An independent share valuation is often a key step in the design and implementation of an employee share schemes for an unquoted company.
Tax valuations in the UK are subject to special rules which have evolved out of a combination of case law and legislation. Whether a valuation is acceptable for tax purposes is ultimately a matter for HMRC. There is a specialist department within HMRC known as Shares and Assets Valuation which reviews share valuations.
Valuations for non-government-backed plans
It used to be possible to agree, after the award, the value for tax purposes of shares received by employees. However, this has now been withdrawn as HMRC come under continued pressure on their resources.
To find out more about HMRC's withdrawal of Post Transaction Valuation Checks (PTVCs), click here to read William Franklin's article in Tax Adviser on 1 September 2016.
This should not deter private companies from operating share plans. However, it is important to have a clear contemporaneous record of the basis on which a value was determined (and, if applicable, on which PAYE was operated) and the reasoning used, in order to prevent any later challenges at a time when the share price might have significantly increased.
Valuations for tax-advantaged plans
Valuations can still be agreed in advance of awards for EMI, CSOP, SAYE and SIP arrangements.
As EMI options are very popular and valuations are often sought, HMRC have issued guidance on their views as to how valuations in various circumstances might be prepared in the form of a number of worked examples.
Theses worked examples are intended only to be guidance and HMRC share valuations recognise that taxpayers may reasonably have different views about some of the assumptions made in the worked examples.
Click here to view HMRC's Enterprise Management Incentive Share Valuation Worked Examples.
How Pett Franklin can help
- Undertake independent valuations
- Negotiate and agree valuations with HMRC
- Advise on the valuation implications of different potential share schemes
- Advise on the accounting implications of an award and the difference in valuations for accounting and tax purposes
- Assist clients who want to undertake their own valuations
To discuss this further, please contact William Franklin at firstname.lastname@example.org or call 0121 348 7878.