Does a US company with only one UK employee have to file an ERS return?

Yes. There is no de minimis exemption. If a single UK-based employee, director or office holder has been given securities or a right to acquire securities by reason of that employment, the arrangement must be registered with HMRC and an annual employment related securities return filed by 6 July following the tax year end. The obligation applies whether or not the company has a UK subsidiary, and whether or not the shares are in a UK company. Once registered, a return is required every year until the scheme is formally ceased, including nil returns.

Is a section 431 election the same as a US section 83(b) election?

No, though they are conceptually similar. Both accelerate taxation to the acquisition date so that future growth is taxed as capital rather than compensation. The differences are critical: the UK section 431 election is a joint election between employer and employee and must be made within 14 days of acquisition, while the US section 83(b) election is made by the individual within 30 days and filed with the IRS. Neither election covers the other jurisdiction. A dual filer acquiring restricted shares generally needs both, made separately and within their own deadlines.

Do I still report US RSU vesting on my UK return if tax was withheld in the US?

Yes, if you are UK resident the income is generally reportable in the UK regardless of US withholding. Withholding is not a final settlement of liability in either country. The portion of the RSU gain relating to UK workdays is normally UK taxable employment income, and any US tax properly payable on the same income is relieved through foreign tax credits under the US-UK treaty rather than by omitting the income. Your employer should also have operated UK PAYE if the shares were readily convertible assets, so check your payslip before assuming double taxation.

What is the penalty for filing an employment related securities return late?

Penalties are automatic and escalate with delay. An initial fixed penalty applies immediately once 6 July passes, with further fixed penalties at three months and six months late, and daily penalties available for longer failures. Separate penalties can apply for material inaccuracies, depending on whether the error was careless or deliberate. Because the penalties are triggered by the calendar rather than by an HMRC notice, dormant registered schemes can accrue liabilities across several tax years unnoticed. Confirm the current penalty amounts on GOV.UK, and file late returns promptly to stop the clock.

Can a US company use EMI options for its UK employees?

Generally no. Enterprise Management Incentives are the UK's most tax-advantaged option regime, but they require the granting company to be independent, meaning it must not be a 51% subsidiary of, or otherwise controlled by, another company. A UK subsidiary of a US parent therefore fails the independence test, and a US parent will not usually meet the other UK-specific conditions either. Most US groups consequently report their UK awards under the residual non-tax-advantaged category. Alternative UK-friendly structures such as a Company Share Option Plan sub-plan may be worth reviewing with a specialist.

Does the UK ERS return replace Form 3921 or Form 3922?

No. They are entirely separate obligations in different jurisdictions and neither satisfies the other. Form 3921 is filed with the IRS for exercises of US incentive stock options and Form 3922 for the first transfer of shares acquired under a section 423 employee stock purchase plan, with copies furnished to employees. The UK employment related securities return is filed with HMRC and covers the same underlying events from a UK perspective for UK-based participants. A US company with UK staff must complete both sets of filings, using IRS.gov and GOV.UK guidance respectively.

Employment Related Securities Return: US Company Guide

If your US company has granted equity to even one employee, director or consultant working in the United Kingdom, you almost certainly have to file an annual employment related securities return with HM Revenue & Customs. The obligation does not depend on having a UK subsidiary, a UK share plan, or UK-source shares. It is triggered by the simple fact that securities, or rights to acquire securities, have been made available to someone by reason of their employment in the UK. A Delaware parent granting restricted stock units to a single London-based engineer is inside the regime. The return is due by 6 July following the end of the UK tax year on 5 April, the penalties for missing it are automatic, and the scheme has to be registered with HMRC online before anything can be filed at all.

What actually counts as an employment-related security?

The governing law is Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), and its reach is deliberately wide. A security is employment-related where the right or opportunity to acquire it is made available by reason of an employment, or by a person connected with the employer. Securities include ordinary and preference shares, loan notes, debentures, warrants, units in collective investment schemes, and certain derivative interests. Crucially, options and other rights to acquire securities are caught too, as are growth shares, hurdle shares, phantom arrangements that settle in shares, and shares acquired on exercise of a US-granted option. HMRC's guidance on GOV.UK treats the availability test as presumptively satisfied whenever an employer or a connected company is involved.

Does a US parent company really have UK filing obligations?

