United Kingdom – Upcoming Deadlines

We want to flag some upcoming important deadlines relating to employee equity incentive arrangements.

4 July 2026

If payroll errors for 2025/26 are identified when completing your Employment-Related Securities (ERS) returns, the priority is to ensure that on or before 4 July 2026 affected employees ‘make good’ any PAYE on share-based awards that hasn’t already been recovered by the employer.

If employees don’t make good to their employer any under withheld PAYE by that date, it could give rise to additional ‘tax on tax’ charge (by, in effect, being taxed as a benefit in kind even if subsequently repaid). Whilst well drafted tax indemnities in award documentation can provide some protection against this punitive charge, it is often necessary to demonstrate to HMRC that the employer habitually enforces collection under an indemnity for that relief to survive HMRC scrutiny.

Private companies and overseas share issuers can often misunderstand the circumstances when an employer payroll withholding obligation arises in respect of share-based awards, misguidedly assuming that this is a personal tax reporting and payment obligation for the individually only. However, employer payroll withholding arises not only when a company's share capital is quoted on a stock exchange and when a business is sold, but prior to an IPO, for ERS transactions relating to shares in a controlled subsidiary, where a put option exists and in other scenarios too.

6 July 2026

The deadline for registering new UK employee share plan and employment-related securities (ERS) arrangements, filing UK ERS annual returns with HMRC, and for notifying HMRC of any Enterprise Management Incentive (EMI) option grants made during the 2025/2026 tax year, is 6 July 2026.

Does this apply to you?

If your company operates any form of employee equity incentive arrangement in the UK, whether HMRC tax-advantaged (such as EMI, Company Share Option Plan (CSOP), Save As You Earn (SAYE) or Share Incentive Plan (SIP)) or non-tax-advantaged (such as unapproved options, conditional share awards or growth shares), you are likely required to file an annual return. This applies to UK-incorporated companies and non-UK companies (granting awards under overseas plans) alike, provided UK-resident employees (or employees who have performed duties in the UK) participate. For CSOP, SAYE and SIP, a self-certification is also required, attesting that the plan is compliant with the governing legislation.

The reporting obligation is broader than formal share schemes. Employment-related securities include not only shares but also other securities such as debentures, loan notes, partnership interests and other interests in securities. If any employee, director, or other officeholder has acquired employment-related securities outside of a registered plan, for example, shares acquired from an existing shareholder, or securities issued on an ad hoc basis, (including when these have been obtained in a transactional exchange of securities), those acquisitions must also be reported.

A nil return must still be filed even if no grants, exercises, or other reportable events occurred during the 2025/2026 tax year (6 April 2025 to 5 April 2026). A return is also required for any plan that has previously been registered with HMRC, even if it is no longer active, unless the cessation of the plan has been formally notified to HMRC.

The obligation to report applies whether, or not, the acquisition gave rise to an income tax charge.

EMI option grants

If your company granted EMI options between 6 April 2025 and 5 April 2026, those grants must be notified to HMRC by 6 July 2026. Failure to do so means the options will not qualify for EMI tax treatment, with that beneficial treatment being permanently lost.

HMRC updates to its ERS reporting guidance this year

It is important to identify the settlement methodology for awards. The reporting treatments of net-settled, cash-cancelled, and equity-settled awards are different.

In its February 2026 ERS Bulletin, HMRC announced that it no longer requires share awards covered by an Appendix 4 Short-Term Business Visitor (STBV) agreement (typically applied for by an employer with reporting obligations for non-resident employees where certain conditions are met) to be reported in ERS returns. This is a change to HMRC’s historical position. However, ERS awards held by STBVs not covered by an Appendix 4 agreement still require reporting (e.g. awards granted during any period of U.K. residence prior to the employee being covered by an Appendix 4 STBV agreement). HMRC’s updated guidance specifically emphasises that an ERS reporting obligation remains where the relevant employee is covered by an Appendix 8 STBV agreement (which, for those not eligible for the Appendix 4 treatment, allows for annual rather than monthly employer reporting and payroll withholding for non-resident employees where certain conditions are met).

Whilst it is more common for cash (rather than share-based) incentive awards to be made to workers contracted via an Employer of Record (EOR) entity, HMRC's updated guidance confirms that if a worker contracted via UK EOR participates in the end client's share plan or share option plan, then ERS reporting obligations arise for the EOR.

Penalties

HMRC does not issue reminders. A late return immediately attracts an automatic £100 penalty, increasing the longer it remains outstanding. A separate penalty of up to £5,000 can apply for a material inaccuracy in a return.

Why getting your ERS reporting correct matters

HMRC uses ERS annual returns to identify errors or discrepancies in:

Payroll withholding on share-based awards;
Statutory corporation tax relief for employee share acquisitions; and
Employees’ and NED's personal tax returns.

A data misalignment can trigger a PAYE enquiry that means HMRC formally investigates the employer tax compliance in the UK. Such an enquiry might start as a share-based payments enquiry but then spawn into a wider review of employment status and more. An enquiry might be made after an IPO, M&A transaction or ad hoc at any time.

How we can help you?

It’s advisable to periodically review share plan arrangements, or amendments to existing plans to confirm the specific UK compliance requirements and mitigate risk of issues arising on future transaction due diligence or HMRC enquiry. In particular, any amendments to ‘key features’ of tax-advantaged share plans should be carefully check to confirm that the tax-advantaged status requirements continue to be met. Use of discretion relating to exercise of EMI and CSOP options is also an area of heightened tax risk and scrutiny.

Whilst Mishcon does not act as ERS filing agent and does not prepare ERS returns on behalf of clients, we can:

health-check your incentive arrangements to help ensure compliance with the governing legislation, or help with remedial actions if defects are identified);
provide tax dispute support in HMRC PAYE enquiries assessing the technical position and helping to negotiate an appropriate settlement with HMRC or rebut the challenge, as applicable;
identify opportunities for optimisation whether in relation to tax-efficiency or other effectiveness. One point to note here is that many companies that had outgrown the favoured EMI plan are now again eligible, following legislative changes that took effect from 6 April 2026. See our article here for more info on that;
review and confirm your employer compliance reporting obligations