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Employment-related Securities
21 June 2004
The Income Tax (Earnings and Pensions) Act 2003 introduced new rules for reporting employment-related shareholdings.
A new sixteen page return, form 42, has been brought out by the Inland Revenue with a requirement to submit one such form for any share transactions in 2003/04 covered by the new rules before 7 July 2004. (The deadline has now been extended by two months. The Inland Revenue will not charge penalties where the necessary information is supplied by the 7th September 2004.)
Although the rules were aimed at share schemes devised to avoid tax and national insurance, the scope of the reporting requirements is vast and extends to a lot of everyday share transactions by directors and employees.
Failure to comply with the new requirements can result in a fine of £300 for each share acquisition the tax office considers to be a “reportable event”.
The information coming from various parts of the Inland Revenue has been unclear and sometimes contradictory. The tax office has answered a number of questions about tax form 42; we are alerting you to what they are saying and what we think this may mean for you.
- Companies newly incorporated in 2003/04 may make a return to ensure they are fully covered, but a case can be made that starting up a company and then generating employment through it is not affected by the new rules.
- When a company is set up and then a spouse or third party is introduced to the business and given shares at a later date, the new allotment or transfer would appear to be caught and should be reported.
If you consider a return applies to your company because of any employment-related share dealings in the year ended 5 April 2004 and you would like us to prepare the form ahead of the deadline, please contact us with the details. The charge for completing and reporting the necessary information is £90 + VAT.
Our proposal for future years is to include the reporting of share issues and transfers as part of the procedure when shares are acquired to make sure no-one falls foul of the new rules.
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