Yes, and this is the point US finance teams most often miss. The reporting duty under section 421J ITEPA 2003 attaches to the responsible person, which typically includes the employer and the person who provided the securities. Where a US parent grants RSUs to employees of its UK subsidiary, both entities are in scope, and in practice the UK employer files. Where there is no UK entity at all, for example a US company employing someone in Britain through an employer of record or paying them via a UK payroll registration, the obligation still arises. The absence of a formal UK share plan document changes nothing. HMRC looks at the substance of what was made available and to whom.

How do I register a scheme with HMRC Online Services?

You cannot file an employment related securities return until the arrangement has been registered. Registration is done through HMRC Online Services using the employer's PAYE reference and Government Gateway credentials, selecting the ERS service from within PAYE for Employers. You register a scheme by category, give it a name, and state the date it was established. HMRC then issues a scheme reference number, and that number is what the annual return is filed against. The reference is not always available instantly, so leaving registration until late June is a recognised way to miss a 6 July deadline. Register as soon as the first reportable event occurs, not when the return falls due.

Which scheme type should a US company register?

HMRC divides ERS schemes into the four UK tax-advantaged categories, Company Share Option Plans, Save As You Earn share option schemes, Share Incentive Plans and Enterprise Management Incentives, plus a residual category for everything else, historically known as Other or non-tax-advantaged arrangements. US equity plans almost always fall into the residual category. A US Rule 701 stock option plan, a global RSU programme, a section 423 employee stock purchase plan and a straightforward founder share issuance are all reported as Other arrangements unless a specific UK sub-plan has been established and formally self-certified. The form once known as Form 42 is now this Other return, filed through the online ERS service.

When is the employment related securities return due?

The UK tax year ends on 5 April, and the annual return for every registered scheme is due by 6 July immediately following. That date is fixed by statute; it does not move for weekends, and there is no equivalent of the automatic extension US filers are used to. Each registered scheme requires its own return, and the return covers reportable events occurring in that tax year. If a scheme is registered but had no reportable events, a nil return is still required. Registering a scheme and then forgetting about it is a common source of penalties, because HMRC continues to expect a return every year until the scheme is formally ceased.

What has to be reported on the annual return?

The Other arrangements return is filed as a structured template with separate sheets for different categories of event. In broad terms, you report acquisitions of securities, the grant of options, the exercise, assignment or release of options, chargeable events on restricted securities such as the lifting of restrictions, events involving convertible securities, artificially depressed or enhanced market value, post-acquisition benefits, and disposals for more than market value. For each entry you give the employee's name and National Insurance number, dates, numbers of securities, market values, amounts paid, and the amount subject to income tax and whether PAYE was operated.

Grant of stock options or other rights to acquire shares to a UK-based employee or director
Vesting and delivery of RSU shares, treated as the acquisition of securities
Exercise of options and the acquisition of shares that follows
Purchase of shares under a US employee stock purchase plan by a UK participant
Acquisition of restricted or growth shares, including founder or advisor shares
The lifting or variation of restrictions on shares already held
Cash cancellation or buy-out of options and awards, and share disposals in a liquidity event
Nil returns for any registered scheme with no events in the tax year

What are the penalties for filing late?

They are automatic and they escalate. An initial fixed penalty applies the moment the 6 July deadline passes without a return, followed by further fixed penalties once the return is three months late and again at six months, with daily penalties available thereafter for prolonged failures. Separate penalties apply for material inaccuracies in a return, assessed by reference to whether the error was careless or deliberate. Because the penalties are triggered by the calendar rather than by any HMRC action, a dormant scheme registered years ago can quietly accumulate liabilities across multiple tax years. The current penalty amounts are published on GOV.UK and should be confirmed there before you budget for an exposure.

How does the section 431 election work, and why does the 14-day window matter?

Where a UK employee acquires shares that are restricted, and most private company equity is restricted in the technical sense, the default treatment under Chapter 2 of Part 7 ITEPA 2003 is that only the restricted value is taxed on acquisition, with future growth attributable to the restrictions taxed as employment income when the restrictions lift or the shares are sold. A joint election under section 431 ITEPA allows employer and employee to elect instead to be taxed up front on the full unrestricted market value, so that all subsequent growth falls within the capital gains tax regime. The election must be made jointly and in writing within 14 days of the acquisition.

