Employee share plan reporting 2023/24: are you ready to file? - KPMG UK (2024)

If you’ve yet to file your ERS returns there are several steps to prioritise:

• If you’ve still to register new share plans or other reportable arrangements set up in 2023/24, do so now as a priority – this can take time and might delay filing (but do check first if you actually need a new registration or can use an existing one, as closing down unnecessary registrations can be burdensome);
• Confirm the key stakeholders in the business (e.g., HR, payroll, tax, company secretarial, legal) and collate the information required to complete the returns; and
• Review that data, identify reportable events and flag any areas where further information is needed.

Some aspects of ERS reporting can present challenges, and so benefit from close attention well before the filing deadline. Some of these are discussed below.

Any new share plans, and any amendments to existing plans, should be reviewed to confirm the specific reportable events, which section of the relevant return should be completed, and any corporation tax relief available.

Any amendments to ‘key features’ of tax-advantaged share plans require the employer to declare that all qualifying conditions for tax-advantaged status continue to be met. Ensure that time is left to obtain professional advice on this if needed.

Identifying IMEs is important to ensure that your ERS returns are accurate.

IMEs include assignees as well as permanent movers to and from the UK. It’s important to capture all your IMEs and confirm awards have been taxed and subjected to social security appropriately. If they haven’t, this should be disclosed to HMRC and corrected.

Where share-based awards held by IMEs are also subject to overseas reporting (e.g., to the Irish Revenue or to the Australian Tax Office), entries on the UK ERS returns should correctly reflect the sourcing position taken for income tax and social security purposes and should be reconcilable with the overseas returns.

Some groups ‘net settle’ share-based awards by paying cash in respect of the payroll withholding due and settling only the ‘net’ value of the award in shares.

Employers should ensure they are aware of any ‘net-settled’ share awards held by their employees, as HMRC require these to be reported in a particular way, and net settling share awards reduces any statutory corporation tax relief that would otherwise be available. It’s therefore important to ensure that net settled awards are identified so that corporation tax relief is claimed on the correct basis. Whether awards are net settled can be difficult to determine and specialist advice might be needed.

HMRC can use the data included in ERS annual returns to review:

• Payroll withholding on share-based awards;
• Statutory corporation tax relief for employee share acquisitions; and
• Employees’ personal tax returns.

We do see examples of HMRC requesting detailed information – and supporting evidence such as plan rules – concerning the PAYE and NIC withholding that employers operate on their employee share plans. It’s therefore important that employers ensure their ERS annual returns are accurate and agree with their PAYE and NIC records.

If any payroll errors in 2023/24 are identified when the ERS returns are being prepared, the immediate priority is to ensure that on or before 4 July 2024 affected employees ‘make good’ any PAYE on share-based awards that hasn’t already been recovered by the employer. If this is not done, additional ‘tax on tax’ charges can arise (by, in effect, being taxed as a benefit in kind even if subsequently repaid).

We’ll look at what other steps employers should consider to correct payroll errors identified during the 2024/25 ERS reporting process in a future article.

In addition to filing their 2023/24 ERS returns, employers should consider:

• If they operate a Save as you Earn (SAYE) plan,how they might respond to the further halving of the Capital Gains Tax annual exemption from 6 April 2024, and its potential impact on SAYE plan participants;
• As the dividend allowance also reduced to £500 from 6 April 2024, whether they should prepare guidance notes to help employees to report any share plan dividends or gains for tax purposes; and
• How the prospectiverepeal of the ‘non-domicile’ rules and replacement with the new ‘Foreign Income and Gains’ regime, which is currently expected to take effect from 6 April 2025, affect share plan participants.

We have extensive experience supporting companies to complete and submit their ERS annual returns, and ensure compliance with the relevant PAYE, social security, and corporation tax rules. We can also help you to identify any compliance risks, ensure your share plans remain appropriate for your business, and assist with any remediation or changes that might be required.

Please contact the authors, or your usual KPMG in the UK contact, to talk through how we could support you with your employee share plan arrangements.

For further information please contact:

• Lorna Jordan
  
• Alison Hughes