Due to the ongoing COVID-19 crisis and the difficulty (and associated risk) in posting original documents to the Stamp Office, HMRC has announced that it has temporarily changed the way it deals with stamp duty. HMRC expects to update its guidance again when the measures end.
HMRC's updated guidance deals with the payment of stamp duty which is due on the paper transfer of shares or securities (or the applicability of any relief from stamp duty). The guidance does not deal with Stamp Duty Land Tax (SDLT) or stamp taxes on share trading – Stamp Duty Reserve Tax (SDRT) as both SDLT and SDRT have been digitised for several years.
Stamp duty, perhaps in keeping with the fact that it is arguably the UK's oldest form of taxation, is still administered by impressing the instrument of transfer with a physical stamp, and still requires a "wet ink" signature on the instrument of transfer. It is only when the stamped document is received by the relevant company registrar that the company books can be updated to reflect the change in ownership of the shares. Prior to its recent guidance, HMRC did not accept electronic signatures or online stamping.
Stamp Duty liability
HMRC has now confirmed in its updated guidance that during the period of the COVID-19 crisis, an electronic copy of the fully completed, signed and dated stock transfer form (or the relevant instrument of transfer) should be emailed (with any supporting documents) to email@example.com. The originals should not be posted. HMRC specifically confirms that it will accept e-signatures while the COVID-19 measures are in place. The stamp duty must be paid (electronically) before HMRC will process the stock transfer form.
The updated guidance confirms that a taxpayer can also email an electronic version of form SH03, to the same email address, to notify HMRC of the purchase of own shares by a company.
HMRC advises that if a taxpayer has already posted any original documents, they should resubmit their notification electronically and include the details of any payments they have made in respect of that notification. Failure to do so will mean that the original instruments will not be assessed or returned to them until temporary COVID-19 measures end.
Once the correct stamp duty has been paid, HMRC will send an email to the taxpayer that will include a letter that will:
- confirm receipt of the stamp duty;
- detail the transactions they are confirming receipt for and the reference codes; and
- give assurance that HMRC will not pursue a penalty against the Registrar for registering the new ownership of the shares.
Claiming stamp duty relief
The process for applying for relief from stamp duty during the COVID-19 crisis is also being done electronically. The updated guidance confirms that the taxpayer must indicate within the e-mail subject box the relief being claimed (for example, intra-group relief, acquisition relief) and the email should include an electronic copy of the stock transfer form or instrument of transfer.
HMRC recognises that applications for stamp duty relief often require additional information to prove the criteria for relief is met; to minimise file sizes, HMRC will temporarily only require a list of shareholders and the shares they hold (including class of shares) for each company, rather than full copies of full registers of members (unless HMRC specifically request them by email).
As with the process for the payment of stamp duty, if a taxpayer has already posted their claim for relief, they should resubmit it electronically and if HMRC confirms that relief is due, they will send the email that will include a letter detailing the transactions and the reference codes and will give assurance that HMRC will not pursue a penalty against the Registrar for registering the new ownership of the shares. The taxpayer must send it to the registrar of the company along with the stock transfer form and share certificate.
Osborne Clarke comment
Although updated guidance is helpful to navigate through these difficult times, no change has been made to the underlying stamp duty legislation, which requires an original instrument of transfer to be physically stamped. However, we would except that in such extraordinary times, lenders and other parties relying on a duly stamped document would accept the temporary measures put in place by HMRC and that, similarly, HMRC would not levy penalties if electronic filings and payment are made in accordance with these new processes.
We do hope, however, that HMRC may see the benefit in digitising the stamp duty process as a result of these temporary measures – which was indeed something recommended by the Office of Tax Simplification in its report in 2017. Digitising the stamp duty process would also have the benefit of aligning the scope with SDRT (and SDLT).
Finally, taxpayers must remember that despite the current crisis, no changes have been made to the time limit for payment of the stamp duty which, to avoid potential penalties and interest, remains 30 days from execution of the instrument of transfer. We would also recommend that taxpayers submitting stamp duty applications include a "read" receipt when the email is sent and also ask HMRC to acknowledge receipt of the email (whilst accepting, as highlighted in HMRC's updated guidance, that they cannot acknowledge each individual notification).
For further information on stamp duty and how we can help, please speak to one of the contacts below.