An explanation of form 42

As you may be aware from previous years, there is a requirement to inform HM Revenue & Customs (HMRC) of a wide variety of share transactions that involve a company's directors or employees. Where these are not part of schemes which are "approved" by HMRC, they need to be reported on "Form 42" in respect of each tax year. Approved schemes have their own returns, and in either case the return needs to be submitted to HMRC by 6 July 2007.

HMRC are no longer automatically issuing paper copies of the return for completion. If you completed a Form 42 last year or have implemented an approved scheme, HMRC will issue a notice to you to remind you to complete a form for 2006/07. You can then print off a paper copy of the appropriate return from the HMRC website, at www.hmrc.gov.uk.

Alternatively, this year returns (other than the annual return for Enterprise Management Incentive (EMI) share options) may be submitted in electronic format, for companies which are also registered for the PAYE Online service with HMRC.

If you have never previously completed a Form 42, you need to consider whether there have been any transactions in shares involving your directors or employees and if there have been, you need to prepare the return.

HMRC are known to take this seriously and there are, of course, penalties for not making a report or for making an incorrect report. Similarly, the directors or employees themselves may need to include transactions on their own tax returns. Share or share option transactions involving directors or employees may need to be reported even though there is no actual amount liable to income tax at that time.

For more immediate Self Assessment support go to the Self Assessment web page.