Update - Form 42 concerns

HMRC are carrying out a partial regulatory impact assessment on form 42 and the impact it has had on businesses.
Concerns exist about the wide scope of the form 42 reporting obligations, particularly its impact on new small companies where the founder shareholders are also directors or employees. Companies House reported around 390,000 and 330,000 new incorporations in Great Britain in 2003-04 and 2004-05 respectively. The number of forms 42 submitted by companies reporting taxable employee share incentive schemes in 2003-04 was over 6,000, while a further 405,000 forms were received reporting the creation of employee shares through new incorporations.
There are also concerns about HMRC gathering information about share transactions where no chargeable events occur, and the value and use of the information provided on the form. The costs to business in completing the form are also discussed. Anecdotal evidence from information given to HMRC suggests accountants are charging between £40 to £200 for completing the simplified version of form 42 for newly incorporated companies.
The primary aim of this review is therefore to simplify the form 42 reporting process as much as possible and help reduce the compliance and administration burdens on small companies, but consistent with HMRC's need to have reliable data for risk assessment and policy development purposes.
The options are:

• Do nothing: All new processes and obligations that require some action from businesses place a certain amount of administrative burden on those businesses. Experience shows that some of the initial concerns tend to dissipate once those affected by the relevant legislation become familiar with the requirements of that legislation. Employers who offer share incentives to their employees, for example save as you earn or the share incentive plan, will be familiar with the reporting requirements. Form 42 is relatively new and familiarity with it will enable easier compliance over time. However, HMRC say that they still need to consider whether the burden it places on employers is out of proportion to the value of information submitted on form 42.
• Non-legislative option: HMRC need to build on the improvements achieved already, by looking at the range of information being provided, the structure of the form and easier methods of discharging the reporting obligations.
• Legislative option: HMRC hope that any improvements will not require changes to the legislation, but if they do, they would have to be approved by ministers and Parliament.

HMRC welcome comments or proposals of any changes to form 42 that can be achieved that would be of particular benefit to small businesses. Comments should be sent by 22 September to: Hasmukh Dodia, HMRC, Employee Shares and Securities Unit, Room G49, 100 Parliament Street, London SW1A 2BQ, tel: 020 7147 2839, fax: 020 7147 2746, e-mail: shareschemes@hmrc.gsi.gov.uk.
www.hmrc.gov.uk

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