Share option plans are one of the most effective ways to reward and retain your team. EMI, CSOP or unapproved, when they’re run well, they work brilliantly.
Issues can spring up, however, and we often see these issues arising from scheme management, day-to-day admin and filings. The little details that get overlooked because everyone is busy, but could lead to fines, or be put under a microscope during due diligence.
Below, Cooper Parry’s Equity Rewards & Venture Capital Schemes team has highlighted the common pitfalls businesses face, and how you can stay on top of them.
ERS REGISTRATION: DON’T LEAVE IT TO THE LAST MINUTE
Every HMRC reportable scheme must be registered on the ERS portal. Straightforward in theory, but there’s a catch.
Schemes don’t always appear on the portal straight away. Sometimes it might be quick, but sometimes not. Occasionally, it takes long enough to cause problems.
If you’re trying to register a scheme days (or even hours) before the 6 July annual filing deadline, you run the risk of the scheme not appearing in time. A late return can follow, along with potential penalties and follow-up questions during diligence.
Our advice? Register a scheme early, as soon as you know that grants will be made. Get ahead and remove any chance of forgetting later.
ANNUAL RETURNS: CONSISTENCY MATTERS
HMRC requires annual ERS returns for every registered scheme by 6 July each year, with an immediate penalty for late filing. Penalties will then increase at 3 months and 6 months after the deadline. Remember, even if nothing has happened, a return is still required where a scheme has been registered.
The issues we see most often getting in the way of making an accurate filing are surprisingly basic:
- The scheme hasn’t been registered in time
- Forgetting a scheme has been registered
- Portal access isn’t available, or logins have been lost
- Grant information and exercise data isn’t clear and readily available
During a due diligence exercise, late or inaccurate returns stand out immediately. It wouldn’t necessarily derail a transaction on its own, but it could create noise and raise questions about wider governance.
Clear, comprehensive and readily available information, for all years in which a scheme is active, is the way to solve this problem.
EMI NOTIFICATIONS: A DEADLINE TO REMEMBER
The EMI notification deadline is 6 July following the end of the tax year in which the EMI options were granted.
If EMI grants are made throughout the year and notifications aren’t filed as you go, it’s easy for something to slip through the cracks. At present, EMI notifications are required to maintain tax advantages. If a notification is missed, HMRC will listen to appeals, but there is no guarantee of a successful outcome.
To avoid future headaches, make sure to submit each EMI notification promptly after grant, even though the formal deadline is later, to reduce last minute pressure.
DOCUMENTATION: SIMPLE BUT EASY TO MISS
Share schemes come with a lot of supporting paperwork and could include:
- Grant letters
- Option agreements
- Scheme rules
- Board minutes
- Valuation correspondence and acceptances
- Exercise notices
- HMRC submission receipts
Missing documents wouldn’t necessarily invalidate a whole scheme, but it could raise questions and lead to mistakes.
The safest approach is to accurately maintain a dedicated bank of information. It takes minutes each time but could save hours later.
THE BOTTOM LINE
To keep a share option plan on track, above all else, you need consistent processes, early filing, and reliable record keeping.
If you want support reviewing historic scheme filings and compliance, tightening up ERS filings, managing the EMI notification process or preparing your share schemes for a future fundraise or exit, our Equity Rewards & Venture Capital Schemes team is here to help.
