Form 42 share disclosure deadline for new companies

There has been some discussion and concern raised on some other web sites, including among accountants, about the failure of many businesses to appreciate that there is a tax filing deadline on 6 July.

This deadline comes about because of the new disclosure requirements of Section 421J Income Tax (Earnings and Pensions) Act 2003 (ITEPA). Companies have to disclose to the Revenue details of company shares and unapproved share options issued to their directors and employees if this is by reason of a former, current or prospective employment. Companies should do so by completing a form 42, which can be downloaded from the Revenue’s web site, but they can also report by letter if they give the same information.

Concern has arisen as to whether these requirements apply to the typical newly incorporated company. Failure to report could result in a £300 penalty, which applies to each 'reportable event' – which in the case of a typical husband and wife company could mean a charge of £600. Companies also face a daily penalty of up to £60, if the failure to notify continues.

It seems clear that the intention of the legislation was to catch (and tax) situations where employees benefit by being granted share options or by acquiring company shares – often at a discount – or are lured into employment by such options or shares. It was not intended to apply to situations where someone sets up a new company and subscribes for shares.

What is less certain is whether the new rules would also apply to a typical new company situation where the worker directors have invested in the new company? Logic suggests not as the Revenue will have already received details of the company and its shareholders via the form CT41d which newly formed companies submit to the Revenue.

However, the Revenue are being asked for clarification in view of the concerns that have been raised on this issue and it has been reported on other discussion forums that the Revenue will issue further guidance on their web site in the next few days.

The Revenue state that they have sent out copies of the form 42 to those businesses that they believe might have reportable events to disclose, and those companies need to report by 6 July – if only to state that there are no reportable events by ticking the nil return box at the end of the form. Other businesses, who might have been sent the form after 8 June 2004 have 30 days to respond.

Anyone who set up a new company since 5 April 2003 or whose company issued shares or options to an employee since that date needs to check with their accountant whether their company needs to complete and submit the form 42 if they want to be sure of avoiding future fines.

Kevin Miller, MA FCA