HMRC's latest Employment Related Securities Bulletin contains some handy tips. Here is our enhanced version.
Share schemes
Net settlement and annual reporting requirements
- Employers usually have to account for PAYE and NICs when shares are acquired under an unapproved employee share plan.
- The employer must then recover the PAYE and employees’ NIC from relevant employees and, where officially transferred to them, the Employer’s NICs.
- The employee may fund this by selling some of the shares received under the scheme, often referred to as ‘sell to cover’.
- Or they may reimburse their employer by way of ‘net settlement’ of the share award.
- Under net settlement a company uses its own cash to settle the PAYE NICs due to HMRC based on the full value of the share option or award.
- The company then issues fewer new shares to those employees. So the value of the shares received by each employee is equal to the post-tax (net) value that they would have enjoyed if they’d opted to sell to cover the PAYE and NIC due.
The full bulletin includes an example of how net settlement works.
HMRC has considered how best to report ‘net settlement’ and you should report the transaction on the ‘Other_Options_V3’ tab of the Other_templates_2015-16_V4 (42)’
- on one row report the acquisition of the actual number of the securities that will be awarded to the employee in column number 31
- on another row report the cash cancellation or receipt of a benefit by entering ‘yes’ in column 38 and the value of the cash received in column 39
See Shares, securities & options: tax compliance
Notifying HMRC of errors in Enterprise Management Incentive (EMI) options
In ERS Bulletin 31 in March 2019 HMRC published guidance on ‘Realisation of notification errors made more than 9 months after the EMI option grant’.
This contained an error:
- Instead of saying ‘If you realise you have made a mistake after 9 months of granting an EMI option’, it should say ‘If you realise you have made a mistake’. after 9 months of notifying HMRC of the grant of an option.’
Replacement EMI options and the working time requirement
- When issuing replacement EMI options the individual recipient must be an ‘eligible employee’ of the acquiring company at the time the new option is granted.
- As one of the eligible employee requirements is the commitment of working time, HMRC takes the view that a new working time declaration should be completed on the issue of the replacement options so as to meet the requirements for notifying options to HMRC.
See EMI Enterprise Management Incentive scheme
Reminding you of the Save As You Earn (SAYE) extended pause
- In September 2018 HMRC extended the savings holiday period for participants of company SAYE schemes; you can now miss up to 12 monthly payments, previously the limit was 6.
- This holiday is available to all scheme participants for any reason.
- If you take a savings holiday your original contract will be extended to reflect the number of months you have not contributed to the scheme.
See Employment Related Securities: What's New? March 2018 for HMRC’s most common ERS issues and top things to remember.
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 and ERS Bulletin 25.
- Ceasing a PAYE scheme does not mean any registered share scheme will also cease.
- You must cease the share scheme independently in ERS online and file any outstanding returns
Contacting HMRC for advice
- Make sure you include the relevant share scheme reference number, if you have one, when contacting HMRC about share schemes.
- You can find more information on how to identify your share scheme reference number in ERS Bulletin 25.
Links to our guides:
Employment related securities & share schemes
EMI Enterprise Management Incentive scheme
Designing an EMI share option scheme
Shares, securities & options: tax compliance
Links to previous Employment Related Securities: What’s New?
Employment Related Securities: What's New? March 2019
External Links