James Hopgood, Solicitor, Corporate & Commercial, Spire Solicitors LLP, comments on HM Revenue and Customs (HMRC) temporary arrangements for the stamping of Stock Transfer Forms during the Coronavirus lockdown.
What is stamping?
When there is a purchase or transfer of shares, the buyer must generally pay Stamp Duty and, usually, send an original signed Stock Transfer Form to HMRC for “stamping”. Provided that all the requirements are satisfied, HMRC will usually apply a physical stamp to the Stock Transfer Form to confirm payment of the Stamp Duty. As we discuss below, temporary changes to these requirements are currently in effect.
Why is stamping necessary?
If Stamp Duty is payable, a transfer of shares must not be recorded in a company’s register of members unless the company has been given a Stock Transfer Form duly stamped by HMRC. It is the registration of a transfer in the company’s register of members which gives a shareholder good legal title to their shares. Penalties can be imposed on a company’s officers if a Stock Transfer Form is registered by a company without it being stamped.
How much Stamp Duty is payable?
Stamp Duty is charged at the rate of 0.5% of the “chargeable consideration” given for the shares. Generally, this will be the price paid for the shares. The amount of Stamp Duty is always rounded up to the nearest multiple of £5.
If Stamp Duty is payable then, within 30 days of the date on which the Stock Transfer Form is signed and dated:
- the original signed Stock Transfer Form must be sent to HMRC for stamping; and
- payment of the amount due in respect of Stamp Duty must be made to HMRC.
Late submission and/or late payment may result in penalties and interest being charged. There are, however, some exemptions there is no Stamp Duty payable and the Stock Transfer Form does not have to be sent to HMRC. The most common exemption is where the chargeable consideration for shares is £1,000 or less. If an exemption applies, there may still be other requirements to be satisfied.
What has Coronavirus got to do with this?
During the restrictions resulting from the spread of Coronavirus, HMRC is not able to process hard copy Stock Transfer Forms or apply physical stamps. In order to allow purchasers of shares to acquire good legal title to shares whilst these restrictions are in place HMRC has introduced temporary changes to the process for “stamping” Stock Transfer Forms.
What must a buyer do?
Buyers must not send original Stock Transfer Forms to HMRC until new guidance is published. Instead, HMRC now requires that:
- a scanned or electronic copy of the signed and dated Stock Transfer Form is sent to HMRC by email (together with any supporting documents, if required); and
- payment be made by bank transfer.
These requirements must still be satisfied within 30 days of the date on which the Stock Transfer Form is signed and dated.
Usually, HMRC will require that a Stock Transfer Form bear an original “wet ink” signature. Whilst the current measures are in place, HMRC has stated that it will accept e-signatures – we would, however, suggest sellers should provide a scanned copy of the signed and dated Stock Transfer Form on completion, and put the original to the buyer in the post.
The guidance on the measures HMRC has introduced and the email address for sending Stock Transfer Forms can be found here.
What will HMRC do?
HMRC is not stamping any Stock Transfer Forms for the time being. Instead, once the scanned (or electronic) copy of the Stock Transfer Form has been processed HMRC will send the applicant a letter by email which will:
- confirm receipt of the Stamp Duty;
- set out the details of the transaction and the reference codes; and
- give an assurance to the Company in which the shares are held that the share transfer can be lawfully recorded in the members’ register.
That letter should then be given to the Company (or, in the case of larger companies, its registrar) with the original Stock Transfer Form. The Company’s register of members can then be updated accordingly.
HMRC has announced that it will aim to complete this new process within 15 – 20 working days of receipt of the scanned Stock Transfer Form provided that all requirements are satisfied (including payment of the Stamp Duty being received and processed).
What if I have already sent my Stock Transfer Form by post?
If Stock Transfer Forms have already been sent to HMRC by post, then a scanned copy of the Stock Transfer Form should be sent to HMRC as set out above. The covering email should also explain:
- that a hard copy of the Stock Transfer Form has been sent; and
- how payment has been made.
Failure to take these steps may result in a delay in being able to acquire good legal title to shares. The guidance does not say whether penalties and interest are being charged if a buyer who has sent documents by post fails to take these steps. We would still strongly advise submitting a scanned copy of the Stock Transfer Form by email as required together with details of the payment made.
HMRC has also indicated that it is not currently processing payments of Stamp Duty which have been made by cheque. In these cases, HMRC will not stamp the Stock Transfer Form until it is able to resume processing payments by cheque. Further guidance may be sought by emailing HMRC.
In most transactions where a buyer has been represented by a solicitor, the seller will have been required to sign a power of attorney in respect of their shares to give the buyer control of the shares until the transfer is registered. In these cases, the risks of the buyer not owning shares are somewhat reduced, but it is still strongly recommended that buyers comply with the new guidance to obtain good legal title to their shares as soon as possible.