UK: Tax Factsheet - Employee Share Based Reward Reporting - March 2011

Last Updated: 8 March 2011
Article by Inez Anderson

Reporting Obligations

Employers and other "responsible persons" have an obligation to report the following events relating to employees and directors:

  • share awards,
  • share purchase and certain share sales,
  • grant of share options, and
  • certain other share-related transactions and events. Reports must be sent to HM Revenue & Customs (HMRC) before 7 July each year. Failure to report can lead to significant penalties. The reporting requirements cover employee sharerelated events occurring in the preceding tax year (6 April to 5 April).

Don't assume that just because you have not been sent a return you do not need to complete one.

Consequences of failure

Where returns are not filed within the deadline or are incomplete the following penalties may be imposed:

  • an initial penalty of up to £300 if the return is not filed on time
  • a further penalty of up to £60 per day if the delay continues after the initial penalty is imposed
  • if information contained in the return is incorrect there is a potential maximum penalty of £3,000.

Note that for these purposes each reportable event counts as a return and these penalties would be multiplied by the number of entries omitted, delivered late or containing errors.

Does this apply to you?

You are a "responsible person" for the purposes of the penalties mentioned above if you are any of the following:

  • the employer of the employee concerned
  • the host employer e.g. a company to which an employee is seconded
  • the person from whom the securities in question were acquired
  • the person by whom the securities were issued.

Frequent Problem Areas

Difficulties encountered when providing share options or share awards to employees and the subsequent requirements to complete the return forms include:

  • awards to internationally mobile employees
  • reporting by employer companies in relation to confidential awards made by parent or associated companies
  • ascertaining the appropriate market value of the shares in relation to restricted securities and/or awards in non-listed company shares
  • determining whether PAYE and NIC should be operated where the event or transaction creates a charge to income tax
  • awards to non-employees, such as consultants.

How can we help?

Our employment tax specialists can:

  • give reassurance if you think you do not need to complete a return
  • help complete returns either on paper or online
  • advise on HMRC reporting and PAYE requirements in relation to share schemes or share awards
  • assist with share valuations where restricted securities or shares in unlisted companies are involved
  • review administration and reporting processes with a view to improving compliance, minimising administration time and reducing future risk
  • help with any HMRC correspondence or negotiations.

Reporting for Approved Plans

Each of the HMRC approved plans has its own specific return:

  • Enterprise Management Incentives (Form EMI40) Details of options adjusted (following a variation in share capital), replaced (due to a company reorganisation), released or lapsed plus information concerning disqualifying events and both taxable and non-taxable option exercises.
  • Company Share Option Plan Form 35) Details of options granted and those exercised (in a non-approved way) plus summary information concerning the numbers of shares (over which options were granted) issued and/or transferred, and of employees who exercised.
  • Share Incentive Plan (Form 39) Details of awards of free and matching shares and the acquisition of partnership and dividend shares. Information concerning free, matching or partnership shares ceasing to be part of the plan (less than five years after the award) and free or matching shares forfeited (by leavers). Details of: any company reorganisation; the number of shares still in the plan beyond five years from grant; and, if shares are listed on an exchange, their year-end market value.
  • Save As You Earn share option plan (Form 34) Details of options granted and those exercised within three years following grant plus summary information concerning the numbers of staff receiving option grants and/or exercising options, numbers of shares issued/transferred and the total amount paid for shares.

Reportable transactions for Unapproved Plans

Events and transactions concerning employment-related securities, which do not arise under an approved plan, are to be reported on the return Form 42.

Acquisition of any type of interest in a 'security' must be reported if the acquisition relates to an employment, and a variety of other transactions or events must also be included.

A "security" for these purposes includes shares (whether in the employer company or not), debentures, loan stock, warrants (that are not simple options), futures and other types of financial instrument.

'Employment' covers all employees and directors (including non-executives) whether past, present or prospective and if an event occurs that involves someone other than the employee, but arises by virtue of the employee's employment, it must also be reported.

Reportable events include:

  • The grant of an unapproved option over securities
  • The assignment or release of an unapproved option over securities
  • The acquisition of shares (including by exercise of an unapproved option or an approved option in an unapproved way)
  • The lifting (and/or variation) of restrictions or forfeiture conditions over employment related securities
  • Disposal of employment related securities whilst they are subject to restrictions
  • Anything done that leads to an artificial increase in the value of employment related securities
  • Disposal by an employee of employment related securities at a price greater than their open market value
  • Disposal of partly paid employment related securities
  • The release of the holder of employment related securities from the obligation to pay the balance outstanding if they were partly paid.

Certain transactions do not have to be reported on Form 42. These include:

  • shares in certain types of newly incorporated companies
  • transfers of shares in the normal course of domestic, family or personal relationships
  • shares in flat management companies
  • certain rights and bonus issues
  • shares acquired independently by employees.

However, given the penalties, it is best to seek our advice if you are in any doubt.

Please Note

We have taken care to ensure the accuracy of this publication, which is based on material in the public domain at the time of issue. However, the publication is written in general terms for information purposes only and in no way constitutes specific advice.

You are strongly recommended to seek specific advice before taking any action in relation to the matters referred to in this publication. No responsibility can be taken for any errors contained in the publication or for any loss arising from action taken or refrained from on the basis of this publication or its contents.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions