HMRC published ERS Bulletin 31 on 21 March 2019, which covers a number of developments on employment-related securities. These primarily relate to enterprise management incentive ('EMI') plans and include the points highlighted below.
IFRS 16 and impact on gross assets value for EMI
HMRC has updated its guidance on the £30 million gross assets test, such that if a company uses international accounting standards (IFRS) for accounting purposes, then IFRS 16 will apply from January 2019 in determining the value of assets shown on the balance sheet.
How to tell HMRC about errors made in EMI option notifications
The grant of EMI options must be notified to HMRC within 92 days of the date of grant, using HMRC's Employment Related Securities service.
HMRC has clarified its guidance on how employers should tell it about errors made in notifying the grant of EMI options. This depends on the date of discovery of the error, and is summarised in the table below.
Note that if the error in the notification is not significant, for example a spelling error, then HMRC's advice is to keep a note in the company's records of the error, which may need to be produced to HMRC if there is a compliance enquiry into the EMI options.
|Timing of discovery of mistake||Action|
|Before the 92 day deadline expires||If a company realises it has made a notification mistake within 92 days of grant of the original options, then those options can simply be re-notified to HMRC (because it is still within the deadline of 92 days of the date of grant).
Remember to cancel the originally notified options in the next EMI annual return as if they were options cancelled for no payment.
|Outside the 92 day deadline but within 9 months of the date of grant||If a company believes that it has a reasonable excuse for not re-notifying within the original 92 day deadline, then it should advise HMRC of all the facts, including: the date of grant; company and scheme name; and the unique scheme reference number (as allocated by the ERS service). If HMRC accepts the reasonable excuse, a code will be issued to allow the company to re-notify the corrected options.
The company must then remember to cancel the originally issued incorrect options when completing the next ERS annual return.
|More than 9 months after the date of grant||If a company realises that it has made a mistake more than 9 months after granting an EMI option, then it is HMRC’s view that it cannot be corrected, regardless of whether or not the error is considered significant.
In such circumstances, the company should disclose the errors to HMRC, so that it can consider whether or not the error was material at that time, which may lead to the option not meeting the legislative requirements to qualify for tax advantaged treatment.
The guidance only applies where the underlying option grant paperwork was correct and it is simply a matter of incorrect notification of the option terms to HMRC.
If the option was incorrectly granted, for example the option grant documentation did not refer to the correct number of shares, then depending on all the facts, it may be that the option needs to be cancelled and a new option granted. It is possible to contact HMRC in cases of uncertainty.
This is a reminder to companies of the importance of taking care in producing individual EMI option documentation and in submitting correct EMI notifications to HMRC within 92 days of the date of grant.
EMI options and restrictions
An EMI option agreement must contain details of any restrictions on the shares (examples include leaver provisions and restrictions on voting).
Details can either be set out in the option agreement itself, or contained in another document (such as the articles of association or shareholders’ agreement) attached to the option agreement and incorporated into the agreement by reference to the document (and where details of restrictions are contained in another document, the restrictions must be identified for participants).
ERS Bulletin 31 confirms HMRC's guidance on the situation where details of restrictions on shares have been omitted from the option agreement at the date of grant. In such circumstances, the employer should seek to remedy this as soon as possible and in line with HMRC's published guidance. It is possible to seek HMRC’s advice as to whether any proposed retrospective action could potentially result in the options not qualifying for tax-advantaged treatment.
This is a reminder that it is important for the company to review its grant processes to ensure that it is adequately highlighting any restrictions to option holders in their documentation.
Please get in touch with your usual Osborne Clarke contact or one of the experts below if you have any queries or would like to discuss further.