HMRC guidance | Recent employment-related securities updates

HMRC published five employment-related securities bulletins during 2024, providing information on developments in this area. Recent updates focus on the tax measures announced at the Autumn Budget 2024, as well as guidance on the EMI independence requirement and following the Supreme Court's decision in the Vermilion employment-related securities case.

In this Insight, we look at the main developments highlighted in ERS Bulletin 57 and ERS Bulletin 58.

EMI options – independence requirement and 'arrangements'

In October 2024, HMRC published new and updated guidance on the independence requirement for enterprise management incentive (EMI) options.

To qualify for EMI, the company must not be a 51% subsidiary of another company (or under the control of another company without being a 51% subsidiary of that other company). The updated guidance covers the meaning of control (which HMRC notes requires careful consideration of the underlying facts) and, in particular, corporate structures involving limited partnerships and LLPs.

There is an important second limb to the independence test, which is that no arrangements are in existence by virtue of which the company could become such a subsidiary or fall under such control.

It has long been known that the term 'arrangements' is very broad, with the legislation providing that it includes "any scheme, agreement or understanding, whether it is legally enforceable or not".

The guidance now confirms HMRC’s position on "arrangements", covering a number of potential scenarios that could affect EMI companies (including deadlock provisions and swamping rights). HMRC helpfully confirms that it accepts that the existence of certain distress provisions (where a company could gain control in certain situations in order to rescue a company from potential failure) is not sufficient to deny a company from granting EMI options (but this depends on the circumstances and each case is decided on its facts).

HMRC's guidance also deals with the common arrangement where there is a mutual understanding regarding a sale, illustrating the point or points at which HMRC consider the independence requirement will not be met.

As ever, HMRC's latest guidance should be considered by companies that are planning to introduce or already operate an EMI plan.

Vermilion guidance

HMRC has published updated guidance following the Supreme Court judgment in the long-running Vermilion share options case.

The guidance explains the application of the "deeming provision" in the legislation in relation to employment-related securities and options. The deeming provisions state that if it is the employer or someone connected with the employer who makes available the right or opportunity, then the employee is deemed to have acquired the securities or interest or option by reason of their employment.

As expected, the guidance confirms that the Vermilion judgment supports HMRC's long-standing position that, where the deeming provision applies, the securities option is an employment-related securities option and there is no need to consider causation. HMRC also confirm that the principles established in Vermilion for securities options also apply where the employment-related securities rules apply.  

The deeming provision is very wide ranging, and employers making such awards are reminded that they need to comply with their payroll and reporting obligations.

CGT changes

As announced at Autumn Budget 2024, the lower and higher main rates of CGT increased to 18% and 24% respectively for disposals made on or after 30 October 2024. As the rate change is happening in-year, HMRC has indicated that it will provide guidance and tools to support customers (including employee shareholders) to calculate and report the CGT that is due.

The capital gains tax annual exempt amount will remain fixed at £3,000 for the tax year ending 5 April 2026, having been steadily reduced from £12,300 a few years ago. This means that many more employees participating in share plans will need to pay tax and understand their reporting obligations, emphasising the need for clear communications. HMRC's guidance in ERS Bulletin 56 is intended to provide employees with general information about their tax and reporting obligations.

Although not covered in the ERS bulletins, employers will clearly also be preparing for the NICs changes announced in the Autumn Budget 2024 that take effect from 6 April 2025.

Employment-related securities process

HMRC has published guidance on "How employment-related securities work if you're an employer". This provides basic information about how to register a scheme (whether tax advantaged or unapproved) and what to report to HMRC.

HMRC has also reminded companies to save copies or take screenshots of their employment-related securities annual returns and notifications (as it is not possible to subsequently access a copy of what was submitted).

Osborne Clarke comment

The deadline for submitting employment-related securities annual returns and EMI notifications to HMRC for the tax year ending 5 April 2025 is by 6 July 2025. Companies operating employment-related securities arrangements should diarise this important date (and ensure that any new schemes are registered promptly so that returns and notifications can be made before the deadline). Note that the deadline falls on a Sunday this year, so in practical terms most companies will be looking to file by Friday 4 July 2025.

Please get in touch with your usual Osborne Clarke contact or one of the experts below if you have any queries or would like to discuss further.

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