April 22, 2021 / North America
Following the end of the tax year 2020/21, employers that have awarded carried interest and co-investment entitlements to employees including directors and salaried members should consider whether they need to report these on their Employment Related Securities return (previously called ‘Form 42’). Employers need to register their arrangements with HMRC and file online annual returns setting out certain activity which has occurred during the tax year ending 5 April by 6 July.
Typically the return captures the reporting of awards of restricted shares and share options however certain partnership awards would also need to be reported. There are differences in how these types of awards should be reported and this may cause some complexity particularly where HMRC’s platform and guidance were not designed for the reporting of these types of awards. It is critical that the reporting of these awards are done right as HMRC are heightening their level of scrutiny over carried interest and co-investment arrangements where returns are typically subject to capital gains tax at a lower rate rather than tax as trading income. You can read more about HMRC enquiries in respect of these arrangements found here.
How A&M can help
A&M can provide advice and support to employers in respect of the ERS reporting process in relation to carried interest and co-investment entitlements including:
Assessing whether returns are required;
Preparation of online returns;
Online submission; and
Provision of guidance i.e. addressing any of your queries when it comes to submitting the form.
We can also help employers adopt robust compliant processes going forwards in relation to the tax treatment of such entitlements, valuation and reporting such that they are ready for any due diligences or HMRC enquiry.
If you would like to discuss this or would like to discuss your fund structures more generally, please feel free to get in touch with your usual A&M point of contact, Louise Jenkins, Daniel Parry, Donald Campbell, Orion Ganase, Jordan Brown or Shirley Ly.