Change in ERS reporting for Non-Tax Advantaged Share Options

Last Updated on 16 February 2026

Whilst we would always try and use a Tax-Advantaged Share Plan for our clients there are times when the rules/regulations just don’t fit the brief, in which case a choice is to grant Non-Tax Advantaged Options.

Usually, this will result in an income tax charge when the options are exercised.  If a company’s shares are classed as Readily Convertible Assets (RCAs), National Insurance Contributions (NICs) will also apply.  If this is the case, employers have an obligation to account for both income tax and NICs (together, the Tax Liability) through PAYE when the options are exercised. Some of these charges can be recovered from the employee, but the reporting can be complex.

However, HMRC have recently announced changes in Bulletin 63 to their reporting requirements which should make this easier to manage.  The changes apply to returns on the Employment Related Securities (ERS) portal which must be filed by 6 July following the end of the tax year in which the options were exercised.

Summary of tax treatment for Non-Tax Advantaged Options

When the option reaches maturity and is exercised, the employee may not have the funds to immediately cover the Tax Liability – including any reimbursements due to their employer.

To deal with this, employees may choose to “sell to cover / net settle” i.e. receive shares equal to the value of shares after the Tax Liability and any exercise costs have been deducted.

The Tax Liability calculations are made over the full value of the shares which were subject to the share award, but the company then provides fewer shares to the employee.   For example, an employee exercises nil cost options over 500 shares that are worth £1 per share at the date of exercise.  If the Tax Liability (e.g. for a higher rate taxpayer at current headline rates) is, say, £210, the employee will only receive 290 shares, putting them in the same position as they would have been had they covered the Tax Liability.

Changes to ERS reporting for Non-Tax Advantaged Options

Previously administrators would have needed to report these transactions on two lines on the ERS return with one row noting the number of shares that would be awarded, and a second row reporting the cash cancellation or receipt of a benefit.

You now only need to complete one row of information per individual on the ERS return.

You must still retain appropriate records to produce to HMRC (should they check) to show that the Tax Liability has been accounted for correctly and demonstrate the method of recovery from employees.

Identifying which awards have been net settled is important not only to ensure you are operating the correct payroll withholding & reporting, but also to assist with any Corporation Tax relief which can be claimed on the cash element of net settled share options.

More help and information for Non-Tax Advantaged Options

HMRC have handily provided four examples in Bulletin 63 on how non-tax advantaged share transactions should be reported on the return.

However if you are struggling with your records, not sure what information to put where, or simply don’t have the bandwidth yourself, RM2 offer a Compliance Service for all types of employee share plan which we would be happy to talk to you about.  Contact us at enquiries@rm2.co.uk to arrange to speak with one of our compliance experts.