It's that time of year...don't forget to submit your annual share scheme returns
9 May 2012
This is a quick reminder that there are some important deadlines approaching for companies operating share schemes. In brief:
- By 7 July 2012 (or, if earlier, within three months of the date of issue of the form), all companies are required to submit to HM Revenue & Customs ("HMRC") annual returns in respect of HMRC approved schemes operated during the tax year to 5 April 2012; and
- By 6 July 2012, all companies are required to submit to HMRC a Form 42 if there are "reportable events" in relation to any other type of share arrangement during the tax year to 5 April 2012.
Form of returns
All returns must be submitted in the required paper form - there is no longer any facility for filing online (although a recommendation has been made to re-introduce online filing for share plan returns).
HMRC will not automatically issue paper returns to companies, although it will issue notices to file share scheme returns to those companies which are known to it. Unapproved arrangements, whether involving share options or other types of employee share rights, will still have to be reported even where HMRC has not issued a notice to file.
Each return can be accessed from the HMRC's website.
Each type of approved scheme has its own bespoke return:
- Form 34 (ShareSave or SAYE)
- Form 35 (Company share option plan or CSOP)
- Form 39 (Share Incentive Plan or SIP)
- Form 40 (Enterprise Management Incentives or EMI).
Although the forms have been simplified over recent years, Form 35 (CSOP) continues to require details of all exercises of CSOP options, even where they qualify for tax relief. CSOP options will normally qualify for tax relief if they are exercised:
- At a time when the scheme is approved by HMRC; and
- Between three and ten years from the date of their grant.
Special rules apply for specified "good leavers" who exercise within six months of cessation of employment.
You do not need to report details of EMI options granted during the year as they should have already been notified to HMRC within 92 days of grant. If there has been no activity during the year (that is, no EMI options have been exercised or lapsed) you will still need to submit a "nil return".
Please note that the address to which EMI1 forms must be sent within 92 days of grant has recently changed to:
Small Company Enterprise Centre
HM Revenue & Customs
First Floor, Fitzroy House
Castle Meadow Road
All other schemes
If you operate any unapproved arrangement, whether it is a share option scheme, a deferred share plan, a joint ownership plan or a growth share plan, or employees and/or directors (including non-executives) have acquired shares in other ways, you must provide HMRC with details of any "reportable events" which occurred during the tax year. The appropriate form to use is Form 42.
The scope of a "reportable event" is very wide and broadly includes any event involving shares or share options which might give rise to an income tax charge. In particular, reportable events include the:
- Acquisition or sale of shares;
- Lifting or variation of restrictions affecting employee share rights;
- Conversion of share rights; and
- Grant, exercise, assignment, cancellation or release of unapproved options.
HMRC provides guidance on completing Form 42 which covers the main areas of difficulty.
If there are no reportable events to include on Form 42 for the tax year to 5 April 2012, but shares have been made available to employees and directors in the past, a "nil return" should be submitted.
Submission of returns
All returns should be submitted by the date specified on the form or by 6 July 2012 in the case of Form 42. Failure to submit by the deadline (or filing an incomplete or inaccurate return) may result in fines and penalties.
Completed returns should be submitted to the Employee Shares & Securities Unit at:
Specialist Personal Tax
Employee Shares & Securities Unit
1st Floor, Ferrers House
Castle Meadow Road
HMRC is taking increasing interest in the way that companies operate share schemes. This is particularly the case now that the "disguised remuneration" rules apply, under which income tax charges may be triggered when cash or shares are provided through third parties (such as employee trusts) unless the arrangement falls within a statutory exemption.
Subscribe here for updates