What is employment related securities year-end (ERS) reporting?

Employment related securities (ERS) year-end reporting obligations

Now that the 2024/25 tax year has come to an end, there are a variety of tax filing obligations on employers. One of these obligations is that if employees (including directors) have any transactions involving employment related securities (ERS) such as shares or similar securities in their employer, or company in their employer’s group, the employer may have to make additional year-end reports to HMRC.

What are employment related securities (ERS)?

Employment related securities (ERS) are HMRC’s way of referring to shares and similar financial securities held by employees and directors. Amongst other things, this can include shares, options, and loan notes.

Employers quite often use shares and share options as a way of rewarding and incentivising employees by giving them a stake in the business. There are several ways to achieve this and it can be tax efficient for both your company and your employees. Many statutory and government backed plans encourage the appropriate use of these methods.

What are securities and when are they employment related?

The word ‘securities’ describes a wide range of financial instruments including, government and corporate bonds, loan stock and shares.

Sometimes it is obvious when a security is employment related, such as where a manager is rewarded with shares for good performance.

However, the definition is much broader. Securities are considered employment related if a current, former, or prospective director or employee acquires them. There may be a limited exception if you can show the transfer is due to a family or domestic relationship. However, due to the wide range of the deeming provision even ‘founder shares’ are caught.

When to report

“For ‘unapproved’ arrangements, you must register the scheme with HMRC once a reportable event occurs for the first time, by 6 July following the end of the relevant tax year. After registration, a return is required each tax year, even if there are no reportable events. HMRC no longer issues reminders, and automatic penalties apply for late or non-electronic returns. Note that HMRC refers to all such arrangements as ‘schemes,’ which include various reportable transactions. For more details, see our blog on Employment related securities: What has to be reported.

Why tell HMRC about these arrangements?

In the past, shares and other ERS have been used by some taxpayers as a mechanism for reducing their tax bill. Anti-avoidance legislation relating to shares has arisen as a result and HMRC now monitor their use more carefully. Filing of ERS moved online some years ago and automatic penalties can be imposed for late filing and non-completion. If you have reportable events, or you have previously registered, you will need to file online. Online filing is intended to provide better information for targeted reviews, making timely and accurate completion more important now than ever before.

The employment related securities returns do not themselves collect any tax, they are merely a monitoring system. This does however mean it can be necessary to report even ‘innocent’ transactions where no tax arises.

Submitting ERS returns

The ERS returns are accessed through the same online portal as you use for your usual payroll filings. Your business is likely already registered as an employer. However, if going online for the first time, you’ll need to first register for online services via the HMRC website.

Select ‘PAYE for employers’ and following the instructions.

Within your account you can register your share schemes in the ERS section. Here you’ll find the various forms. HMRC’s guidance can also be accessed through this online portal.

You will receive a scheme reference number in respect of each share scheme you have. This is needed in order to prepare and submit the relevant returns. These are:

Form 34 for save as you earn (SAYE)
Form 35 for company share option plan (CSOP)
Form 39 for share incentive plan (SIP)
EMI40 for enterprise management incentive (EMI)
Other ERS return (formerly known as Form 42) for unapproved arrangements.

If you have one of the tax advantaged share plans in place, i.e. EMI, SAYE, CSOP or SIP, you will have to complete the relevant form. Information on registering and submitting returns is below. Everything else reportable goes on the ‘other ERS return’.

How can we help?

As with all tax returns, it is the tax payer’s responsibility to determine whether they have reportable transactions and therefore if a return is needed. The purpose of this blog is to help you identify if you have a reporting obligation.

If you would like assistance, PKF Francis Clark can help you with the process of filing these returns. Unfortunately, determining whether or not a return is needed can be dependent upon information that may simply not be available to us. Therefore it is important you read through the brochure and carefully consider for yourself whether it might apply.

HMRC provides online help with completing the forms. However whilst this is a straight forward process for many, some situations can inevitably be complex.

It is even possible to appoint us as your agent for these returns. However, this is a separate registration to your other tax affairs and requires a specific registration process. If we are not already registered as your agents for online employee share plan returns, it usually takes around six weeks for HMRC to set up the registration. If a request to register as your agent is received after 24 May, we are therefore unable to guarantee we would be in a position to submit the return on your behalf before the filing deadline.