A director of a close company disposes of a minority shareholding to an employee at less than market value.
This clearly has to go on a form 42, because the shares are "employment related". The company can report these on form 42 as it is aware of the transaction (due to the company secretary doing the statutory books).
Although the shares are not readily convertible assets, they appear to be caught by ITEPA s702(5A-5D) which suggests that the company should operate PAYE on the transaction, even though it is a personal transaction between the director and the employee. Is this correct, or am I barking up the wrong tree? I am having real trouble in fathoming out the legislation which is, to say the least, tortuous...
Rob
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Not RCAs
I don't think that the shares are RCAs because of s702(5A) i.e. the company should qualify for the CT deduction under Sch 23 FA 2003.
The fact that the transfer is not from the company and so it has not cost the company anything is not relevant.
The company is indeed a 'responsible person' as for as reporting is concerned so yes should complete form 42.
The undervalue is taxable as general earnings and not under Part 7 of ITEPA i.e. it's an emolument as we used to call it and doesn't require the special provisions of Part 7 to make it taxable. But should be no PAYE or NIC (and it's not a P11D item either). The employee needs to declare on the share schemes pages.