Employment Related Securities (ERS): Rules, Returns & Deadlines

Employment Related Securities are shares, options, or other securities that employees or directors receive through their work. These arrangements create tax obligations for both employers and employees.

ERS scheme structures allow companies to reward staff with equity participation. The UK government regulates these schemes to ensure proper tax treatment.

Day‑to‑day postings from grants, vesting, and option exercises are easier to reconcile when outsourced bookkeeping services UK align ledgers with ERS return templates.

HMRC employment related securities rules apply to all UK companies offering shares or securities to employees. Compliance requirements include registration and annual reporting.

For practical help structuring schemes and meeting annual ERS reporting duties, speak with accountants Radlett who advise B2B limited companies across London.

We will be discussing everything related to ERS, types of it, scheme and more.

What Are Employment Related Securities?

What is employment related securities scheme UK relates to any securities acquired in connection with employment. This is a UK tax concept under ITEPA 2003 Part 7 that applies to current, former, and prospective employees/directors, with a broad deeming rule and limited family/domestic exceptions. The term securities is defined in the legislation but is quite broad and includes shares, debentures, loan stock and financial instruments such as options. It also covers rights or opportunities to acquire securities (e.g., options), interests in securities, and off‑market variations of rights.

Employment related securities encompass various equity arrangements. These include share options, restricted shares, and performance-related securities. UK plans fall into two groups: tax‑advantaged schemes (EMI, CSOP, SIP, SAYE) with specific eligibility/limits and tax reliefs, and non‑tax‑advantaged (unapproved options, JSOPs, growth shares, carried interest/co‑invest).

Companies use ERS arrangements to attract and retain talent. These schemes align employee interests with business performance. They can be formal schemes or one‑off awards and must usually be registered and reported to HMRC via the online ERS service with an annual return due by 6 July following the tax year (nil returns required if registered).

Limited companies often engage b2b accountants to align ERS with growth, retention, and compliance goals while staying efficient operationally.

Explore practical walkthroughs and expert updates from accountants Radlett in the insight’s hub.

Types of ERS Arrangements

How ERS is taxed and reported

• Share options: Generally no tax at grant; income tax and, where applicable, NIC are charged on exercise on the option spread unless exercised within a qualifying tax‑advantaged plan (e.g., EMI, CSOP) and plan conditions are satisfied.
• Restricted shares: Income tax typically arises on acquisition based on restricted market value; further charges can arise on chargeable events as restrictions lift unless a joint section 431 election is made to tax at unrestricted market value at acquisition.
• Performance shares: Typically taxed when they vest/are received; timing and reliefs can differ when delivered under SIP/EMI/CSOP rules.
• Free shares: Within a SIP, income tax/NIC can be reduced or removed depending on holding periods; outside a SIP, income tax generally arises on receipt.
• Reporting and compliance: Employers must register ERS arrangements and file an annual ERS return by 6 July following the tax year; penalties apply for late, incomplete, or incorrect filings, and a nil return is required for any arrangement that remains registered even if there were no reportable events. Coordinating ERS data with business tax preparation helps reconcile journals, payroll, and return workings ahead of filing deadlines. Teams that prepare management accounts monthly can reconcile ERS journals early, reducing last‑minute adjustments before the 6 July filing window.
• Internationally mobile employees: ERS income often needs to be time‑apportioned across UK and non‑UK workdays over the relevant accrual period, with PAYE/NIC operation and double tax treaty relief considered to mitigate double taxation; specialist advice is recommended.

Key takeaway: Keep tax‑advantaged schemes (EMI, CSOP, SIP, SAYE) distinct from other ERS, clearly explain tax points at grant/vest/exercise/holding, highlight the section 431 election for restricted securities, and ensure HMRC registration and the 6 July annual return are completed.

ERS on Payslip Explained

ERS means work-related shares (share plans) that can create taxable work income handled through payroll, so a payslip line can show up when taxes are taken from a share event. The line is rarely called “ERS”; common names include “share award,” “option gain,” or similar. “ERS” is not a pension word. On payslips, “ER pension” usually means company pension payment (ER = employer), which is different from work-related shares.

Accessing ERS information

Employers usually give workers two websites: one for HR/payroll stuff and another for share plans (run by plan companies) where workers can check their stock grants, when they vest, when they use them, and any taxes taken out. “ESR” usually means the NHS Electronic Staff Record system for NHS workers only; it’s not a general employee website. Use your employer’s payroll website or the share plan company’s website to see your stock details.

ERS vs PAYE on the payslip

PAYE is the withholding mechanism for income tax (and NIC), applied to salary and, where applicable, to taxable equity events.

