6 July is the deadline for reporting employee benefits. It’s also a red letter day if employees are rewarded with shares in the company. When must you report the details to HMRC and what’s changed this year?
Reporting deadline
While you’re no doubt aware of the general importance of 6 July when it comes to reporting employee benefits and some termination packages, it is also the cut-off date for reporting employee share schemes. To avoid the initial £100 penalty you must register (unless you’ve already done so) by 6 July 2025 and report to HMRC if in 2024/25 one or more of your employees, directors or someone connected to them has been given an option to acquire shares in your company because of their employment with it (see Further information ). The report also covers shares and share options granted under an HMRC-approved share plan, e.g. enterprise management incentive.
Trap. Even late nil returns will attract a penalty unless you have a reasonable excuse.
Is there NI to pay?
Except for HMRC-approved share etc. schemes, your company and the employee receiving the shares etc. are liable to Class 1 NI if they are “readily convertible assets”, i.e. there are trading arrangements which allow the employees to exchange the shares for cash. The Class 1 secondary NI liability is equal to 13.8% (15% for 2025/26 and later years) of the value of the shares when they receive them. Trading arrangements include an agreement for your company to buy back the shares in the future (see Further information ).
NI election
Because the amount of NI depends on the value of shares at a future date, to reduce the risk of an unpredictable NI bill for the company (employer), a joint election can be made by it and the employee to transfer the company’s NI bill to the employee. This means that the employee is liable for their and the company’s NI relating to the shares.
Tip. From 1 May 2025, employers no longer need to obtain HMRC’s pre-approval of an election as long as they use its templates (see Further information ). Note. If an alternative document is used it will still need HMRC’s approval, which can take up to 30 days.
Deduction of NI
To reduce the cost to the employee, the employers’ NI is tax deductible when working out the amount of income tax they must pay for receiving the shares. This only applies as long as it is paid by the 5 June following the end of the tax year when the share-related income becomes taxable, e.g. the exercise of a share option.
Example. On 1 August 2025, Dave makes a gain from the exercise of an unapproved share option worth £2,000. The employers’ NI at 15% is £300. If a joint election is made, and the NI paid by 5 June 2026, the amount on which Dave has to pay income tax is reduced to £1,700.
Tip. As the company/employer, it’s a good idea to withhold enough shares to cover the employee’s tax and NI bills so they can be converted into cash to pay the liabilities.
You must register and report to HMRC by 6 July 2025 if you awarded shares in your company to any of your employees in 2024/25. If the shares can be readily traded for cash, their value is liable to Class 1 NI. However, you can elect for the employee to meet the full cost of this. Use HMRC’s new pre-approved templates to make the election.
Further information
Guidance: Transfer employer’s National Insurance to employees
What counts as readily convertible assets
HMRC’s info on reportable share awards
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.