SMEs face penalties if they fail to register and file returns for employee share plans with HMRC.

Posted by Suzy Giele in Excello Law Blogs on Monday, December 29th, 2014

Many SMEs are unaware that by 6 July next year they will need to have registered all employee share schemes with HMRC and filed online returns in relation to them or face penalties, lawyers warn.

For the tax year 2014/15, penalties of up to £700 can be imposed for a late return, with an additional £10 per day if the return is still outstanding after nine months.  In addition, HMRC can impose a penalty of £5,000 for a material inaccuracy in a return which is not corrected without delay.

Any type of employee share incentive scheme over an employer’s shares is potentially covered by the new rules introduced earlier this year, even those that are not part of HMRC’s tax advantaged schemes or where there has been no activity year on year.

Up until now, companies were only required to report employee share schemes to HMRC if they had statutory tax advantages or where some kind of taxable event, such as the grant of a share option or acquisition of shares by an employee, had occurred during the relevant tax year. Following changes announced in the Finance Act 2014, potentially any employee rights over shares in their employer – including those which were in existence before these changes came into force – must now be registered online with HMRC and returns filed in relation to them for each year, even if there has been no taxable event.

Suzy Giele, employee share schemes expert at commercial law firm, Excello Law, says, “Many SMEs will overlook the new requirements because share arrangements with employees can often be fairly informal and may have languished in the bottom drawer having been agreed years before. Often these kind of share arrangements will only deliver shares on an exit so, given no taxable event has occurred, will not be acted upon unless the company is sold or an employee leaves. They may well be forgotten about in the meantime.

“Whilst larger corporates with more formal arrangements will generally have this covered, my experience is that many SMEs are not aware of the changes and the potential penalties they might face if they don’t register and file their tax returns in good time for this financial year. Businesses should get on top of this over the next few months to avoid being caught out.”

HMRC has made clear that employers must submit the annual return information in relation to each scheme, including nil returns, by 6 July following the end of the relevant tax year, otherwise automatic penalties will apply.  In order to submit the online annual return for a share scheme, a business first needs to register at HMRC Online Services and then register each individual share scheme with HMRC.  SMEs should review all existing share incentive agreements with employees (and former employees) to ensure relevant arrangements are registered with HMRC in time for the annual returns to then be filed in time for 6 July.

This article was written by Suzy Giele
Suzy Giele

Suzy trained and qualified at Radcliffes & Co and has since worked for Allen & Overy and Olswang. She has specialized exclusively in employee share incentives for over 15 years. Suzy advises on the design, implementation and day to day operation of the full spectrum of employee share incentives and bonus arrangements, and the use of employee benefit trusts. In particular, she assists businesses with share incentives issues where they are preparing for or undergoing an exit event and she offers advance health checks in relation to existing share incentive arrangements to ensure that they are tax efficient and structured to achieve a smooth exit process. You can email Suzy at [email protected]

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