Many limited companies choose to reward or incentivise their employees by gifting shares in their company. These are known as Employee Related Securities (ERS).
What are Employee Related Securities?
Commonly referred to as ERS, Employee Related Securities are a way for limited companies to gift or awards shares in its business to employees, including directors. An ERS scheme can be tax advantaged or non-tax advantaged.
Tax advantaged schemes include:
Share Incentive Plans (SIP)
Save as You Earn (SAYE)
Company Share Option Plans (CSOP)
Enterprise Management Incentives (EMIs)
The tax advantage is to the employee receiving the shares and could be in the form of not paying tax or National Insurance on the value of the share.
You may choose to grant shares through a non-tax advantaged schemes if tax-efficient structures aren’t right for your business. Through non-tax advantaged schemes, employees can be gifted or awarded the option to acquire shares. Employees will only pay income tax on their shares when they choose to exercise their options.
How do I report my ERS scheme to HMRC?
Even if it is a one-off gift of shares, all new ERS schemes need to be registered with HMRC. You’ll need to file an ERS tax return for every year an ERS scheme is active. The deadline to submit returns by is 6 July, following the end of the financial year. Even if you aren’t actively transferring shares that year but you have live ERS schemes, you’ll need to still submit a ‘nil return’.
For any company share transfers made in the coming tax year the deadline for 20/21 ERS returns is 6 July 2021 .
Do I need to report all ERS schemes?
In the most part, yes, but there are some notable exceptions where an ERS return isn’t required. You won’t need to complete an ERS return if the share transfer concerns a domestic, family or personal relationship. For example, if you are the owner of a limited company and want to gift shares to your son or daughter, you won’t need to complete an ERS return.
What happens if I decide to end an ERS scheme?
You’ll need to inform HMRC if you choose to end any Employee Related Securities scheme. You can do this by using the Government Gateway user ID that you set up the scheme with. You’ll also need to provide the end date of the ERS scheme that you want to close.
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AAT Level 3 qualified, I specialise in providing payroll functions and services for a wide variety of clients and businesses.