Who will need Form 42: Employment-Related Securities
The Securities Exchange Act of 1934 requires reporting companies to file reports with the SEC under certain circumstances. These reports are generally filed electronically with EDGAR. However, some filings must be submitted on paper. This course provides information about the filing requirements applicable to public companies. Topics include the types of reports required; how to determine whether a report must be filed on paper; what documents must be included in each report; and where to find the appropriate form(s).
This course does not cover the filing requirements for non-reporting companies, such as partnerships and S corporations. For additional information on those requirements, see ERSM140110 – Filing Requirements – Forms 10, 25, 35, 37 & 48″.
By reason of employment
– What does it mean?
The term “by reason of employment” appears in several areas of Canadian law. In some cases, it refers to the acquisition of property by an individual while employed. For example, if you buy a house while working for someone else, you could say that you bought it by reason of employment.
In other cases, it refers to certain types of contracts that are deemed to have been entered into by employees. For instance, if you sign a lease agreement while still employed, the landlord might argue that you agreed to pay rent by reason of employment. This type of argument usually works best where there is no written document signed by both parties.
If you want to know whether something you did qualifies as having been done by reason of employment, you’ll probably need to consult a lawyer.
Employment-related securities and securities options
Shares in any body corporate (including those held by trusts) are exempt from tax. This includes shares in companies listed on stock exchanges, including Australian Stock Exchange Limited (ASX). ASX listings include shares in public companies, such as banks, energy companies and mining firms; and shares in private companies, such as software development houses.
In addition, shares in companies listed on the ASX are exempt from capital gains tax. If you sell shares in an ASX listing, you do not pay capital gains tax. However, you must report the sale on your income tax return.
Securities and securities options are not taxable. They are treated differently from shares because they are bought and sold like any other financial instrument. You cannot deduct expenses related to buying or selling securities or securities options. But you can claim deductions for interest paid on loans used to buy securities or securities options.
You can also use securities and securities options to offset losses against other types of assets, such as property. For example, if you hold shares in a company and it goes into liquidation, you can offset your loss against your capital gain from another asset, such as land.
Cash and Account balances
A cash balance account is a type of savings account where you deposit money into it and earn interest. You can use the funds to pay bills, make purchases, or save for future expenses. In addition, there are some accounts that allow you to withdraw the money whenever you want. These types of accounts include checking accounts, money market accounts, and money market mutual fund accounts.
There are several things to consider when opening a cash balance account. For example, the bank may charge fees for each transaction. Also, you might be charged a monthly maintenance fee. If you plan to keep the account open for a long period of time, you may incur additional fees.
You can find out how much interest you will receive by looking up the current yield on the account. This number indicates what percentage of the total amount deposited earns interest. Some banks pay 2% per month while others pay 0.5%.
If you decide to close the account, you will lose the interest earned during the term. However, you will still owe the principal. Therefore, it is best to avoid closing the account unless you have already used the entire amount.
Another thing to consider is whether to invest the money in stocks or bonds. Bonds usually provide better returns than stocks because they pay fixed amounts every six months. However, stocks tend to fluctuate in value over time.
Securities that are no longer tied to a job – 7 Year Rule
The SEC recently announced a change to Regulation S-T, which governs securities transactions involving former employees. Under current rules, a person ceases to be an “employee” for purposes of Section 16(b), the section governing short-swing trading, if he leaves his position without having sold any shares.
This rule applies even if the individual does not sell any shares while working outside of his employer. However, there are exceptions to this rule. For example, shares held before the employee left his employment remain subject to the restrictions of Section 16(b). Also, shares acquired through a stock option plan do not count toward the one-year holding requirement. Finally, shares acquired as part of a pension or retirement package do not count toward the holding requirement.
In addition, shares held by individuals covered by Regulation SHO, the section governing sales by registered investment companies, cannot be counted toward the holding requirement. These provisions apply regardless of whether the employee sells any shares while working outside his employer.
Market value to be used
The market value of shares held by a shareholder should be used to calculate the amount of capital gains tax payable under section 54(1)(a).
Section 54(1)(a) provides that where a person holds shares in another corporation, the gain derived from the disposal of those shares shall be determined by reference to the market value of the shares immediately before and immediately after the acquisition and sale.
Where there are significant changes in the market value of the underlying assets during the period between the acquisition and the disposal, it is necessary to determine whether the change in market value represents a change in the fair market value of the asset. If the change in market value does represent such a change, the taxpayer is entitled to use the market value of the asset as of the date of the disposal.
If, however, the change in market value is attributable to events occurring after the date of acquisition, the taxpayer is not entitled to use the market values of the asset as of that date.
In determining what constitutes a change in market value, the following factors are relevant:
• Whether the change in market value relates to a substantial increase or decrease in the proportionate value of the underlying assets;
• Whether the change is due to events occurring after the acquisition date;
Meaning of market value
The purpose of Form 42 is to enable employers to calculate corporation tax liability for each employee. The calculation is based on the net income of the employer. This includes profits from trading activities, dividends paid and interest earned. In addition, there are deductions for expenses incurred in carrying out the trade or business and losses arising from the disposal of assets.
For the purposes of calculating corporation tax liability, the market value of shares held by employees is taken to be equal to the amount of money shareholders could sell those shares for within 30 days.
Employers must complete Form 42 for every employee and submit the forms to HMRC along with the annual return.
If we receive a completed Form 42 for a current year, we will use the values recorded in the form to calculate the amount of corporation tax due and pay it to HM Revenue & Customs.
We do not normally require additional information about the valuation of shares. However, where we believe that there might be problems with the valuations entered on the form, we may ask for further information. We will usually request this information from the person responsible for the valuations.
Where we are unable to obtain the required information, we may decide that the valuation used does not reflect the true market value of the shares and therefore cannot proceed with our calculations.
You should make sure that the value you enter on Form 42 corresponds to the actual market value of the shares you hold. You should ensure that the value you enter is correct at the date you submitted the form.
NICs Agreements
Employers are able to enter into agreements with the Department whereby they agree to pay certain NICs which may arise from the provision of employment related services. These agreements are known as NICs agreements.
Paragraph 3A(2) of Schedule 2 of the Social Security Act 1992 provides that employers may enter into such agreements with the Department.
An agreement will be considered valid only if it complies with paragraphs 3A(2)(c), 3A(2)(d) and 3A(2)(e).
The agreement must be signed by both parties and kept by each party.
If the employer recovers less than his/her full liability, he/she must repay the difference between what was actually recovered and the amount of the NICs owing.
Interest commences to run on the date on which the agreement is made.
If the employer collects more than his/her full obligation, he/she must refund the excess amount together with interest.
NICs Elections
An election must be held within 30 days prior to the end of the financial period. Employees must be given a chance to vote for themselves. If there is no election, the current system will continue.
Frequently Asked Questions
Who needs to complete an ERS return
The answer is simple – if you have been working in the UK for at least 12 months then you need to complete an ERS (Employer’s National Insurance) return.
What is Form 42 called now
Form 42 is known as a ‘Cannabis Grower’s License’ in the United Kingdom. It was introduced in April 2017 and replaced the previous license system.
