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Form 42 share plan reportingDeadline 6 July 2012Following the end of the tax year, the countdown to the deadline for filing Form 42 begins. In the subsequent 90 days, employers will need to collate the relevant data, accurately complete the form and submit it to HMRC on or by 6 July. Tax rules relating to ‘not ordinarily resident’ or ‘non UK domiciled’ employees will also have to be considered when reporting events on Form 42. It pays to get Form 42 completed on time and to get it right.
If your employees receive any share benefits on tax unapproved share schemes, you will need to provide details of those benefits by completing and filing a Form 42 to HMRC. Form 42 can take up a large amount of company resources in the weeks leading up to the deadline and forward planning is crucial.
Penalties and the bigger pictureWe understand that HMRC has become more focused and detailed in its tax audits of employee remuneration arrangements, including share plans. A large number of enquiry notices have been issued to companies announcing a review of bonus and share incentive arrangements. Furthermore, the risk ratings that companies are now receiving from HMRC are influenced by Form 42 compliance. A poor record in submitting Form 42 could negatively impact a company’s risk rating and, therefore, increase the likelihood of HMRC audits.
In addition, a penalty regime was introduced on 6 April 2008 and applies where share based payments have been incorrectly taxed. This is a behaviour based system for tax geared penalties. The maximum 100% penalty can be reduced (to 0% in some cases) where companies make voluntary unprompted disclosure. Completion of Form 42 provides a good opportunity to assess compliance in this area and make a related disclosure where appropriate.
PitfallsCommon mistakes that we see in share compliance, which Form 42 can highlight, include the following:
► Internationally mobile employees — are their reportable events included on the Form 42 in the correct section? Are they being taxed in the correct manner?
► Apportionment — are relevant gains being apportioned correctly?
► Tracking — does the company have a robust tracking process for their internationally mobile employees?
► Foreign plans — is the appropriate tax treatment being applied? One area that HMRC is currently looking into is the treatment of Restricted Stock Units (RSUs).
► Tax withholding — are the gains being processed via payroll for tax and National Insurance? Is the tax paid to HMRC, and reimbursed to the company by the employee, within the applicable time limits?
► Ex-employees/leavers — does the company track ex-employees who retain options after leaving their employment, to ensure that future exercises of these options are taxed and reported?
April 2012
Form 42
Alert:
We understand that HMRC is starting to use its powers to list non-compliant companies for First Tier Tribunal hearings in respect of their share reporting. Penalties following a hearing can be £300 per reportable event plus £60 per day that a return has been outstanding.
We are also aware that HMRC is in the process of withdrawing tax efficient approved status of HMRC approved share plans where companies have not filed their returns or have not amended incorrect filings.
Form 42 Share plan reporting
Ernst & Young LLP
Assurance | Tax | Transactions | Advisory
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What events are reportable?Employers must report on Form 42 the acquisition of any employment-related securities, and certain related events, in respect of their current (and in some cases past) employees.
Reportable events include:
► The grant or exercise of a securities option
► The acquisition of employment-related securities
► Post-acquisition taxable events, such as the lifting of restrictions attached to restricted securities or the sale of restricted securities
Similar events in relation to HMRC approved share plans (SIP, SAYE, CSOP and EMI) are not reported on Form 42, but must instead be disclosed on separate reporting forms.
Who should complete Form 42?The form should be completed by one of the following:
► Employer
► Host employer
► Company issuing the shares
Alternatively, completion of the form may be delegated to an agent.
Group companies must agree who is going to fulfil the share reporting obligation. Subsidiary companies should not assume that the parent company has met the share reporting obligations. This is especially important as HMRC can impose group-wide penalties in respect of share reporting.
Will HMRC send me a form?Companies will no longer be sent paper copies of Form 42, but will instead receive a notification to complete Form 42. In addition, HMRC has withdrawn its online filing facility. Companies can now only file paper copies of Form 42 after downloading the form from
the HMRC website or via interactive CD-ROM. Consideration should be given to the relative process efficiencies of these approaches.
Why Ernst & Young?We tailor our scope of work to each company and offer a range of services from full payroll review and completion of Form 42 to review of a company’s Form 42 prepared in-house to highlight any errors.
Increasingly, companies are trying to streamline their reporting and compliance processes to produce all required information in one instance. Share scheme calculations can require a considerable amount of time and effort, with various different people using the same data to calculate different aspects of the calculations. Due to the complexities involved, this can also lead to statutory account restatements and is an area under increasing scrutiny from the UK tax authorities with questions being asked about how the various pieces of the reporting process piece together.
To assist with this, our service offering can be increased to cover all aspects of share accounting using one set of data (provided as a download from you in any format). From this we can assist in the preparation of:
► Corporation tax deduction
► Deferred tax (subject to independence restrictions)
► Form 42
► Supporting information for your records and for audit purposes, together with details of any risk areas highlighted
The outputs produced are tailored to your specific requirements and the scope set to incorporate your specific needs.
Who do I contact?For more information, or for assistance in completing Form 42, please contact one of the following:
UK and Ireland share reporting
Giles Capon +44 1179 812 073 [email protected]
Andrew Morgan Jones +44 1179 812 136 [email protected]
Anita Eunson +44 1317 772 478 [email protected]
Ceri Ross +44 20 7951 4572 [email protected]
Daniel Harris +44 1613 332 874 [email protected]
Gareth Peyton +44 1582 643 320 [email protected]
John Mackay +44 20 7951 2779 [email protected]
Lorna Jordan +44 1189 281 688 [email protected]
Richard Burston +44 1215 352 136 [email protected]
Or one of your usual contacts