Awarding shares in your limited company through an Employment Related Shares scheme can be a good way to reward, retain, or provide incentives to your employees.
As an employer and director of a limited company, if you plan to award shares to your employees, it’s very likely you will need to submit an Employee Related Shares (ERS) return.
In this article, we provide an introduction to ERS schemes and how to go about submitting an ERS form. As ERS schemes are complex and with the requirement to file a return, we recommend you to speak to a tax specialist, like Mirandus Accountants, to guide you through the process in more detail.
ERS schemes – how they work
ERS schemes fall into two categories – tax-advantaged or non-tax advantaged, and we recommend you use a tax-advantaged ERS scheme when transferring or awarding shares to employees, to do so as tax efficiently as possible.
Examples of tax-advantaged ERS schemes are:
- Share Incentive Plans (SIP)
- Save as You Earn (SAYE)
- Company Share Option Plans (CSOP)
For more information on about these types of scheme, you can visit the Gov.uk Tax and Employee Share Schemes resources page here.
As an employer, you’ll need to register all new ERS schemes with HMRC. Once your ERS scheme is registered, you’ll need to submit an ERS return (or nil return) each year even if:
- there have been no transactions
- you’ve appealed a late filing penalty
- the scheme has been registered in error or there’s a duplicate scheme
- you did not get a reminder from HMRC.
You must also let HMRC know about any ERS scheme that have ceased at your limited company. You’ll need to provide a “final event date”, and you must submit any outstanding returns until the date of cessation.
To proceed with an ERS return submission with HMRC online, you will require a login to your HMRC Government Gateway account for your limited company, and you also need to have an existing PAYE scheme.
To file an ERS return online, the main steps are:
- On your company HMRC Government Gateway account, activate “PAYE for employers” online
- Get a valuation of the shares and awards (depending on circumstances)
- Complete the relevant HMRC spreadsheet template. (There are a range of ERS return templates and technical notes available from the Gov.uk site. For most limited company contractors the relevant form will be the Other ERS schemes and arrangements template)
- Register your scheme, file your return, and unless you are intending to make another award or transfer of shares soon, we recommend you close your ERS scheme immediately.
In most cases, you’ll need a valuation for the shares being transferred or awarded. If the company has been in existence for a period of six months or more and has been trading, the shares are likely to be worth more than when the company was first formed, so it’s best to get an up-to-date, independent valuation. HMRC can dispute a valuation if they’re not satisfied it is accurate.
If the company is very new or has been in existence for a while but never traded, it can easily be argued there is no value in the company, so a “nil” value can be used.
We strongly recommend you speak to a tax specialist, like Mirandus Accountants, who can ensure your ERS form is completed correctly, as any errors will be penalised by HMRC. Speak to us to see how we can help.
There are circumstances where an ERS return is not required. An ERS return is not required if you transfer shares to anyone else that is not an employee or fellow director, or if the transfer of shares takes place before the company starts trading. For instance, a share transfer in the normal course of domestic, family, or personal relationships (such as between spouses) does not need a return.
We can help
We strongly recommend you speak with a tax and accounting specialist like Mirandus Accountants, who can provide expert advice for your business and personal tax planning needs. We are an accounting company in London who are tax accountants for the self-employed and offer accountant services for small business. You can contact us for a tailored solution to your unique business circumstances.
Mirandus Accountants, supporting local businesses in the City of London and Greater London area, providing accounting and tax services to SMEs and OMB clients. As strong advocates of cloud accounting and a QuickBooks Pro Advisor Practice, we offer access and training on QuickBooks as standard to all our clients, whatever stage of the business cycle.