A specialist service for lawyers and other advisers involved with corporate transactions.
Due diligence of employee share schemes can be a difficult area for the corporate or general tax lawyer. It requires specialist knowledge of employee share schemes, and the potential financial exposure can be substantial.
Dovetailing with your own work on the general tax warranties and indemnities, we can:
- offer a high-quality but cost-effective review of the target company’s share scheme affairs;
- identify and quantify potential concerns; and
- suggest practical solutions.
Typical problem areas include:
- Preserving corporate tax reliefs
Employee share schemes in corporate transactions often generate substantial corporate tax reliefs which can be overlooked and, unless the transaction is structured correctly, they can easily be lost.
- Avoiding penal tax charges
Unexpected PAYE liabilities which fall on the company, but which the employee does not reimburse within a statutory time limit, can trigger additional penal tax charges.
- ESOT – surplus shares
What happens to unallocated shares held in an employees' share trust?
- Unusual share schemes
Many companies use bespoke share plan arrangements for key employees (eg awards over special classes of shares). Have they been correctly implemented and what is the potential exposure if they are challenged by HMRC?
- EMI schemes
EMI schemes are very common and can give substantial tax benefits, but they rely on self-certification not approval by HMRC. Was the scheme in the target company correctly set up and can you rely on it?
- EBTs and Disguised Remuneration
The 2011 Disguised Remuneration legislation is intended to stop arrangements whereby companies funded EBTs which then made loans to employees without accounting for income tax and NICs. But what about the many companies that have used such arrangements in the past? If you are involved with a company which has used such an arrangement, what is the exposure?
- Last-minute planning opportunities
Prior to a transaction there may be last-minute planning opportunities which a share scheme review may identify, eg if employees are to receive a cash bonus on completion, maybe this could be structured as an EMI option with significant tax savings.
How Pett Franklin can help
A ‘holistic approach’ is often required to the issues produced by a corporate transaction, which Pett Franklin is uniquely well placed to provide, with its fully-integrated multi-disciplinary practice which combines law and tax with accounting and share valuation.
Please contact Stephen Woodhouse at firstname.lastname@example.org or call 0121 348 7878 if you would like to discuss this further.