Fourteen days is unforgivingly short, and unlike the US section 83(b) election there is no relief for late filing. The practical discipline is to build the election into the closing documents so it is signed at the same time as the share transfer, rather than chased afterwards. Elections are not filed with HMRC as a matter of course but must be retained and produced on request, so a US company should hold countersigned copies centrally rather than leaving them with individual employees. Where a US employee later becomes UK resident, the interaction between an earlier 83(b) election and the UK restricted securities rules needs specific analysis; the two regimes do not automatically align.

How do US RSUs map onto UK reporting?

Most US RSU programmes are structured so that no security exists until vesting, which means the UK analysis usually treats the award as a right to acquire securities, taxed on delivery rather than on grant. The reportable events are therefore typically the grant of the RSU and the acquisition of shares on vest. The taxable amount is the market value of the shares delivered, less anything paid, and it is employment income subject to income tax through PAYE. Where shares are sold to cover withholding, the sell-to-cover is a disposal that may itself need consideration. The precise UK characterisation depends on the plan terms, so the award agreement should be read rather than assumed.

What happens with US stock options for UK employees?

A US non-qualified stock option granted to a UK employee is reportable at grant and again at exercise. The UK charge arises on exercise, on the excess of the market value of the shares acquired over the exercise price, as employment income. Incentive stock options are a US concept with no UK equivalent; ISO treatment does not carry across, so an option that is tax-advantaged in the US is fully taxable at exercise in the UK. Enterprise Management Incentives, the most valuable UK option regime, are generally unavailable to subsidiaries of a US parent because of the independence condition, which is why so many US groups end up reporting under Other arrangements.

Do PAYE and National Insurance apply to share awards?

They do, where the securities are readily convertible assets. An RCA is broadly a security for which trading arrangements exist or are likely to come into existence, which captures shares in any listed company and, in practice, shares in many private companies with a liquid secondary market or an anticipated exit. Where the RCA test is met, the employer must operate PAYE on the taxable amount and account for Class 1 employee and employer National Insurance contributions. This is a real cash cost to the US group, and it must run through a UK payroll in the period the event occurs, not be swept up in the annual return months later.

What is the 90-day make-good rule, and why is it dangerous?

When an employer operates PAYE on a share award, it is accounting for tax on a notional payment because no cash has passed through payroll. Section 222 ITEPA 2003 provides that if the employee does not reimburse the employer for that PAYE within 90 days of the end of the tax year in which the event occurred, the unreimbursed amount is itself treated as additional taxable earnings, effectively creating a tax charge on the tax. This trap catches US companies constantly, particularly where a leaver has vested shares and no one chases the reimbursement. Sell-to-cover or net settlement at vest is the cleanest structural answer, and it needs to be documented in the plan.

Can employer National Insurance be passed to the employee?

Yes, in relation to share option and securities option gains, employer's Class 1 NIC can be transferred to, or recovered from, the employee under a joint election or agreement made under the National Insurance legislation. Many US groups use this to remove an uncapped and unpredictable liability from the P&L, which also matters for financial reporting because the employer NIC accrual moves with the share price. Where the liability is validly transferred, the employee is generally entitled to an income tax deduction for the amount borne. The documentation must be in the approved form, so use adviser-drafted wording rather than adapting a US plan appendix, and keep the signed elections on file.

How does this coordinate with US Forms W-2, 3921 and 3922?

For a US citizen or green card holder working in the UK, the same equity event is reportable on both sides. The US employer reports compensation income from RSU vesting and non-qualified option exercises on Form W-2. Form 3921 is filed for exercises of incentive stock options and Form 3922 for the first transfer of legal title to shares acquired under a section 423 employee stock purchase plan. None of these US filings satisfy the UK obligation, and the UK employment related securities return does not satisfy the US ones. The IRS.gov instructions for each form and HMRC's ERS guidance on GOV.UK should be read as parallel, independent regimes.

How is income allocated for internationally mobile employees?

Where an employee has worked in more than one country between grant and vest, both countries will typically tax only the portion of the gain relating to services performed there. The UK applies a statutory apportionment for internationally mobile employees, generally by reference to the relevant period between grant and the event giving rise to the charge. The US applies its own sourcing rules. The two need not produce identical splits, and the resulting overlap is managed through foreign tax credits and, where applicable, the US-UK income tax treaty and the separate totalization agreement for social security. This is the single most error-prone area in cross-border equity, and it warrants modelling before vest, not after.

What records should the company keep?

