have made a mistake after 9 months of granting an EMI option, then it is HMRC’s view that it cannot be corrected, regardless of whether or not the error is considered significant.

In such circumstances you should disclose such errors to us so that we can consider whether or not the error was material at that time that may lead to the option not meeting the legislative requirements to qualify for tax advantaged treatment.

A company does not have an unconditional right to notify (or re-notify) an EMI option after the 92 day deadline. A company may only re-notify if it is accepted that it has a reasonable excuse for doing so. If you believe you have a reasonable excuse for not notifying HMRC correctly within the 92 day period, you should contact us immediately after you find out about either the delay or notification error (or both). You should advise HMRC of all of the facts relevant to either the delay or the notification error (or both). A delay or failure on the part of the company’s agent is not automatically a reasonable excuse on its own.

Finally, the guidance in this bulletin only applies where the underlying option grant paperwork was correct and it is simply a matter of incorrect notification of the option terms to HMRC. If the option was incorrectly granted, for example the option grant documentation did not refer to the correct number of shares, depending on all the facts, it may be that the option needs to be cancelled and a new option needs to be granted. You can contact HMRC in cases of uncertainty.

Working time declarations and EMI participants

In ERS Bulletin 29 we published guidance on the completion of working time declarations at the date of each grant of an EMI option.

HMRC considers that the declaration in this context is a statement at the time of grant of the option that the individual meets the working time commitment. The legislation prescribes the form and timing of the declaration and it is not possible to bypass the making of a declaration at the time of option grant.

A false or omitted declaration could result in relief being wrongly claimed but we would consider such circumstances on a case by case basis.

EMI options and restrictions

We often receive questions about details of restrictions on shares having been omitted from the option agreement at the date of grant. You can find guidance on what should be contained in option agreements in ETASSUM54030.

Where details of restrictions on shares in place at the date of grant have not been notified to the participants at the date of grant, then you should seek to remedy this as soon after that date as possible and in line with our published guidance.

You can seek HMRC’s advice as to whether any proposed retrospective action could potentially result in the options not qualifying for tax advantaged treatment.

HMRC’s new postal address for share schemes enquiries

The following change of postal address to be used from 18 March 2019, from this date you should write to:

Charities, Savings and International 1

New valuation form 231

HMRC Shares Assets and Valuation have recently updated the form SAV: application for a share valuation in connection with Enterprise Management Incentives (VAL231).

Annual returns

You must submit your employment related securities annual return for 2018 to 2019 electronically on or before 6 July 2019.

All new schemes established during 2018 to 2019 must be registered by 6 July 2019.

After the 6 July 2019 the following types of new schemes, established during 2018 to 2019 cannot register or submit an annual return:

  • Company Share Option Plan (CSOP)
  • Share Incentive Plan (SIP)
  • Save As You Earn (SAYE) schemes

Cease a scheme registered in error or that is no longer required

You can find guidance on how to do this in ERS Bulletin 24 or ERS Bulletin 25.

Changes to HMRC email addresses

Over the next few months we’ll be making a change to our email addresses in HMRC. Soon you may notice that instead of our email addresses ending in, they’ll end For a while, when we make this change any emails that you send to our old email addresses will redirect to us.

Contact HMRC about ERS Bulletins

Email: if you have any questions, feedback or suggestions for future articles.

Published 21 March 2019