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What is Form 42?
Following the introduction of the Finance Bill 2003 there is now an obligation to notify the Inland Revenue of any reportable events using Form 42 relating to the transfer or issue of securities (shares in your company).
Please note any reference to "securities" on this web page is an alternative description for "shares".
What is a reportable event?
According to the Finance Bill (section 421k ITEPA) 2003 reportable events are:-
- an acquisition of securities, an interest in securities, or a securities option
- an event which is a chargeable event in relation to restricted securities
- an event which is a chargeable event in relation to convertible securities
- artificial enhancement of market value of securities
- disposal of securities and interests in securities that were acquired for less than market value
- securities and interests in securities disposed of for more than market value
- charge on benefit from securities or interest in securities
- the assignment or release of a securities option acquired pursuant to a right or opportunity available by reason of the employment of the person who acquire the securities
- the receipt of a benefit in money or money's worth which is received in connection with such a securities option
How does this affect new company formations?
For events that occur from 06th April 2005 onwards the procedure for newly formed companies reporting requirements for the acquisition of initial founder shares (subscriber shares) need not be reported on form 42 provided the following conditions are met:
-
all the initial subscriber shares are acquired at nominal value (and no form of security other than share), and
- the shares are not acquired by reason of or in connection with another employment (whether this is the only employment or one of a number of employments), and
- the shares are acquired by a person who is a director or prospective director of the company, or someone who has a personal family relationship with the director and the right or opportunity is made available in the normal course of the domestic, family or personal relationship of that person.
When does the form need to be submitted?
The form must be completed and returned to the Inland Revenue Share Scheme before the 07th July following the end of the year for which it was issued. If the form was issued on or after 08th June following the end of year for which it was issued, it must be returned within 30 days from the date of issue stated on the form.
For the tax year ending 05th April 2004 - The original deadline was set as 6 July 2004 for incorporations during the previous tax year (6 April 2003 to 5 April 2004). This date was extended twice for any company that has not yet received the form. The latest date for returning the form is currently 30 November 2004.
What if I do not file the form in time?
The penalty for late filling of this form is £300. In addition to this a further penalty not exceeding £60 per day may be added. Please contact the Inland Revenue for full details of penalties they may charge.
Who is responsible for filing the form?
When a new company is formed there are potentially two responsible persons.
(i) the company formation agent who transfers the shares and
(ii) the company.
Only one person needs to report the event.
For companies newly incorporated by a company formation agent initial subscriber shares issued to the formation agents nominees (for the purpose of incorporation only) will not be employment related securities and no report is required. However, when those initial subscriber shares are then transferred to the directors/employees it will be considered that they are employment-related securities and may be reportable if they are transferred either because of employment or prospective employment. Any further issue/award of shares will also be reportable.
What if my company has no reportable events during the tax year?
If there are no reportable events and a Form 42 has not been issued to your company by The Tax Inspector then no report needs to be made. You may however still wish to file a Form 42 stating that there are not reportable events.
What if I have not received a form 42?
The Inland Revenue is not required to send you a form. The obligation is on you to provide the information in the form prescribed. Therefore if there are reportable events you must make a report before 7th July after tax year end even if you have not been issued with form 42.
A full version of Form 42 can be downloaded at the following link along with other related forms - Form 42
Completed forms must be sent to -
Employee shares and Securities Unit
Room G52
1 Parliament Street
London
SW1A 2BQ
For advice from HM Revenue & Customs telephone - 020 7147 2819 or 2843
Or go to their website - www.hmrc.gov.uk
