ERSM140070 - Reporting requirements - Form 42
Other events where reports may not be required
Transfers of shares in the normal course of domestic, family or personal relationships
Members’ clubs (formed as companies)
Dividend Reinvestment Plans (DRIPs)
Shares acquired independently by directors and employees
Acquisitions by employees who are not UK resident
Transfers of shares in the normal course of domestic, family or personal relationships
A report is not normally required where shares are transferred by an individual in the normal course of domestic, family or personal relationships of the person transferring the shares. It will be for the individual making the transfer to determine whether the transfer has been made for purely personal reasons as they are in possession of all the facts relating to the transfer.
For Example - In family businesses, the ownership of shares usually passes from one generation to another where children work in the business. Where shares pass solely to those children involved in the business then we will generally accept that the transfer of those shares will have been made in the normal course of the domestic, family or personal relationships of the person making the gift.
However, it is a question of fact, and it is possible for the employment, rather than the family relationship, to be the reason for the gift, and where that is the case the shares will be employment-related securities.
This may well be the case where large numbers of employees were given shares and they included a son and a daughter of the proprietor.
Personal relationships can also include friendships and it is not unknown for a proprietor to pass on his business to a long-time employee with whom he has developed close personal ties. The principal question to be asked is whether an employer is trying to reward or provide an incentive to an employee in passing over such shares to him/her, or whether the reason is more personal than an employer/employee relationship.
In cases where the deeming provision of sections 421B(3) and s471(3) of ITEPA 2003 is removed then the award or grant does not need to be reported.
Flat Management Companies
If the company is incorporated in a tax year ended 5 April and unrestricted shares are, or will be, allocated to all residents (including flat owners where the owner leases the flat) at nominal value then this transaction does not need to be reported.
Where on the sale of a flat the resident has to sell their share(s) at nominal value either to the company or to a new resident, no report is required. However, a report would be required if the shares were disposed of for more than nominal value.
If the shares acquired by the residents are restricted shares, then a report must be made in section 2 on page 7 of Form 42. We do not consider that a requirement to sell the share(s) back to the company or another resident on disposal of the flat makes the share(s) a restricted share and in that case a report is not required.
Members’ clubs (formed as companies)
If a Members’ club is incorporated in a tax year ended 5 April and unrestricted shares are allocated to members at nominal value during that tax year, then a report is not required.
Shares transferred between members at nominal value during the tax year also do not need to be reported. However, if the shares are restricted shares, then a report must be made in section 2 on page 7 of Form 42.
Share for share exchange
If a person has received shares by reason of employment the legislation will treat any additional shares as also received by reason of employment. However, where:
- the employer is a company or part of a group listed on a recognised stock exchange, and
- the opportunity to acquire unrestricted shares/securities is made available to all shareholders, including director and employee shareholders, and
- the unrestricted shares/securities are acquired independently of the company, for example through a broker at full market
a report of those shares acquired by directors and employees is not required.
Rights issues
A company can raise more capital by asking current shareholders to purchase new shares, usually at a discount – a ‘rights issue’. A rights issue is a right to acquire securities and therefore is an employment-related securities option in relation to employees acquiring those rights. However, if the following conditions apply:
- the employer is a company or part of a group listed on a recognised stock exchange, and
- the opportunity to acquire unrestricted shares/securities is made available to all shareholders, including employee shareholders,
a report of such shares/securities acquired by directors and employees is not required.
Bonus issues
Bonus shares acquired by directors and employees from employing companies will be treated as received by reason of employment. However, if the following conditions apply;
- the employer is a company or part of a group listed on a recognised stock exchange, and
- the opportunity to acquire unrestricted shares/securities is made available to all shareholders, including employee shareholders,
a report of such shares/securities acquired by directors and employees is not required.
Scrip Dividends
Where we have been given details of the arrangements relating to the Scrip Dividend by the employer and
- the employer is a company or part of a group listed on a recognised stock exchange, and
- the opportunity to acquire unrestricted shares/securities is made available to all shareholders, including employee shareholders
then, provided we are satisfied with the arrangements and that they meet those conditions, there will be no need to report details of the unrestricted shares/securities acquired by directors and employees through the Scrip Dividends.
If, following a compliance review, we find that this is not the case then we will require the company to report the full details.
Dividend Reinvestment Plans (DRIPs)
In the case of DRIPs where we have been given details of the arrangements by the employer and where:
- the employer is a company or part of a group listed on a recognised stock exchange, and
- the opportunity to acquire shares/securities is made available to all shareholders, including employee shareholders, and
- the shares/securities are acquired independently of the company, for example through a broker at full market value on the open-market,
then, provided we are satisfied that the arrangements meet those conditions, there will be no need to report the details of the shares/securities acquired by directors and employees through the DRIP.
If, following a compliance review, we find that this is not the case then we will require the company to report the full details.
Shares acquired independently by directors and employees
Where directors and employees acquire shares in their employer and have purchased those shares on the open market, for example through an independent broker, then if:
- the employer is a company or part of a group listed on a recognised stock exchange, and
- the opportunity to acquire unrestricted shares/securities is made available to all shareholders, including employee shareholders, and
- the unrestricted shares/securities are acquired independently of the company, for example through a broker at full market
a report of those shares acquired by directors and employees is not required.
Acquisitions by employees who are not UK resident
Where employees are not UK resident and do not have any UK duties in the year of the award, and are not likely to become UK resident or work in the UK during the vesting period of the award, there is no need for the company to make a return of the award of securities, interests in securities or securities options in respect of those employees.