Form 42!

Form 42!

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Has anyone had experience of claiming a gift of shares from a Director to three employees was not required on Form 42 / not caught by the employment related securities legislation because of the exemption relating to personal relationship, as given in ERSM20220.

Although there is no family /domestic link here, things going in client favour include:

There are about 10 shareholders and only one is gifting 3 shares (out of 500) to 3 employees (out of 20 employees)

There is no element of remuneration involved, they are gifted, no consideration is given and no element of reward is considered.

Has anyone argued this personal relationship point and been successful.

The Director is giving them due to his close friendship with each.

I suspect in reality the tax risk is with the individuals and not the Director / Company? (Albeit any non disclosure on Form 42 is the Companies?)

Thoughts would be appreciated.

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By bggoose1
17th Jul 2013 11:43

Watch NI liabilities

I have not argued the point in the circumstances that you set out and I think that you may well have an uphill battle.

I do not however think that only one shareholder gifting to only 3 employees changes the analysis all that much.  I think that it will be very hard to argue that there is no element of reward.  HMRC will see these people as employees, getting shares in the employing company and there being no family tie.

I do want to pick up on your last comment.  Have s431 elections been signed by the recipients and the company?  I know that if you believe that they are not Employment Related Securities and you win this argument, this is a non-point but if it transpires that they are, the company could be exposed to an uncapped employer's NI liability on sale of the shares by the new holders and the shareholders themselves to income tax and employees' NI.

How will the donor deal with the gifts on his SA return?  Will he be holding over the gain under s165 TCGA?  This needs to be worked through as it will also have an impact on the final tax position.

Finally, although I do not think that it is applicable here, it might be worth having a quick look at the disguised remuneration rules.

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