Pairing payroll runs with accountant bookkeeping services ensures equity‑event tax entries, NIC accruals, and net‑settlement postings flow cleanly into the general ledger.

ERS describes the type of benefit (shares/options). Some ERS events are payroll-taxed (for example, option exercise on readily convertible assets), while others may be reportable without a visible payslip line if no PAYE withholding is due.

When no PAYE is withheld, using a personal tax return filing service reduces errors and ensures all ERS figures flow into Self‑Assessment on time.

Understanding payslip codes

“ER” usually means employer and “EE” means employee. ER lines most commonly relate to employer pension or NIC, not equity.

Employer contributions to equity are uncommon as payslip items; if the employer covers tax/NIC on an equity award, it may be shown as a taxable benefit or handled via “net settlement” (fewer shares delivered instead of a cash deduction).

Tax timing highlights for ERS

• Options are usually taxed when you use them, on the profit you make;
• Restricted shares are normally taxed when you get them at their limited market value, with possible extra charges when restrictions are removed unless a joint s431 election is made;
• Performance or “free” share awards are generally taxed when you receive them;
• SIP holding periods can lower or remove income tax/National Insurance for shares held long enough; outside SIP, tax usually happens when you get the shares.

Compliance reminder

Even if nothing shows on a payslip, employers must register relevant arrangements and submit an annual ERS return by 6 July each year, with a nil return required for any registered arrangement that had no reportable events.

HMRC Registration and Compliance

Companies must register ERS schemes before implementation. You will be able to find this on your HMRC Online Services by viewing the ‘Employment Related Securities’ section and selecting ‘View schemes and arrangements’.

Employment related securities manual provides detailed guidance on registration requirements. Companies need specific documentation and approvals before launching schemes.

The registration process involves submitting scheme rules and documentation. HMRC reviews arrangements to ensure tax compliance.

Note:

1. Before registering an ERS scheme, the employer must be registered for PAYE and have added and activated the PAYE Online service using its PAYE reference and Accounts Office reference.
2. Tax‑advantaged plans (EMI, CSOP, SAYE, SIP) must be registered and self‑certified online by 6 July following the tax year of set‑up (EMI grants after 6 April 2024 follow the 6 July timetable), while non‑tax‑advantaged arrangements are registered by 6 July following the first reportable event.
3. For tax‑advantaged plans, employers make an online self‑certification; HMRC generally does not pre‑approve but issues an ERS scheme reference (usually within about a week) and may later enquire into compliance.

How to Log in to ERS Portal on HMRC Website

Employers access the ERS portal through HMRC Online Services. Registration requires Government Gateway credentials and PAYE reference numbers.

After enrolment, HMRC posts an activation code that must be used within 28 days to activate the service before ERS registration and filings can be completed.

How to file employment related securities return on HMRC uses the online portal system. The platform provides templates and guidance for submissions.

An ERS yearly report must be sent for each signed-up scheme by 6 July after the tax year, and a zero report is needed if the scheme stays signed-up even with nothing to report; late or wrong reports get fines.Retry

Companies can view registered schemes and submit returns electronically. The portal tracks submission history and deadline compliance. Each tax‑advantaged plan is registered separately, while non‑tax‑advantaged arrangements can sit under a single registration; employers should also close/de‑register schemes that have ended to stop ongoing nil‑return obligations.

ERS Return Requirements

ERS return deadline is crucial for compliance. You must submit your return by 6 July following the end of the tax year, or you may have to pay a penalty.

This applies to every ERS arrangement that is registered and remains open, including tax‑advantaged plans (EMI, CSOP, SAYE, SIP) and any non‑tax‑advantaged arrangements.

Employment related securities return requirements apply to all registered schemes. You need to submit a return or a nil return even if no events occurred during the year.

Nil returns must be filed annually until the scheme is formally closed on the service; de‑registering/closing a scheme stops future nil‑return obligations.

On the indirect tax side, vat returns accountants keep digital records and filing cadence in step with quarterly VAT obligations.

Practical coordination with company secretarial services ensures scheme closures, officer changes and register updates are reflected promptly, reducing ongoing nil‑return obligations.

Do all companies need to file an ERS return depends on scheme registration. Once registered, companies must file annually regardless of activity.

ERS Return Deadline and Penalties

The filing deadline is consistently 6 July each year. There is an automatic £100 penalty if the return is submitted after 6 July. There are £300 penalties if the return remains outstanding after three and six months.

ERS return deadline and penalties escalate significantly for continued non-compliance. Then, penalties of £10 a day may be charged for returns that remain outstanding nine months after the deadline. Inaccurate or incomplete returns can also attract penalties; using the latest HMRC spreadsheet templates and keeping copies of submitted files is strongly recommended.

