This briefing was updated on 13 May 2020.
HMRC have introduced temporary procedures for the payment of stamp duty on, and the stamping of, stock transfer forms and other instruments of transfer. Under the usual procedure, stock transfer forms are physically stamped using a specialised machine located at one of HMRC's offices. However, due to the government's social distancing guidance, these HMRC offices are now closed, which means stock transfer forms cannot be submitted for physical stamping. HMRC have introduced temporary procedures to allow for the stamp duty process to be completed online via email. These temporary procedures apply to stamp duty, and not to stamp duty reserve tax or stamp duty land tax.
Summary of temporary procedures
Under the temporary procedures, the stamp duty process will be dealt with electronically, with correspondence via email and payments/repayments by bank transfer. HMRC will accept PDF copies of wet-ink instruments of transfer, or electronically executed instruments of transfer (i.e. instruments executed via e-signature). This also applies to any supporting documents that need to be submitted as part of a stamp duty application, or application for stamp duty relief. Further detail on the various procedures is set out below and the full guidance can be found here.
- A scanned version of a wet-ink stock transfer form, or an electronically executed stock transfer form, will be submitted to HMRC by email. HMRC have expressly stated that they will accept e-signatures during this period.
- The stamp duty will be paid by bank transfer prior to sending the email above and the payment reference will be set out in the email.
- When HMRC have confirmed payment and reviewed the details, they will send back by email a confirmation letter which will acknowledge payment, identify the relevant transaction and give "assurance that HMRC will not pursue a penalty against the Registrar for registering ownership of the shares". The tax adviser will then provide that confirmation to the registrar of the relevant company, who in practice we expect will write up the books based on the scanned stock transfer form and electronic confirmation letter. The letters we have seen in practice have also included comfort that the temporary arrangements will be respected for the purposes of stamp duty reserve tax (or SDRT), but the legal basis for that comfort is not clear, as mentioned below.
- A similar process will apply where Form SH03 is required to be submitted to Companies House in the context of share buybacks.
Stamp duty reliefs (including stamp duty group relief)
- Applications for stamp duty relief will also be made electronically. The stock transfer forms will be submitted in line with the procedure above. In terms of a letter of claim, HMRC will accept a PDF scan of a wet-ink letter or a letter that has been executed electronically via e-signature. In terms of the supporting evidence that often needs to be submitted alongside a claim for relief (e.g. extracts from registers of members, SPAs, board or shareholder resolutions etc.), HMRC have stated that they will accept electronic copies of these. In the case of registers of members, it is not even necessary to submit a copy – instead HMRC will only require a list of shareholders and the shares they hold (including class of shares).
- If HMRC confirms that relief is due, HMRC will send an email that will include a letter that will: (i) detail the transactions HMRC are confirming relief for, and (ii) give assurance that HMRC will not pursue a penalty against the Registrar for registering the new ownership of the shares.
'Wait & see' applications
HMRC have not yet issued guidance on how 'wait & see' applications (which are used in the context of share sale agreements with a completion accounts pricing mechanism) will work under the temporary COVID-19 stamp duty procedures. However, we have suggested to HMRC that they implement a procedure that broadly reflects the position outlined above, with the entire process being dealt with via email. The current 'wait & see' process requires an undertaking to resubmit the instrument of transfer once the final duty is known and to pay any additional duty. Currently, this is usually addressed through a solicitor preparing a letter (containing the undertaking) which is signed by the client and sent under covering letter by the solicitor to HMRC. In principle this approach could be replicated, with the client electronically signing the letter (or taking a PDF scan of a wet-ink signed letter). However, we have suggested to HMRC that clients should be able to provide email undertakings (sent by a director, company secretary or equivalent officer) under the COVID-19 temporary procedures. We are awaiting further guidance from HMRC.
Stamp duty repayments
Stamp duty repayments (including where a repayment is due following a 'wait & see' application) will only be made electronically, rather than by cheque. Where a repayment is due, HMRC will send an email requesting bank account details via a link to a secure location. HMRC will send an email confirmation once the repayment is processed.
Issues left unresolved
While the guidance is very useful and gives a practical way forward, there are a number of issues that will need to be considered by HMRC in due course, and may well require legislation. These include: the prohibition on relying on a document in a Court if the document is stampable but not yet stamped; and the interaction of stamp duty and stamp duty reserve tax (and how the liability to SDRT is going to be eliminated when there is not, technically, a duly stamped document). Even if HMRC takes the view (as their recent letters suggest they will) that the temporary stamp duty process franks the SDRT charge, taxpayers may need to think about whether this is technically correct as a legal matter (e.g. as part of a disclosure exercise on M&A transactions).
What does the future hold?
It is not clear what will happen when the government's COVID-19 social distancing measures are lifted. Will legislation be introduced that deems documents that have been "stamped" under the temporary COVID-19 stamp duty procedures to have been stamped for all legal purposes? Or will documents that have been "stamped" under the temporary procedures need to be resubmitted for physical stamping? HMRC have already indicated that, in the context of stamp duty repayments and 'wait & see' applications, documents will need to be resubmitted for physical stamping. We are hopeful that HMRC will clarify this soon. The former approach would be preferable from both a practical and legal perspective. The latter would be logistically cumbersome and would require advisers and taxpayers to think now about how documents should be stored so they can be resubmitted for physical stamping at a later date.
More generally, the current situation has outlined the potential inefficiencies and problems of a physical stamping process, and shown that it is possible to implement more efficient systems using modern technology. Perhaps this will be the start of a move to an entirely online-based stamp duty process in future…