ERS reporting: Avoiding late penalties

Last updated: 30 October 2024. 

Every UK business with an employee share scheme is required to file an annual Employment Related Securities (ERS) report with HMRC (even if no activity has occurred).

While it may seem like just another tedious administrative task, HMRC serves up weighty penalties for those who fail to meet deadlines or submit accurate returns.

The fallout from non-compliance can be severe and may include hefty fines plus a loss of the tax benefits available to employees. No one wants to face avoidable financial penalties and unhappy employees at the same time - so timely submission is crucial!

What is ERS reporting?

ERS reporting is a way for companies to notify HMRC about the share schemes they offer to employees. These schemes, often known as ERS, can range from one-off gifts of shares to formal incentive plans.

Some schemes are tax-advantaged, offering both businesses and employees attractive tax breaks, while others are non-tax-advantaged.

The non-tax advantaged schemes are valuable because they make it easier to retain talented employees and help to create an engaged, motivated workforce.

ERS schemes must be registered with HMRC, and annual returns submitted, even if there have been no reportable events during the year.

This seemingly mundane process can quickly become a major headache if it’s somehow overlooked or delayed. And the more you delay, the bigger the headache gets...

When to report

For companies with new ERS schemes, timely registration is key. Tax-advantaged schemes must be registered by 6 July, following the tax year of the grant.

Non-tax-advantaged schemes only need to be registered when there’s a reportable event, such as the buying or selling of shares. Late registration involves additional steps and could lead to costly penalties.

Take Enterprise Management Incentives (EMIs) for instance. The EMI scheme is registered with HMRC through the ERS system after the options are granted. Otherwise, you risk non-compliance.

You’ll also need to set up a HMRC PAYE account if you don’t already have one. This process can take up to three weeks as you'll need to request a password via post. To avoid the rush (and potential delays), we recommend completing this as early as possible!

But once you've registered an EMI scheme (i.e. the first EMI scheme the company has ever done) you don't need to register future schemes - you just need to notify HMRC of future grants.

Once registered, you’ll notify HMRC every year.

If the EMI options were granted before 6 April 2024, you must notify HMRC within 92 days of the grant date. For options granted on or after this date, you need to notify HMRC by 6 July following the end of the tax year.

It's an administrative responsibility that simply can’t be taken lightly - so make sure to mark the date on your calendar.

The risks of late submission

HMRC has tightened its enforcement of ERS reporting in recent years. When ERS reporting deadlines are missed, businesses can face harsh penalties. HMRC has no tolerance for late or inaccurate filings, and the fines can be punitive.

The risks associated with late submissions extend beyond fines; you could be endangering the very tax benefits that made the scheme attractive in the first place.

Let’s use the EMI scheme as an example.

With EMI, employees have the option to buy shares in the company at a set price in the future, usually at a reduced rate. This is a fantastic tool for employee motivation, but it comes with strings attached.

Fail to notify HMRC about the grant of an EMI option within the required timeframe, and the whole tax-advantaged nature of the scheme is jeopardised.

Not only does the company lose out, but employees are also deprived of the tax relief they expected - something that could spark frustration and dissatisfaction. Which is exactly the opposite of what any employer hopes to achieve when establishing an EMI scheme.

A late submission automatically triggers an initial penalty of £100, which might seem manageable, but that’s just the beginning. If the report remains outstanding after three months, an additional £300 penalty is imposed, followed by another £300 fine at the six-month mark.

If the delay continues past nine months, daily fines can start to rack up at £10 per day - turning what once seemed a minor oversight into a true financial nightmare!

How Vestd can help

The complexity and pressure of ERS reporting can feel overwhelming, particularly for small to medium-sized businesses without large in-house finance teams.

That’s where Vestd comes in: we take the stress out of ERS reporting by offering a streamlined service that supports compliance with all HMRC requirements.

Our Customer Success team can sit on a call with you while you complete your ERS report, offering guidance and reassurance every step of the way. We handle the nitty-gritty details, from registering your scheme with HMRC to submitting your end-of-year return.

This is easily done digitally, and removes the inconvenience of dealing with paper copies. Plus, it sets you in good stead for the future as Companies House continues with its transition to software-only filings.

With Vestd, you can have peace of mind knowing that your report will be submitted accurately and on time, every year, allowing you to focus on what truly matters: growing your business!

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