SMEs need to register and file returns for employee share plans or face penalties

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.

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.

Suzy Giele, employee share schemes expert at Excello Law, said: 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.

?While 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. 

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