Today is 6 July 2026. If your company operates any employee share scheme and you have not yet filed your annual Employment-Related Securities (ERS) return with HMRC, you are hours away from an automatic £100 penalty. That is the easy version of the problem. If you operate an Enterprise Management Incentive (EMI) scheme and you have not yet notified HMRC of options granted in the 2025–26 tax year, those options will simply not qualify. No income tax relief. No Business Asset Disposal Relief. The entire structure collapses.
This is not a soft deadline. It is statutory, it is absolute, and HMRC enforces it automatically. If you are reading this post after the event, section seven tells you what to do next. But if you have time left, act now.
What the ERS Annual Return Actually Requires
Every UK company that operates an employee share scheme — whether tax-advantaged or not — is required to file an annual return via HMRC’s PAYE Online Services portal by 6 July each year. The obligation applies to:
- Enterprise Management Incentive (EMI) schemes — notification of each option grant and the annual return
- Company Share Option Plans (CSOP) — self-certification and annual return
- Save As You Earn / Sharesave (SAYE) plans
- Share Incentive Plans (SIPs)
- Non-tax-advantaged arrangements — including unapproved options, restricted shares, growth shares, phantom equity, and certain share acquisitions at market value by employees and directors
The scope of “Other ERS” is broader than most CFOs appreciate. If a director acquired shares — even at full market value — that acquisition may be reportable. HMRC’s guidance on Employment Related Securities makes clear that the obligation sweeps in virtually any arrangement where equity changes hands between a company and its workforce.
Critically, even if there was no activity under a scheme in 2025–26, you must still file a nil return. Failure to do so triggers the same automatic £100 penalty as a full return filed late.
The Penalty Ladder: How Bad It Gets
The penalty structure is unforgiving. As Pinsent Masons sets out, the mechanics are:
- Day one after 6 July — automatic £100 penalty, no discretion
- Three months after 6 July (early October) — further automatic £300 penalty
- Six months after the three-month charge — a further £300
- Ongoing non-filing — further penalties continue to accrue; the original filing obligation does not disappear even after penalties are paid
HMRC does sometimes waive penalties where there is a reasonable excuse, but it routinely imposes them automatically. “We didn’t know” is not a reasonable excuse. Neither is “our share scheme administrator didn’t tell us.”
There is a secondary risk that is frequently overlooked: HMRC uses ERS returns as an audit trigger for corporation tax deductions. A company that consistently fails to report share scheme activity — or reports it inconsistently — may find itself with an HMRC enquiry into whether it has correctly claimed its corporation tax deduction for employee share awards under the rules in Part 12 CTA 2009. That is a much larger exposure than the annual filing penalties.
EMI Notifications Are a Separate and More Dangerous Obligation
The annual return and the EMI notification are distinct obligations but share the same 6 July deadline. If you granted EMI options between 6 April 2025 and 5 April 2026, you must have notified HMRC of those grants by today. If you have not, those options will not qualify for EMI tax treatment — full stop.
This matters because EMI is the most tax-efficient employee incentive structure in the UK tax code. On grant: no income tax, no NIC. On exercise: no income tax or NIC provided the market value on exercise equals or exceeds the market value on grant. On sale: potential Business Asset Disposal Relief at 14% CGT (rising to 18% by 2026–27) rather than the main rate. Losing EMI status on a grant retrospectively because notification was missed is an expensive administrative failure — and it is entirely avoidable.
As Orrick highlighted in their June 2026 briefing, companies should keep records — ideally screenshots — of every stage of the notification process and the filing receipt. These are invaluable for future M&A due diligence, where an acquirer will want to verify that the targets’ option grants actually qualify.
The EMI Regime Has Just Changed: What Finance Act 2026 Means
The filing deadline arrives alongside one of the most significant reforms to the EMI regime in its history. Section 13 of Finance Act 2026 has increased the qualifying thresholds with effect from 6 April 2026:
| Condition | Old Limit | New Limit (from 6 April 2026) |
|---|---|---|
| Gross assets | £30 million | £120 million |
| Number of employees | Less than 250 | Less than 500 |
| Total unexercised options (company-wide) | £3 million | £6 million |
| Maximum option exercise period | 10 years | 15 years |
The individual limit of £250,000 per employee remains unchanged. The KPMG analysis of the Autumn Budget 2025 announcement estimated these changes will bring around 1,800 high-growth scale-up companies within scope — companies that previously fell outside the £30m gross assets or 250-employee ceilings.
There is also a forward-looking change worth flagging: from April 2027, the requirement to separately notify HMRC of each EMI option grant will be removed entirely. That obligation will be absorbed into the annual return process. For companies with active EMI programmes, this simplifies administration significantly — but it is 2027 legislation, not today’s problem.
