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Pett Franklin's Spring Bulletin

14 February 2019

 

Read our updates on the following:

1. The Employee Shares Worked Examples Group

2. The Impact of Brexit on Enterprise Management Incentives (EMI)

3. Growth Shares—Pett Franklin and ProShare Seminar

 

The Worked Examples Group (WEG)

The Worked Examples Group (WEG) is a joint initiative of HMRC and the various share scheme industry bodies—i.e. Proshare , the Employee Ownership Association (EOA), the Employee Share Ownership (Esop) Centre and the Share Plan Lawyers Group (SPLG). The aim of the initiative is to create a new forum to help reduce uncertainty over tax valuations for shares schemes following following HMRC’s withdrawal of the Post Transaction Valuation Check (PTVC) procedure in 2016.

The WEG is chaired by William Franklin, partner at Pett Franklin, with administrative support provided by the Esop Centre. Membership of the WEG includes valuation specialists and other share scheme experts.

The group’s goal is to produce worked examples that will help give guidance on the preparation of share valuations which will be published on the HMRC website. The WEG is an open source organisation and practitioners are invited to submit a worked example for consideration by sending a new worked example to weg@esopcentre.com. If you want to know more about the WEG, you may contact William Franklin at william.franklin@pettfranklin.com.

 

The Impact of Brexit on Enterprise Management Incentives (EMI)

Following the period of uncertainty that resulted from the government’s failure to secure EU state aid approval for EMI ahead of the expiry date of 6 April 2018, share scheme advisers have asked for clarity from HMRC on the status of EMI options after the UK exits the EU on 29 March 2019.

On 15 May 2018, the EU Commission decided to prolong the existing state aid approval for EMI to 6 April 2023, subject to the terms of any withdrawal agreement between the UK and the EU. In the event that the UK reaches an agreement with the EU in which the UK remains subject to the EU’s state aid laws, it would be expected that the Commission’s decision will continue to apply in the normal way and will be effective until 2023 when the UK would be expected to apply for renewal of that approval. However, in the increasingly likely event that the UK leaves the EU without having come to a formal agreement with the EU on the terms of its leaving, HMRC has indicated that the government’s guidance on state aid in the event of a “no-deal” situation should lend some comfort.

On 29 March 2019, the EU Withdrawal Act will, if effected as it now stands, repeal the European Communities Act 1972, which gives EU laws direct force in the UK, and will convert into UK domestic law, any EU legislation that previously had direct force in the UK (i.e. laws that would otherwise have lapsed on the UK’s exit from the EU). The government’s guidance, “State aid if there’s no Brexit deal” states that the EU’s state aid rules will be transposed into UK law under the EU Withdrawal Act. The guidance also states that the Competitions and Markets Authority will be tasked with the enforcement and supervision of state aid in the UK. Most importantly, the guidance states that existing state aid approvals will remain valid and be carried over into UK law.

In a meeting with leading tax advisers in the UK, HM Revenue and Customs has confirmed that in the event of a “no-deal” Brexit, the current state aid approval for EMI will continue to remain valid until 6 April 2023, with no gaps or periods of uncertainty as was experienced between 7 April 2018 and 14 May 2018—i.e. the period after the previous state aid approval for EMI had expired and before the EU’s decision to prolong the approval.

The use of EMI has steadily increased since its inception in 2000 with about 10,000 companies granting EMI options to some or all of their employees as at 2016. Therefore, confirmation that EMI state aid approval will remain valid regardless of the outcome of the UK government’s negotiations with the EU is welcome news to share schemes advisers and to companies who are planning on granting EMI options in the future.

 

Pett Franklin & ProShare Seminar: The Future of Growth Shares

On 11th March 2019, Pett Franklin and ProShare will co-host a seminar on Growth Shares and how they can be used to effectively drive growth in UK companies.

Growth shares are a form of incentive where employees are granted ordinary shares with limited rights, including the right to participate in the value of a company above a pre-determined threshold amount on a sale or other exit event.

The team from Pett Franklin will discuss various pertinent topics relating to growth shares including:

•Valuation and accounting;

•DOTAS and synthetic exits;

•Entrepreneur’s Relief; and

•EMI options over growth shares.

The seminar will be presented by William FranklinStephen Woodhouse and Charlotte Fleck who are widely recognised as experts in the share schemes industry.

To register for the seminar, please click here. If you have any questions, please contact Jennifer Harris at jennifer.harris@pettfranklin.com or 0121 348 7878.

Venue: ProShare offices at 6 - 10 Kirby Street, London, EC1N 8TS

Pett, Franklin & Co. LLP are experts in employee share schemesexecutive incentives and share valuation. To find out more about we how we can help you or your client, please contact William Franklin on william.franklin@pettfranklin.com or call 0121 348 7878.

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