HMRC can enquire into an ERS return, and the burden of demonstrating valuations and dates falls on the company. A US group should maintain, for each UK participant, the grant documentation, the plan rules and any UK sub-plan, the acquisition and vesting dates, the valuation basis and any agreed valuation, signed section 431 elections, NIC transfer elections, payroll evidence that PAYE was operated, and evidence of reimbursement within the 90-day window. Cap table software will generally produce grant and vest data but rarely produces UK market values or election evidence, so a separate compliance file is sensible.

On each grant or share issue: confirm whether a new scheme registration is needed and diarise the reportable event
Within 14 days of any restricted share acquisition: complete and countersign the section 431 joint election
At each vest or exercise: determine whether the securities are readily convertible assets and operate PAYE and NIC through UK payroll in the correct period
Throughout the year: track employee reimbursement of PAYE on notional payments
5 April: UK tax year end, close off the reportable event schedule
By early June: reconcile payroll data to the ERS event schedule and prepare the template
By 6 July: file the annual return for every registered scheme, including nil returns
Within 90 days of 5 April: ensure all PAYE on notional payments has been made good to avoid a section 222 charge
When a plan ends: enter a date of cessation and file a final return so the filing obligation stops

What if we have missed returns for earlier years?

Late returns can still be filed, and filing them is almost always better than waiting. Historic returns are submitted against the relevant scheme registration for the tax year concerned, which sometimes means registering a scheme retrospectively with an establishment date in an earlier year. Expect automatic penalties to follow for each late year, with an appeal available where there is a reasonable excuse. Where PAYE should have been operated and was not, there is a separate and usually larger exposure covering tax, NIC, interest and potentially penalties, and that is normally addressed through a disclosure to HMRC rather than through the ERS return alone.

Does corporation tax relief follow the reporting?

Where a UK employing company bears the cost of shares acquired by its employees, a statutory corporation tax deduction may be available under Part 12 of the Corporation Tax Act 2009, broadly equal to the amount on which the employee is charged to income tax. This is a genuinely valuable relief for UK subsidiaries of US groups, and it can turn a compliance exercise into a cash benefit. The relief has conditions, including the nature of the shares and the timing of the deduction, and it interacts with any recharge arrangement between the US parent and the UK company. A well-drafted intercompany recharge agreement is the foundation; without it, the position is often weaker than it needs to be.

How should a US group structure UK equity from the outset?

The cheapest fixes are the ones made before the first UK hire receives an award. Decide whether a UK sub-plan is worthwhile, put net settlement or sell-to-cover into the plan rules, build the section 431 election into the standard acquisition pack, agree the NIC transfer position, document the intercompany recharge to support corporation tax relief, and register the scheme with HMRC in the tax year the first award is made. Retrofitting any of these after a financing round or an exit is more expensive and sometimes impossible. The compliance cost of getting it right at the start is trivial compared with the cost of unwinding it later.

What are the most common mistakes we see?

Assuming that because the shares are in a US company, HMRC has no interest in them
Missing the 14-day section 431 window and treating it as if it were the 30-day US section 83(b) deadline
Registering a scheme, then failing to file nil returns in quiet years
Delivering RSU shares gross without operating PAYE on a readily convertible asset
Ignoring the 90-day make-good rule, particularly for leavers
Treating US incentive stock option status as if it produced UK tax advantages
Failing to apportion gains for employees who moved between the US and the UK during vesting
Leaving no evidence trail of market values used at grant and vest

Where should I check the current rules and figures?

HMRC publishes the ERS guidance, the online service, the return templates and the current penalty amounts on GOV.UK, and the Employment Related Securities Manual sets out its technical position in detail. For the US side, IRS.gov carries the instructions for Forms W-2, 3921 and 3922 and the guidance on section 83(b) elections. Both regimes change, penalty amounts and thresholds are updated, and administrative deadlines are occasionally revised, so verify any figure against the primary source before acting on it. Nothing in this article is a substitute for advice on your own plan documents and your own population of employees.

Getting specialist advice

Cross-border equity is where US and UK rules diverge most sharply and where the cost of a small administrative slip is disproportionate. If your company has UK-based employees holding options, RSUs, growth shares or founder equity, an early review of registration status, filing history, PAYE treatment and election documentation will usually pay for itself many times over, particularly ahead of a funding round or a sale. Our team advises US companies and their UK employees on the full employment-related securities lifecycle, from plan design and section 431 elections through to annual returns and HMRC disclosures. Speak to a specialist US-UK adviser before the next 6 July deadline rather than after it.