In this Tax Bite, we give you a refresher on section 431 elections, with a focus on practical points and tips for transactions. Background – what are s431 elections and what do they do? Almost all shares acquired by a director (including a non-executive director) or employee of a company (or anyone connected with any such person) will be employment-related securities for tax purposes, bringing...
Read moreTax Bite – EMI share valuations – recent developments In addition to the considerable tax benefits of enterprise management incentive (EMI) options, the ability to agree with HMRC the market value of shares to be placed under EMI options is another really attractive feature of this type of share incentive. Outside of EMI and CSOP options, it is generally not possible to seek HMRC’s agreement to...
Read moreEMI options are the most attractive form of employee share incentives available, however they won’t always be available, for example where:The company is too big, in terms of numbers of employees or gross assets; The company carries on EMI-excluded activity or has investment activities; The individual is not a full-time employee; The individual already has £250,000 worth of EMI options, or...
Read moreIn October, HMRC published its long-awaited (at least by advisers) guidance on the use of discretions in EMI options. There has been a long period of uncertainty, during which it was not clear in what circumstances HMRC would regard the exercise of a discretionary power in an EMI option contract as: Not affecting the tax-advantaged EMI status of the option; or A change to a fundamental term of...
Read moreTax Bite – EMI share valuations – HMRC’s latest approach In addition to the various tax advantages of EMI options, the ability to agree the market value of the option shares with HMRC is a very useful further benefit of EMI. If shares are simply issued/transferred outside of an EMI option, there is no ability to agree the share value with HMRC and shares in a private limited company are...
Read moreTax Bite – Temporary extension to trading loss carry-back rules – implications for deals We noted in a previous Tax Bite that the Spring Budget on 3 March 2021 included proposals for a temporary increase in the carry-back period for trading losses in response to the impact upon businesses of the COVID-19 pandemic. In certain circumstances the carry back period has been extended to the three...
Read moreTax Bite – Growth Shares Growth shares are a popular form of equity incentive, particularly where enterprise management incentive (EMI) options are unavailable. This might be, for example, because: • The company carries on significant “excluded” or non-trading activities for EMI purposes, so does not meet the trading status requirement; • The incentive is to be in a subsidiary company; • The...
Read moreTreatment of Discretions in relation to EMI Options As you may be aware, HMRC have recently been taking a harder line on the treatment of the exercise of discretions in EMI option documents, with the result that they have been taking the view that where a discretion is exercised, an EMI option should be taxed as an unapproved option to the extent of the exercise of the discretion. It is common...
Read moreWe have received the anticipated, but long-awaited, welcome confirmation that where an individual has not been required to work for reasons connected with coronavirus, this will not (in itself) mean that the individual fails to meet the working time requirement for EMI purposes. The confirmation comes by way of amendments to the Finance Bill 2020, which will receive Royal Assent this summer and...
Read moreEMI options are a great way of delivering shares to employees. They are tax efficient, straightforward to implement and flexible. It is possible to agree the share value with HMRC before the options are granted (which is very attractive as that means there is certainty of tax treatment) and they can be put in place relatively cheaply. In most cases if a company qualifies to grant EMI options,...
Read moreWith all businesses more focussed at this time on cash reserves and potentially faced with having to make difficult decisions about their people, we are finding that companies are thinking about EMI options and the ability to reward employees with equity based awards. They are being used as an alternate remuneration strategy for example to compensate staff for temporarily taking a lower salary or...
Read moreWe are getting an increased number of enquiries about EMI options, sometimes linked with a salary sacrifice. Companies are hoping to agree low values with HMRC as a result of the economic uncertainty (we will update you once we have seen how HMRC are responding to these valuation submissions) and we have also seen companies wanting to reduce salaries in return for EMI options – this raises some...
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