What obligations do I have to the HMRC?

Usually when you hear the four letters H M R C you think of taxes and typically when you think of taxes you want to run a mile. The tax man doesn’t have the best reputation or connotation, I don’t know anyone who would go as far to say the tax man is their friend, however when it comes to EMI Schemes, the HMRC may just be your friend.

If you are still reading, it must mean you are curious to learn how the tax department and friend can be used positively in the same sentence.  For those of you that don’t know, HMRC stands for Her Majesty's Revenue and Customs Department. It is the Department which is responsible for the collection of taxes and then the distribution of these funds. It also is the Department in charge of other regimes such as implementing the minimum wage and EMI Schemes.

If you are wanting to set up an EMI Scheme or already have an EMI Scheme there are a number of ducks you have to get in a row (and continue to stay in a row) to ensure that your EMI Scheme is compliant and meets the HMRC requirements. Remember why EMI Schemes are preferred? The HMRC has made giving EMI options to employees easy and tax effective via the creation of EMI Schemes. In return, they expect you follow the below rules and requirements:

Prior to EMI options being granted

It is not necessary but you can seek HMRC approval of your valuation prior to issuing employees EMI options. We recommend this step and it is included as part of Pomelo’s service offering.

Requirements when EMI options are granted

Within 92 days from the issuance of EMI options to employees you must notify the HMRC (via ERS online services). This ensures that these EMI options qualify for the favourable tax treatment. This is the responsibility of the start-up but we can help you get this prepared. There are a number of questions you have to answer when filling out this form including information on:

1. Details of the startup or company (i.e. company registration number)
2. Details on the options and shares (i.e. class of shares being offered)
3. Option holder details (i.e. name)

Annual requirements

An annual return must be filed online after the end of the tax year before July 6 (the filing of this annual return is included within Pomelo’s service).

This return informs the HMRC on certain updates including whether during the last financial year there have been any:

1. EMI options exercised
2. Release, lapse or cancellation of EMI options
3. Rollover of EMI options
4. Other adjustment of EMI options

Working time declarations for each EMI option holder

Even if there have been no changes in your EMI option scheme over the last 12 months you still have to notify the HMRC.

If one of the above ducks goes astray you could risk a fine or even worse, your EMI Scheme could become non-compliant and let’s be honest no employee with their EMI options being revoked. If you have learnt one thing from this, hopefully it is that the tax man is not always your foe. If you are a founder who has been meaning to organise equity for your employees and haven’t got around to it, why don’t you reach out and have a chat, we may just be your new best friend.