Guidance

Employment Related Securities Bulletin 32 (June 2019)

Find out about Enterprise Management Incentive (EMI) scheme valuations, guidance updates, employment related securities (ERS) returns and common ERS annual return errors.

Employment Related Securities (ERS) bulletins give information and updates on developments relating to ERS, including tax-advantage 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.

Enterprise Management Incentive (EMI) scheme valuation

HMRC has now extended the period of time for agreeing EMI values from 60 days to 90 days. If an EMI company does not grant options within this time they will need a new valuation.

Since 2012 any company operating an EMI scheme must carry out their own valuation of shares when they grant options to employees.

It’s important that shares are valued accurately at this time as it may affect the amount of tax due when the employee later exercises these options. There may also be longer term implications for the EMI firm when options are exercised as part of a sales process if, as part of their due diligence, the buyer discovers that the options were granted at undervalue.

Firms can grant options within EMI at a discount, but the right market value at the date of grant has to be determined, as this discount may result in a charge to Income Tax when the option is later exercised. There will also be National Insurance contributions payable where the shares are readily convertible assets.

HMRC has continued to provide an optional pre-transaction valuation check for EMI options. This means that when offering share options to employees they know the market value has been agreed giving greater certainty to both employees and the company offering the options.

Firms do not need to get this agreement from HMRC, they can satisfy themselves that the valuation is correct using accepted valuation principles but valuations that are not agreed may be subject to later challenge by HMRC.

To help firms with the valuation process, HMRC has published more detailed guidance on valuations for EMI options which can be found at SVM110050 of the Shares and Assets Valuation Manual.

Firms are under no obligation to accept HMRC’s valuation when they grant share options. They can either accept HMRC’s valuation and continue with EMI options, or continue using their own valuation.

Any disagreement over value at the date of grant cannot be resolved until options are exercised which may be some years later. This means it’s in the interest of the company and the employees to ensure the valuation is accurate at the time the options are granted. You can find more information in Shares and assets valuations for tax.

Guidance updates

We have made some minor changes to following guidance manuals.

Employee Tax Advantage Share Scheme User Manual sections:

  • ETASSUM28120
  • ETASSUM52020
  • ETASSUM54030
  • ETASSUM54040
  • ETASSUM56020

Employment Related Securities Manual sections:

  • ERSM170020
  • ERSM170040
  • ERSM170050
  • ERSM170100
  • ERSM170200
  • ERSM170300
  • ERSM170400

When to submit your ERS annual return

Remember to electronically submit your ERS annual return for 2018 to 2019 on or before 6 July 2019.

All new schemes established during the 2018 to 2019 tax year should register by 6 July 2019.

The following schemes established during the 2018 to 2019 tax year cannot register after 6 July 2019:

  • Company Share Option Plan
  • Share Incentive Plan
  • SAYE schemes

You’ll also not be able to submit an annual return for these schemes.

We recommend taking screenshots of all your notifications and annual return submissions and keep records of all the information you’re submitting, as HMRC cannot provide this information at a later date.

Common ERS annual return errors

The most common return errors are:

  • using drag and drop to fill in the return templates where Excel then applies an auto increment, for example in the PAYE reference column
  • entering outdated or incorrect PAYE reference numbers
  • not using pounds currency in the return template so the price paid to get the shares is an inflated value

Contacting us for advice

When you contact us ensure that you include the relevant share scheme reference number if you have one. We may have to return your post if you have not provided the share scheme reference.

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

Contact HMRC about ERS Bulletins

Email: shareschemes@hmrc.gov.uk if you have any questions, feedback or suggestions for future articles.

Published 26 June 2019