Messed up notifying HMRC of an EMI award?
During April this year, HM Revenue and Customs (“HMRC”) updated their guidance about errors made in online notifications of the grant of an Enterprise Management Incentive (“EMI”) option.
It transpires (quite astonishingly in my personal view) that the Employment Related Securities (“ERS”) online system will not allow either HMRC or the company in question to correct an error in a submission that has already been made.
How significant is the error?
The updated guidance makes it clear that a company should let HMRC know if they identify a “significant error” about the grant notification. The examples that HMRC mention as being “significant errors” include the wrong number or price of shares under option. A company should let HMRC know within nine months of the original notification of grant. HMRC state that they will then advise the company on any action required to correct the error, while dutifully avoiding putting any onus on themselves to clarify any particular situation that may arise with a time-based deadline.
If the error is not significant (and as far as HMRC are concerned this would include a spelling error), then HMRC will expect the company in question to keep a note of the error in the notification of EMI options. The note would be expected to include the details of the employees involved and the date of grant of the EMI options notified. If there was a future compliance enquiry into the company’s EMI options, then it would be necessary to produce this note to HMRC.
The value of a specialist share scheme administration service
Those of you who are RM2 clients will note that the EMI grant notification forms part of our service on the establishment of an EMI plan. However, other firms do leave their clients to figure the ERS online service out for themselves. This is a practice, which in our experience as specialist share schemes administrators, does not often end well as RM2 is then brought in “to pick up the pieces”.
The possibility of an HMRC enquiry is however not the only banana skin in the road. Errors also need to be appropriately documented/dealt with as they can cause problems where a “due diligence” process occurs on a later sale (or other corporate transaction) involving the company in question. HMRC are no longer prepared or able to assist the company in question in this regard. For instance, they will no longer produce lists of EMI option holders for companies to hand over to potential acquirers (which used to occur under the previous paper-based system). Naturally, a competent share scheme administrator instructed from the establishment of the relevant plan can fill this void.