As we approach the annual ERS reporting deadline, it’s crucial for companies to assess whether they have complied with the HMRC requirements for non-qualifying share options. This includes options granted not only to employees but also to directors and consultants who may not be on the formal payroll. Failure to register these options could lead to significant penalties, especially for companies that may have overlooked this obligation in the past. At Simply Equity, we specialise in guiding companies through the complexities of both EMI and non-qualifying share option schemes to ensure full compliance.
Understanding ERS and Non-Qualifying Options
Employee Related Securities (ERS) encompass any share options or securities provided to employees, directors, or consultants. Non-qualifying share options, unlike EMI options, do not qualify for certain tax advantages, yet they must still be reported to HMRC through the ERS framework.
Who Needs to Be Registered?
Directors and Consultants as Recipients: Directors and consultants who receive share options pose a unique challenge for ERS reporting. Even if they are not formal employees or listed on the payroll, their options must be registered if they provide significant services to the company.
Classification of Consultants: Determining whether consultants are classified as ’employees’ for ERS purposes depends on their role and the nature of their contractual relationship with the company. Consultants who act in a capacity similar to employees, having significant responsibilities and decision-making powers, typically need their options registered under ERS.
Registration Process and Deadlines
No Advance Notification Required
Unlike EMI option schemes, where options must be notified to HMRC, non-qualifying share options do not require advance notification. However, companies must still register the scheme and report any grants of share options via the ERS online service.
Critical Deadlines
The deadline for registering your non-qualifying share option scheme and filing the annual ERS return is 6 July following the end of the tax year in which the options were granted. With this deadline fast approaching, it’s imperative for companies to act swiftly to ensure compliance.
Penalties for Non-Compliance
Failure to meet the ERS reporting obligations can lead to substantial penalties:
- Initial Penalty: A fixed penalty of £100 applies immediately after the missed deadline.
- 3 Months Late: An additional penalty of £300 is charged if the return is still outstanding 3 months after the due date.
- 6 Months Late: Another £300 is added if the return is 6 months late.
- 9 Months Late: An additional penalty of up to £10 per day may be charged, starting from 9 months after the deadline, depending on HMRC’s discretion.
This structured penalty system highlights the importance of timely and accurate ERS reporting.
Why Act Now?
For companies that have not yet registered their non-qualifying share options or have overlooked this requirement in previous years, the risk of accruing penalties is high. The approaching deadline serves as a critical reminder to review and ensure all necessary compliance measures are in place.
How Simply Equity Can Help
At Simply Equity, we understand the nuances of share option compliance. In addition to assisting you in setting up your EMI share option schemes and non-qualifying share option schemes, we can assist your company in registering for ERS, preparing and filing annual returns, and navigating the complex landscape of share-based employee compensation. Our expertise ensures that your company remains compliant, avoiding the pitfalls of penalties and maintaining good standing with HMRC.
Conclusion
The need to register non-qualifying share options and comply with ERS reporting is not just a regulatory formality but a crucial aspect of corporate governance. As the deadline approaches, take this opportunity to review your company’s compliance status and act accordingly to ensure all share options are properly registered and reported.
Please Note: This article contains general information only and Simply Equity is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. This article is not a substitute for professional advice and should not be used as such. Simply Equity does not assume any liability for reliance on the information provided in this article.