ERSM140100 - Reporting requirements - Form 42

Completion of Form 42

Reportable events

A report on Form 42 is only required if a reportable event occurs in the tax year ended 5 April. The following are reportable events (ITEPA03/S421K (3)):

1. an acquisition, by a person, of securities (including by exercise of a securities option), an interest in securities or a securities option

2. an event which is a “chargeable event” in relation to restricted securities and restricted interests in securities,
   
3. an event which is a “chargeable event” in relation to convertible securities and interests in convertible securities,
   
4. the doing of anything which artificially enhances the market value of the securities,
   
5. an event which discharges a notional loan relating to securities and interests in securities acquired for less than market value,
   
6. disposal of securities and interests in securities for more than their market value,
   
7. the receipt of a benefit from securities or interest in securities, which gives rise to a taxable amount counting as employment income or would give rise to such an amount but for Chapter 4A (shares in research institution spin-out companies),
   
8. the assignment or release of a securities option acquired pursuant to a right or opportunity available by reason of the employment of the person who acquires the securities option of any other person, and
   
9. the receipt of a benefit in money or money’s worth in connection with either failing or undertaking not to acquire securities pursuant to the employment-related securities option, or granting or undertaking to grant to another person a right to acquire securities which are subject to the employment-related securities option.

If there are reportable events to disclose, the index on page 2 of Form 42 will help you identify which sections of the form you need to complete and will direct you to the appropriate page. You only need to complete those pages where there is a reportable event. Clicking on the appropriate section on the index will take to you further guidance and an example.

Completing the index

For example, if an event occurred under section 1a, tick the box opposite 1a below, then go to section 1a in the form and complete the boxes in that section.

Click on the appropriate section heading in the index below to see an example of how to fill in that part of the form.

Market value

For the purposes of completing Form 42 it is not necessary to have a formally agreed valuation of the securities. The market value to be shown should be the best available value at the time of the particular transaction.

PAYE and National Insurance contributions (NICs)

PAYE and NICs must be operated on all taxable amounts provided in the form of readily convertible assets (RCA’s). The employer’s obligation is to operate PAYE at the right time on an amount which is the best estimate that can be reasonably made, at that time, of the amount chargeable to tax. Where the employer has done this any discrepancy between the amount on which PAYE is operated and the final tax liability will be dealt with after the end of the year through the employee’s Self Assessment. For NICs purposes the ‘best estimate’ amount in gross pay at the time the payment is paid or treated as paid. Add the amount to any other payments made in the relevant earnings period and work out NICs on the total in the normal way. The NICs liability will arise at the same time as income tax is due under PAYE. The following flowchart may help you decide if PAYE is due or not.

Flow chart for the operation of PAYE