Existing Options: The 15-Year Extension Opportunity
If your company granted EMI options under the old regime — with a 10-year exercise period — you now have an opportunity to extend those options to 15 years, without triggering a release and re-grant (which would be a disqualifying event). HMRC’s updated manual guidance confirms this is permitted, with conditions:
- The option must not have already lapsed, expired, or been exercised
- For most time-based and specified-event options, a straightforward written amendment will suffice
- For fixed-date options (exercisable on one specific date only), the variation must be made under the new paragraph 37A procedure — in writing, on or after 26 November 2025, and on or before the 10th anniversary of the original grant date
- You cannot bring forward the exercise date — only extend it
This is worth reviewing now if you have options approaching their 10-year expiry. A lapsed option is worthless; an extended option continues to compound in value for employees. This is low-cost retention leverage — amend the agreement and retain the tax treatment.
New for 2026: Two Material Simplifications
Two specific changes apply to the 2025–26 return that every CFO with a mobile workforce or net-settlement awards should know about.
Short-term business visitors (STBV) exemption. HMRC has updated its guidance to remove the ERS reporting obligation for employees who are short-term business visitors covered by an EP Appendix 4 arrangement, provided no UK income tax or NIC liability arises. This removes a material administrative burden for multinational groups with globally mobile employees who briefly work in the UK. The exemption applies retrospectively to all prior tax years. Companies that have over-reported in the past can also correct earlier returns on the same basis.
Net-settled awards: simplified reporting. Where an employer withholds part of a share award in cash to meet its PAYE and NIC obligations (a “net settlement”), the previous requirement to file two lines of data per employee on the Non-Tax Advantaged (Other) return has been abolished. From 6 April 2026, a single line per employee is sufficient. This simplification applies to all late returns for 2024–25 and earlier. For companies with large executive share programmes where net settlement is the norm, this materially reduces the complexity of annual filing.
The CSOP Registration Trap
CSOP was significantly expanded in 2023 — the individual limit doubled to £60,000 and the requirement for HMRC-approved share classes was removed. Many companies that introduced CSOPs in the subsequent years may have done so informally, without properly self-certifying the scheme on the PAYE Online portal. If a CSOP introduced in 2025–26 has not been self-certified by today, the options do not qualify for income tax relief. This is a structural failure that cannot be remedied after the fact.
The same logic applies to SAYE and SIP arrangements. As Pinsent Masons’ guide emphasises, registration must be done by the company directly — a tax agent cannot register a scheme on the company’s behalf. If your PAYE Online access is controlled by your payroll bureau rather than by someone inside the business, this is a process gap that needs closing permanently, not just for today.
If You’ve Missed the Deadline: What to Do
If you are reading this after the 6 July deadline has passed:
- File immediately — the longer you wait, the more penalties accrue. The first £100 is unavoidable; the £300 charges at three and six months can still be avoided by acting today
- For EMI notification failures — contact a specialist adviser immediately. There is no administrative mechanism to retrospectively qualify options that were not notified on time; the options will need to be reissued as unapproved options or, where possible, under the CSOP regime (subject to its own conditions)
- Request penalty abatement — HMRC will sometimes waive penalties where there is a genuine reasonable excuse. System outages on HMRC’s portal, for instance, have historically been accepted. Document any issues you encountered
- Check all registered schemes — if you have historical plans that are now dormant and have not been formally terminated on the portal, nil returns may be overdue for multiple years. The ERS service accepts filings going back six tax years from the current year
Six CFO Actions — Today
- Log in to HMRC PAYE Online now and navigate to the Employment Related Securities section. Confirm every registered scheme shows a “return submitted” status for 2025–26.
- Check EMI notification completeness — review every EMI option grant in the period 6 April 2025 to 5 April 2026. Each individual grant requires a separate notification. Batch grants require multiple notifications.
- Identify dormant registered schemes — if you have historical plans that never formally closed on the portal, file nil returns and then terminate them. One less obligation to manage next year.
- Verify your CSOP/SAYE/SIP self-certification — for any tax-advantaged scheme introduced in 2025–26, confirm the self-certification was completed before today’s deadline.
- Review EMI scheme eligibility under the new limits — if your company previously exceeded the £30m gross assets or 250-employee thresholds, reassess whether EMI is now available. The increased limits apply from 6 April 2026; EMI options could be granted today.
- Extend existing 10-year EMI options — instruct your legal advisers to review and amend option agreements where the exercise period can be extended to 15 years without triggering a re-grant.
The Bigger Picture for PE-Backed Companies
In a PE context, ERS compliance is a standard diligence line item. When a buy-side team reviews a target’s share scheme, they are looking for the absence of problems: notification receipts filed on time, nil returns submitted for dormant schemes, self-certifications in place, and a coherent link between scheme rules and what was actually granted. Gaps here create warranty and indemnity exposure, can affect whether management’s equity qualifies for BADR at exit, and — in the worst cases — destroy the income tax and NIC efficiency that made the scheme attractive in the first place.
The expanded EMI limits also change the PE model slightly. For portfolio companies with gross assets between £30m and £120m — a segment that previously had to use CSOP or unapproved options — EMI is now on the table. For a management team being incentivised through a PortCo, that means tax efficiency at exit that CSOP cannot fully replicate. PE sponsors and their CFOs should be revisiting management incentive plan structures across their portfolios in light of the Finance Act 2026 changes.