Employee Share Awards Trigger An HMRC Return Every Year

Handing an employee a slice of the company feels like a one-off. HMRC treats it as the start of a duty that repeats. Give an employee shares or share options outside a tax-advantaged scheme and that reportable event means the company should register it with HMRC. The first employment related securities (ERS) end of year return is due by the 6 July following the end of that tax year, then one every 6 July after that. A nil return still counts, and they keep coming until the company enters a final event date.

Under section 421JC of the Income Tax (Earnings and Pensions) Act 2003, a late return brings an automatic £100 penalty, a further £300 after 3 months and another £300 after 6 months. After 9 months HMRC can charge £10 a day, but only if it issues a penalty notice. That is £700 on one missed return before any daily charge, and every registered scheme needs its own return. The 2025 to 2026 return was due on 6 July 2026, HMRC triggers late-filing penalties from 7 July, and it normally charges them for all unfiled returns on 30 July. On 24 July 2026 HMRC updated its ERS registration guidance to set out when a return is not needed. That changed the guidance, not the law, and it relieves the return only, not the registration.

The escape is drawn very tightly. It reaches only a company that, like every other company in its group or under the same ownership, is not registered for PAYE and has no need to operate PAYE for anything it does. Any company running a payroll, meaning anything at or above the £96 a week PAYE registration trigger, is therefore still filing every 6 July. The one most at risk is the founder who gave an early employee a small stake years ago and has not thought about it since.

1. One act of generosity creates a filing duty that repeats every year until the company tells HMRC the scheme has ended. Is that a proportionate way to keep track of employee share awards, or an administrative trap for small companies?
2. A single missed nil return, a return that reports nothing happened, can cost £700 before any daily penalty is even considered. Who is hit hardest by that, and should HMRC be prompting companies that a return is due before the penalties start running?
3. HMRC's new carve-out only helps a company with no PAYE registration anywhere in its group, and it relieves the return, not the registration. What should a small company that has ever given away shares do now to protect itself? Do you have a client whose plans this would change? If so, please give as much colour and detail as possible.