Covid-19 has forced HMRC to adopt electronic means of processing stamp duty on documents that transfer shares. Could HMRC be convinced to make these temporary measures permanent?
In 2017 the Office of Tax Simplification (OTS) suggested it was time to reform, simplify and digitise stamp duty on documents that transfer shares. Stamp tax practitioners might say the time to reform stamp duty was 2003, when SDLT was introduced for real estate transfers, or even 1986, when SDRT was introduced for electronic share transfers. In any event, the recommendations made in 2017 have not yet been implemented.
HMRC’s temporary stamp duty measures, put in place to help prevent the spread of Covid-19, offer an opportunity for HMRC to test whether elements of the temporary measures could be rolled-out in the longer term and an opportunity for taxpayers and stamp tax practitioners to gauge whether the measures are less time-consuming and cumbersome than the traditional approach of posting stock transfer forms. Even taking into account the potential drop in activity during the Covid-19 pandemic, this remains a good testing opportunity.
It is the relaxations offered by the temporary measures which are of most interest: stock transfer forms can be electronically signed and emailed to HMRC in both payment and relief scenarios; share registers can be updated without risk of HMRC pursuing a penalty; and communications can be had with the stamp duty team at HMRC via email. These relaxations share much with the OTS’s 2017 recommendation that stock transfer forms should be scanned and submitted to HMRC, with registrars able to update share registers on receipt of an HMRC-issued unique transaction reference.
The OTS recommendations went much further than suggesting stock transfer forms should be electronically submitted. There was acknowledgment of the wider inefficiencies of stamp duty and this was welcomed by stamp tax practitioners well-versed in the issues associated with the territorial scope of stamp duty and the complexities associated with employing declarations of trust as a means of expediting a register update.
There is therefore an ‘ideal’ scenario here, whereby HMRC’s temporary measures trigger a large-scale overhaul of the stamp duty regime in line with the OTS recommendations, with shares in companies incorporated outside the UK being taken outside scope and stamp duty ceasing to be a factor in the timing of transaction steps.
This overhaul should be outward-looking; not just to those countries which are ahead of us in terms of electronic processes for transfer taxes, but to other relevant UK bodies. The moves to enhance corporate transparency at Companies House should be part of a longer-term vision of a joined-up approach to unlisted share registration.
If that ‘ideal’ scenario is seen as too difficult to achieve in the next few years, the hope is that HMRC will adopt some kind of compromise, whereby the electronic measures we are seeing as a result of Covid-19 do not simply disappear when the Covid-19 pandemic starts to ease. It would be a shame if the steps taken towards a simpler stamp duty regime are followed by an immediate return to the old way of doing things.
In 2017, the OTS suggested modernising and digitising stamp duty on shares would be a natural development, given the electronic measures employed for SDLT and SDRT. In 2020, taking some steps to modernise and digitise stamp duty would be a natural development, given the temporary Covid-19 electronic measures employed by HMRC.
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Stamp duty on shares: reform for the longer term
Covid-19 has forced HMRC to adopt electronic means of processing stamp duty on documents that transfer shares. Could HMRC be convinced to make these temporary measures permanent?
In 2017 the Office of Tax Simplification (OTS) suggested it was time to reform, simplify and digitise stamp duty on documents that transfer shares. Stamp tax practitioners might say the time to reform stamp duty was 2003, when SDLT was introduced for real estate transfers, or even 1986, when SDRT was introduced for electronic share transfers. In any event, the recommendations made in 2017 have not yet been implemented.
HMRC’s temporary stamp duty measures, put in place to help prevent the spread of Covid-19, offer an opportunity for HMRC to test whether elements of the temporary measures could be rolled-out in the longer term and an opportunity for taxpayers and stamp tax practitioners to gauge whether the measures are less time-consuming and cumbersome than the traditional approach of posting stock transfer forms. Even taking into account the potential drop in activity during the Covid-19 pandemic, this remains a good testing opportunity.
It is the relaxations offered by the temporary measures which are of most interest: stock transfer forms can be electronically signed and emailed to HMRC in both payment and relief scenarios; share registers can be updated without risk of HMRC pursuing a penalty; and communications can be had with the stamp duty team at HMRC via email. These relaxations share much with the OTS’s 2017 recommendation that stock transfer forms should be scanned and submitted to HMRC, with registrars able to update share registers on receipt of an HMRC-issued unique transaction reference.
The OTS recommendations went much further than suggesting stock transfer forms should be electronically submitted. There was acknowledgment of the wider inefficiencies of stamp duty and this was welcomed by stamp tax practitioners well-versed in the issues associated with the territorial scope of stamp duty and the complexities associated with employing declarations of trust as a means of expediting a register update.
There is therefore an ‘ideal’ scenario here, whereby HMRC’s temporary measures trigger a large-scale overhaul of the stamp duty regime in line with the OTS recommendations, with shares in companies incorporated outside the UK being taken outside scope and stamp duty ceasing to be a factor in the timing of transaction steps.
This overhaul should be outward-looking; not just to those countries which are ahead of us in terms of electronic processes for transfer taxes, but to other relevant UK bodies. The moves to enhance corporate transparency at Companies House should be part of a longer-term vision of a joined-up approach to unlisted share registration.
If that ‘ideal’ scenario is seen as too difficult to achieve in the next few years, the hope is that HMRC will adopt some kind of compromise, whereby the electronic measures we are seeing as a result of Covid-19 do not simply disappear when the Covid-19 pandemic starts to ease. It would be a shame if the steps taken towards a simpler stamp duty regime are followed by an immediate return to the old way of doing things.
In 2017, the OTS suggested modernising and digitising stamp duty on shares would be a natural development, given the electronic measures employed for SDLT and SDRT. In 2020, taking some steps to modernise and digitise stamp duty would be a natural development, given the temporary Covid-19 electronic measures employed by HMRC.
