UK: HM Revenue & Customs Share Scheme Returns

There are some important deadlines looming for companies which operate share schemes. In brief:

by 6 July 2007, all companies are required to submit to HM Revenue & Customs ("HMRC"), annual returns in respect of HMRC approved schemes operated during the tax year 2006/2007; and by 6 July 2007, all companies are required to submit to HMRC a Form 42 if "reportable events" have arisen during the tax year 2006/2007.

From 6 April 2007, companies will have the opportunity to file certain share scheme returns online. To use this facility, companies must be registered for the PAYE Online – Internet Service.

The important point to note is that HMRC will no longer issue paper returns to companies. Instead, it will issue notices to file share scheme returns to those companies which are known to it. Unapproved arrangements will still have to be reported without any prompting from HMRC.

Companies are encouraged to file returns online but may continue to file paper returns if they wish to do so. The deadline for submitting returns is the same whether the return is filed online or by paper. Companies can obtain paper copies of the annual returns by printing a copy from HM Revenue & Customs' website.

Each type of approved scheme has its own bespoke return: Form 34 (ShareSave or SAYE), Form 35 (company share option scheme or CSOP), Form 39 (Share Incentive Plan or SIP) and Form 40 (Enterprise Management Incentives or EMI).

Each return can be accessed online from HMRC’s website at http://www.hmrc.gov.uk/shareschemes/ann-app-schemes.htm

Forms 34, 35 and/or 39 may be submitted online. You need to ensure that Forms 34, 35 and/or 39 are submitted to HMRC online or at the following address by 6 July 2007:

Form EMI 40 for reporting EMI options will continue to be issued by (and should be returned to) the Small Company Enterprise Centre. Online filing is not available for Form 40.

In relation to unapproved arrangements including share option schemes and share acquisitions by employees and directors (including non-executives), an employer is required to provide HMRC with written details of any "reportable events" which occurred during the tax year ending 5 April 2007. The appropriate form to use is Form 42 available online form HMRC’s website: http://www.hmrc.gov.uk/shareschemes/form42-2007.pdf

The scope of the term reportable event is very wide and broadly includes any event involving securities or share options which might give rise to an income tax charge under the Income Tax (Earnings and Pensions) Act 2003. In particular, reportable events include the acquisition or disposal of shares or securities, the lifting or variation of share rights, the conversion of shares and the grant, exercise, assignment or release of options.

Unlike approved schemes, HMRC does not notify companies of their obligation to file the return.

If your company does not have any reportable events to include on Form 42 in respect of the tax year ending 5 April 2007 but shares have been made available to employees and directors in the past, you will still have to submit a "nil return".

Form 42 may be submitted online. You need to ensure that Form 42 is submitted to HMRC online or at the following address by 6 July 2007:

Failure to submit a return by the above deadlines (or filing an incomplete or inaccurate return) may result in fines and penalties.

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.