Note: The 6 July deadline applies even if it falls on a weekend; plan to file by the preceding working day to avoid penalties.

How to Correct Errors in ERS Return

Errors in submitted returns can be corrected through amended submissions. Companies should contact HMRC immediately upon discovering mistakes.

Where an online correction is not possible for technical reasons (e.g., template mismatch), HMRC may request resubmission using the correct template and/or supporting explanations via secure mail.

ERS guidance recommends keeping detailed records of all scheme events. Proper documentation helps avoid errors and supports corrections when needed.

Maintain grant/award documents, board minutes, vesting/exercise records, valuation files, s431 elections (where applicable), and payroll evidence for at least 6 years.

Voluntary disclosures often receive more favourable treatment than discovered errors. Prompt correction demonstrates good faith compliance efforts. If a material error affects participant tax treatment (for example, EMI notifications or SIP holding errors), take advice and correct promptly to preserve tax‑advantaged status where possible.

Tax Implications for Employees

ERS taxes apply when securities vest or restrictions lift. Employees pay income tax and National Insurance on the benefit value. If the award is a “readily convertible asset,” PAYE/NIC must be operated through payroll; otherwise tax may be self‑assessed on the return.

What is ERS tax form and who needs to submit it relates to individual tax returns. Employees must report ERS benefits on their self-assessment returns. Use HMRC’s HS305 helpsheet and working sheet to complete Self Assessment; employees still file even if PAYE was operated, particularly where additional charges (e.g., lifting of restrictions) arise.

The tax calculation uses market value at the time of acquisition. Professional valuations may be required for unlisted companies. Restricted securities are taxed by reference to restricted market value on acquisition, with potential further charges as restrictions lift unless a joint section 431 election is made to tax at unrestricted market value at acquisition.

Tax Timing and Calculations

Note: Employees may also have capital gains tax on later disposals, with base cost equal to the amount taxed as employment income plus any price paid; keep records to compute CGT correctly.

Where disposals and base-cost tracking are involved, outsourced accounting services can prepare working papers and reconciliations that align payroll, ERS returns, and Self-Assessment.

Reportable Events

Employment Related Securities Reportable Events

Employment related securities reportable events include various scheme activities. Share grants, exercises, and disposals all require reporting.

What is ERS tax form covers different event types through specific return sections. Each event type has particular reporting requirements and deadlines. Tax‑advantaged plans (EMI, CSOP, SAYE, SIP) must be reported on their specific annual return templates; all other awards are reported on the “OTHER” ERS template.

Companies must report all qualifying events within annual returns. Missing events can result in penalties and compliance issues. Returns are due by 6 July following the tax year; nil returns are required for registered schemes with no events, and late/inaccurate filings can attract escalating penalties.

Common Reportable Events

• Initial share grants or option awards (including awards to directors/founders acquired by reason of employment and grants to internationally mobile employees with UK duties)
• Exercise of options or conversion rights (including assignments/releases for consideration and cancellations for consideration)
• Lifting of restrictions or performance conditions (chargeable events for restricted securities, artificial value enhancement, or discharge of notional loans)
• Sale or transfer of scheme shares (including disposals for more than market value or off‑market transactions connected with employment)
• Scheme modifications or amendments (for example, changes to share class rights or plan rule changes affecting rights/restrictions)
• Employee departures affecting scheme participation (including leaver vesting/forfeiture, buy‑backs from leavers, and cash‑outs connected with cessation of employment)

Family Exemptions

Employment Related Securities Family Exemption

The ERS “family or personal relationships” exemption removes the normal tax rule when a person (not a business or trust) gives rights or chances to someone as part of their normal family or personal life. It does not protect transfers made because of work, and these can still need to be reported. It works for real family situations (like a parent giving shares to grown-up children for family planning), with HMRC taking a sensible approach. Less normal or business-like deals may not qualify. Work-related or reward-based transfers cannot use this exemption. Business deals dressed up as family transfers still need to be reported and taxed. If the chance comes from an employer or connected business/trust instead of a person, the exemption does not work. Keep records showing the personal nature of transfers that qualify.

Exemption Criteria

Important limits: The exemption removes the statutory deeming that a right/opportunity is “by reason of employment” but does not override an actual employment connection if present; where in doubt, consider reporting or seeking advice.

Share Scheme Types

Enterprise Management Incentives (EMI) are tax-advantaged share option schemes. Tax advantages on employee share schemes including Share Incentive Plans, Save As You Earn, Company Share Option Plans and Enterprise Management Incentives.

