Understanding Employment Related Securities (ERS) returns

What is an ERS return?

An ERS return is an annual return that employers must provide to HMRC via their online portal. It records all employment-related securities transactions, such as shares, share options, or other equity-based incentives granted to employees or directors.

This includes tax-advantaged schemes such as Enterprise Management Incentives (EMI), Company Share Option Plans (CSOP), Save As You Earn (SAYE), and Share Incentive Plans (SIP), along with unapproved arrangements.

Who needs to submit an ERS return?

Employers with UK employees or directors participating in an equity incentive scheme must submit annual ERS returns. Additionally, if employees or directors acquire an interest in shares or securities outside of a typical scheme structure, they may also need to file a return.

What is the deadline to submit an ERS return?

Employers must submit an ERS return by 6 July following the end of the tax year. This applies to all open share schemes, even if no transactions were made during that period. In such cases, a nil return must be filed if no reportable events occurred. Reportable events include, but are not limited to: 

• Granting, exercising, cancelling, or replacing share options 
• Awarding shares, restricted stock units, or other securities 
• Removing restrictions on shares 
• Changes in the value of an employee’s or director’s shareholding due to significant movements in loans to or from a related company

What is the ERS returns process?

1. Register the scheme: If a company has not previously submitted an ERS return, they must register the scheme with HMRC via their government gateway.
2. ERS qualification: Consider whether any transactions conducted in the UK tax year fall within the ERS legislation.
3. Complete the ERS return: Populate the return by including details of the reportable transactions.
4. Submit the ERS return: Submit the return to HMRC online by 6 July. Automatic late-filing penalties will be applied to late submissions.

What are reportable transactions?

Transactions that require an ERS return to be filed include:

• Non-tax advantaged schemes: Grants of restricted stock units (RSUs) or employee stock purchase plans (ESPPs) or other securities, option exercises, vesting of RSUs/ESPPs/other securities, cancellations where the individual received consideration, and lifting of restrictions.
• EMI Schemes: Option grants, option exercises, option cancellations, lapses and releases, and adjustments to the options (EMI schemes are enterprise management incentive schemes).
• CSOP Schemes: Option grants, option exercises, option cancellations, lapses and releases, and adjustments to the options (CSOP schemes are company share option plans).
• Other Reportable Transactions for employment-related securities: Share awards, share acquisitions, and share-for-share exchanges.

Why it’s important to compliant with ERS obligations

Ensuring compliance with ERS obligations is crucial for several reasons. Failure to meet the 6 July deadline will result in automatic late-filing penalties. Additionally, unsubmitted ERS annual returns are often highlighted during due diligence exercises, which are common ahead of prospective transactions. Non-compliance can complicate future transactions and affect the employing company's standing.

Support with filing ERS returns

We have a dedicated equity reward team with extensive experience supporting clients with various tax issues arising from equity rewards. They specialise in ERS compliance and can assist you with:

• Registering or de-registering a scheme via the HMRC government gateway online service.
• Preparing and submitting your annual ERS returns to ensure compliance.

Contact us today