2023/2024 Annual Returns Must Be Filed by July 6, 2024

Companies operating employee equity incentive arrangements in the United Kingdom, including companies incorporated or registered outside of the United Kingdom, are mandated to file an online annual return with HM Revenue & Customs (HMRC) no later than July 6, 2024. Failure to do so for required companies will lead to automatic penalties applying. Below are some frequently asked questions (FAQs):

Who Needs to File a Return?

Companies need to make a return in respect of ALL the equity incentive or share plans that they operate in the UK and in which UK resident employees participate. This applies irrespective of whether the plan is an HMRC tax-advantaged plan such as EMI or CSOP or a nontax advantaged arrangement such as nonqualified option arrangements or the issue of growth shares. Returns should also be made in respect of employees who, although not resident in the UK, have carried out their duties in the UK during the relevant period.

A return is required in respect of each plan or arrangement that is registered, and companies must submit a return even if there has been no activity during the relevant period. It is therefore important to notify HMRC of the termination of a plan or arrangement if a company is no longer operating it in the UK.

No return is required in respect of awards granted to non-employees such as advisers or consultants.

How Do I File a Return?

Before your company makes an annual return, its share incentive arrangement or plan must be registered with HMRC under the ERS online service (part of the HMRC PAYE online services portal). If the company has previously granted EMI options and properly notified the grant of those options as required under the EMI rules, its EMI plan will already be registered. However, if your company does need to register its plan or arrangement, it should be done well in advance of the deadline, as there can be a material delay between registering and being able to complete an annual return in respect of the relevant plan or arrangement. For more information about registering a plan, see here.

Tax advantaged plans have specific returns while nontax advantaged arrangements, such as growth shares or non-qualified options, are included in the return called “Other Employment Related Securities.” Download and complete the relevant return template here.

What Needs to Be Reported?

Returns must include details of the following events that have occurred between April 6, 2023, and April 5, 2024:

• the grant of share options (other than EMI options which are notified separately) or the acquisition of shares (including growth shares) by employees or office holders;
• the exercise of options;
• the release, lapse, cancellation, or variation of an option;
• an option exchange or rollover of an EMI or CSOP option; and
• chargeable events in relation to shares held by employees or office holders.

Details of grants or awards made to nonemployees such as contractors or other advisers do not need to be included.

If you have previously registered a plan but no reportable events have occurred between April 6, 2023, and April 5, 2024, you must still file a “nil return.” Failure to do so will result in penalties. If you no longer operate your plan in the UK and there are no outstanding awards under it, you should register the cessation of the plan to avoid having to continue making nil returns.

What Penalties Apply for Failure to Comply?

An initial penalty of £100 will be due if a return is late, even by one day. Penalties then increase the later the return remains outstanding. If a return remains outstanding more than nine months after the deadline, HMRC has the ability to retroactively apply an additional penalty of £10 for each day the return remains outstanding beyond this time. HMRC does not send reminders that your company’s annual return is due.

In addition, HMRC can impose a penalty of up to £5,000 for a material inaccuracy in a return that is careless or deliberate and that is not corrected “without delay.”