EMI schemes offer significant tax advantages for qualifying companies and employees. Options can be granted with minimal tax consequences.

What is an EMI share scheme benefits include capital gains treatment on exercise. Employees may qualify for Entrepreneurs’ Relief on disposal.

CGT normally arises on disposal (not exercise) of EMI shares; Business Asset Disposal Relief (BADR, formerly Entrepreneurs’ Relief) can apply at a preferential rate, subject to conditions and time periods, and without the usual 5% holding test for EMI. Recent changes increased the BADR rate to 14% from 6 April 2025 (with indications of 18% from 2026/27).

For EMI and CSOP disposals, accountants specialising in capital gains tax can test BADR conditions and document rates and eligibility before sale.

Can EIS Share Be Employment-Related Securities?

Enterprise Investment Scheme (EIS) shares can become employment-related securities in certain circumstances. The key test is whether shares are acquired “by reason of employment”.

Are founder shares employment-related securities depending on the specific circumstances. Shares acquired purely as company founders typically aren’t employment related.

Professional advice is essential when EIS and employment overlap. Tax consequences can be complex and significant. Interactions between ERS, EIS eligibility, disqualifying events, and PAYE/NIC on readily convertible assets can alter outcomes; pre‑grant valuation and advance assurance/clear advice are recommended.

Filing and Administration

Employment related securities reporting guide for startups covers essential compliance requirements. New companies must understand registration and reporting obligations.

Register each scheme/arrangement on HMRC Online Services and obtain an ERS reference before filing; register by 6 July following the first reportable event (or set‑up for tax‑advantaged plans).

The filing process uses HMRC’s online portal exclusively. Paper submissions are no longer accepted for ERS returns.

Note: Each registered scheme requires its own annual return (EMI, CSOP, SAYE, SIP or OTHER), and nil returns are mandatory for any scheme that remains open even with no events.

Employment related securities reporting guide for startups should include professional advice. Complex schemes require specialist tax guidance.

Online Filing Process

1. Access HMRC Online Services
2. Navigate to Employment Related Securities section
3. Select appropriate return type
4. Complete all required sections
5. Submit before 6 July deadline
6. Save confirmation receipt

Professional Guidance and Support

ERS Manual Resources

The employment related securities manual provides comprehensive HMRC guidance. This technical manual covers complex scenarios and tax treatments. Key areas include restricted and convertible securities, options, readily convertible assets, international mobility, and reporting obligations.

ERS guidance includes worked examples and practical scenarios. Companies should reference official guidance when implementing schemes. Use current-year HMRC helpsheets (for example, HS305) alongside the ERS manual to complete Self-Assessment and align payroll and reporting data.

Regular updates to the manual reflect legislative changes. Companies must stay current with evolving requirements. Subscribe to HMRC’s ERS Bulletins and check the ERS online service guidance before each filing season to capture template changes, deadlines, and process updates.

When to Seek Professional Help

Complex ERS arrangements require specialist advice. International elements, multiple scheme types, and unlisted companies need expert guidance. Specialist input is particularly important for valuations of private company shares, section 431 elections, EMI/CSOP eligibility, and interaction with PAYE/NIC on readily convertible assets.

ERS manual guidance may not cover unique situations. Professional business advisors can interpret rules for specific circumstances.

Tax planning opportunities exist within ERS frameworks. Specialists can optimise arrangements for all parties.

Common Compliance Issues

Who Needs to File an ERS Return?

You will likely have a requirement to file by 6 July 2025 if: UK directors, employees, or employees with UK work duties have acquired shares or other securities in your company.

Do I Need a P11D?

P11D requirements depend on ERS tax treatment. Some benefits appear on P11D forms whilst others use different reporting mechanisms.

Where an ERS event creates a readily convertible asset and is taxable as employment income, PAYE/NIC are typically operated through payroll rather than reported on P11D; P11D is generally for benefits in kind not taxed through payroll.

Is Form 42 still required for certain ERS events. Form 42 has been replaced by the ERS online service; all ERS annual returns are filed online using HMRC’s templates for each scheme (EMI, CSOP, SAYE, SIP, OTHER).

HMRC guidance clarifies when multiple forms are necessary. Note that P11D filing still applies for certain benefits (for example, beneficial loans and accommodation) and remains separate from ERS annual returns; deadlines for P11D/P11D(b) are also 6 July.

Conclusion

Employment Related Securities schemes offer valuable employee incentives but require careful compliance management. Understanding registration, reporting, and tax obligations is essential for successful implementation. ERS scheme complexity demands professional guidance for optimal outcomes. Companies must balance employee benefits with compliance costs and administrative burden.

FAQs