With the 2024/25 Employment Related Securities (ERS) annual return deadline approaching, this article explores the steps businesses should take now to ensure accurate returns are filed by 6 July 2025.
Key areas to focus on
If you haven't filed your ERS returns yet, prioritise these steps:
- Register any new share plans or reportable arrangements established in 2024/25 promptly, as this process can be time-consuming and might delay filing (but check if a new registration is necessary or whether an existing one can be used);
- Identify key stakeholders within the business (e.g. HR, payroll, tax, company secretarial, legal) and gather the necessary information to complete the returns; and
- Review the collected data, pinpoint reportable events, and highlight any areas needing further information.
Certain aspects of ERS reporting can pose challenges and benefit from early attention before the filing deadline. Below are some considerations.
New share plans and amendments
Review any new share plans or changes to existing plans to confirm specific reportable events and determine which section of the relevant return needs completion. Amendments to 'key features' of tax-advantaged share plans require employers to declare that all qualifying conditions for tax-advantaged status are still met. Allow time for professional advice if necessary.
Identifying Internationally Mobile Employees (IMEs)
Accurate identification of IMEs is crucial for precise ERS returns. IMEs include assignees and permanent movers to and from the UK. It's vital to capture all IMEs and ensure that awards were taxed and subjected to social security correctly through payroll.
If not, this should be disclosed to HMRC and rectified. For share-based awards held by IMEs that are also subject to overseas reporting (e.g. to the Irish Revenue or the Australian Tax Office), UK ERS returns should accurately reflect the sourcing position for income tax and social security purposes and be reconcilable with those overseas returns.
Net-settled share awards
Some organisations 'net-settle' share-based awards by cashing them out in respect of payroll withholding and settling only the 'net' value that’s left in shares.
Employers should identify any 'net-settled' share awards held by employees, as HMRC require these to be reported in a specific way. Net-settling share awards reduces statutory corporation tax relief, so it's crucial to ensure net settled awards are identified to claim corporation tax relief correctly.
Determining whether awards are net settled can be challenging and specialist advice might be needed.
Reporting transactions during the year
Transactions such as company acquisitions and demergers can lead to numerous reportable employee share transactions. Confirming appropriate disclosures can be complex and time-consuming, so companies should compile this data promptly.
The importance of accurate ERS returns
HMRC utilise data from ERS annual returns to review:
- Payroll withholding on share-based awards;
- Statutory corporation tax relief for employee share acquisitions; and
- Employees' personal tax returns.
HMRC may request detailed information and supporting evidence, such as plan rules, regarding PAYE and NIC withholding on employee share plans. Therefore, it's crucial that employers ensure ERS annual returns are accurate and align with PAYE and NIC records. If payroll errors from 2024/25 are identified during ERS return preparation, prioritise ensuring affected employees 'make good' any PAYE on share-based awards by 4 July 2025. Failure to do so may result in additional 'tax on tax' charges, effectively taxed as a benefit in kind even if repaid later.
Future articles will explore steps employers should consider to correct payroll errors identified during the 2025/26 ERS reporting process.
Additional points for Enterprise Management Incentives (EMI)
Companies that operate an EMI plan should keep in mind that options granted during 2024/25, including replacement options, must be notified to HMRC by 6 July 2025 to qualify for EMI tax relief.
This is a separate filing requirement from the EMI plan annual return, and a change to the deadline for previous tax years (which fell 92 days after grant date of the option).
How KPMG can assist
KPMG has extensive experience in supporting companies with ERS annual returns, ensuring compliance with PAYE, social security and corporation tax rules. We can help identify compliance risks, ensure share plans suit your business, and assist with any necessary remediation or changes. Contact the authors or your usual KPMG UK contact to discuss how we can support your employee share plan arrangements.
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