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TaxationWeb by Burges Salmon LLP

Burges Salmon LLP provide a brief overview of Form 42 in relation to employment-related securities.Under the rules relating to employee share acquisitions, referred to as employment-related securities, there is a duty to provide information in relation to reportable events. The information must be given on Form 42 which is due by 6 July following the end of the tax year in which the reportable event took place.

There was much furore surrounding the first Form 42 deadline of 6 July 2004 due to the wide ranging reporting burden it imposed. This resulted in two extensions to the original deadline. Now a year on it looks like Form 42 is here to stay and the deadline of 6 July must be strictly adhered to.

It is therefore important to be aware of when, by whom and how Form 42 needs to be completed. This article briefly considers these questions but for more detailed information consult HMRC's guidance at www.hmrc.gov.uk/shareschemes/form42guidance.pdf.

When must Form 42 be completed?

Form 42 applies where there has been reportable events in a tax year ending 5 April. The list of reportable events is set out in the employment-related securities legislation. It is important to note that the list not only includes events which give rise to tax charges but also straightforward acquisitions of shares where the opportunity to acquire them has been made available by reason of employment.

Reportable events are not restricted just to employees - directors and other office holders are included. They also include prospective and former employees and office holders. Therefore the transfer of the subscriber share of an off-the-shelf company is a reportable event due to the prospective appointment of the person receiving the share as director, secretary or employee.
The only exception is where the transfer of shares is in the normal course of the domestic, family or personal relationships of the person transferring the shares. If no reportable events arise in a tax year but a Form 42 has been issued, sections 6 and 7 must still be completed and the Form submitted by the deadline.

Where can Form 42 be found?

Form 42 can be found at www.hmrc.gov.uk/shareschemes/42-2005.pdf. However, you may use your own form, spreadsheet or letter provided it gives the same details and is in the same format as is required in Form 42.

Companies incorporated in a tax year ended 5 April that have only issued unrestricted shares only need to complete sections 5 and 7 of Form 42. Alternatively a short version of the form just incorporating those two sections is available at www.hmrc.gov.uk/shareschemes/form42companies.pdf.

Who should complete Form 42?

Only one form is required for each transaction. It should be completed by the employer, the person from whom the shares were acquired or the person to whom the securities were issued. The responsibility to complete the form can be delegated to an agent.
As the introduction of Form 42 is an additional administrative burden at the end of each tax year it may be worth considering taking advantage of the ability to delegate the responsibility. As well as providing many other services Burges Salmon's Company Secretarial Unit would be happy to assist with the Form 42 obligations. For details about the Company Secretarial Unit please contact Sarah Swann on 0117 902 6637

October 2005

Burges Salmon LLP

Burges Salmon is one of the UK's leading commercial law firms. With some 550 partners and staff based in Bristol, and with a presence in London, the firm provides national and international organisations and individuals with a full service through the core practice areas of corporate, commercial, finance, litigation, property and tax.

Burges Salmon's Tax and Trusts department is one of the largest in the country. Its tax services are understood to be among the most comprehensive of any law firm in the UK.