30 January 2019
Companies without a market price for their shares will need to consider the price at which directors and employees will be given the opportunity to acquire shares or exercise share options. This is important for accounting as well as tax purposes.
From a tax perspective, Company Share Option Plan (CSOP) options cannot be granted with an exercise price that is at a discount to the market value (on the date of grant). Whereas Enterprise Management Incentive (EMI) options can be granted with any exercise price, ie for commercial reasons, the exercise price can be less than or at a premium to the tax market value of the shares.
Directly acquired shares need to be acquired at no less than their market value to avoid a tax charge on acquisition. Where the share price, size of the proposed holding and or profile of the participant means that funding the acquisition cost could be an issue, other arrangements for example, growth shares, deferred shares or joint share plans could be considered. If such plans are used, a tax valuation will be needed to determine the market value of the shares.
Many companies will carry out valuations for other purposes, in which case these can provide a starting point for the valuation of shares. However, the relevant tax legislation and case law sets out specific requirements for a fiscal valuation, so many companies will ask a third party accountant or valuer to value the shares for tax purposes.
How can BDO help?
We can carry out all forms of share valuations (including for CSOP and EMI) as well as management incentive valuations under ITEPA. We can advise on the tax impact for you and your employees, taking account of your company’s circumstances and market practice. This can include a review of your company’s position to determine whether you qualify to implement the EMI and other approved arrangements.
For help and advice on all elements of creating the right incentive plan to help your business grow, please contact Andy Goodman or Matthew Emms.
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