One feature of the COVID-19 outbreak is its exposure of outdated systems and processes.
One such example is the UK’s antiquated rules requiring physical stamping of instruments transferring shares and other marketable securities. With many members of HMRC staff working remotely, the usual process of submitting share transfer documents to HMRC for physical stamping is simply not possible.
As stamping is normally needed before the change in share ownership can be registered, this raised the unwelcome prospect of an indefinite delay between transactions completing and being legally registered.
Thankfully, HMRC have published guidance explaining a temporary set of processes to circumvent the problem during this emergency period. However, while this guidance is helpful, it does not (yet) address some tricky points.
The new procedures
In brief, the guidance states that hard copy documents and cheques will not currently be processed. Instead, all documents should be submitted (and stamp duty payments made) electronically to a dedicated mailbox: stampdutymailbox@hmrc.gov.uk.
Following receipt of the document(s) and any stamp duty payment, HMRC will issue an electronic confirmation that they will not enforce penalties against a registrar who registers the share transfer on the basis of the confirmation, without a duly stamped instrument.
HMRC have indicated they will seek to process applications within 15 working days. Whilst the guidance does not amount to a change in the law, in practice we expect UK registrars will be comfortable to update shareholder registers on the basis of such a confirmation.
Essentially the same procedure will apply to claims for relief from stamp duty (e.g. group relief) and for ‘no stamping’ letters on court approved schemes of arrangement.
If any documents have previously been submitted in hard copy but have not yet been stamped and returned, the guidance recommends that they be resubmitted electronically as hard copies will not be processed until the COVID-19 measures end.
Note that the normal deadlines for submission of a transfer instrument for stamping via the temporary electronic process and payment of stamp duty (typically 30 days after execution in the case of UK shares) have not been extended and the guidance does not suggest that interest and/or penalties will automatically be waived.
The main guidance can be found here (stamping) and here (payment) and the guidance relating to reliefs can be found here (general) and here (group relief).
Comment
On the face of it, this is a commendably pragmatic approach by HMRC, which should assist in overcoming the immediate problem. However, these procedures do raise some potentially awkward legal issues.
Firstly, the guidance does not explicitly address the situation following the withdrawal of these measures and the resumption of normal service.
On current law we believe it will generally be necessary to submit any original documents that were dealt with under the temporary electronic procedures to HMRC for physical stamping (and, therefore, to keep track of those documents in the interim).
The primary reason for this is that physical stamping of the document is necessary to cancel any associated charge to stamp duty reserve tax (SDRT) which could otherwise arise (and which would effectively give rise to double taxation of a single share transfer).
Even then there are potential concerns around interest and/or penalties arising due to ‘late’ stamping, but it is expected that HMRC will take a lenient view where these temporary procedures have been applied within the relevant deadlines.
A related issue arises due to the clear statement in the guidance that HMRC will temporarily accept electronically-signed documents. This is obviously helpful, but where a stock transfer form is completed electronically it is hard to know what HMRC would propose to stamp as the original document.
An obvious practical answer would be to stamp a printout of the electronic original, but the legal issues surrounding this are not entirely straightforward and will need to be thought through.
We are discussing these points with HMRC and hope that they will be addressed in updated guidance in due course.
Looking further forward, it will be interesting to see whether these COVID-19-related measures will prove to be an accelerant for a more fundamental (and long overdue) overhaul of the UK’s system of stamp duty and SDRT…
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