There seems to be a lot of unfounded negativity about the new employee shareholder status regime. Our view is that this is a very attractive regime where EMI options will not be available.
By way of recap this regime allows employees to receive shares worth between £2,000 and £50,000 from their employer company if they forfeit various employment rights. Although income tax will be payable on all but the first £2,000 of share award, any gains on the shares will be tax free (compared to rates of what would usually be 28% and higher).
The main objection which is raised to this regime is that the employee has to give up statutory employment rights (such as unfair dismissal) but in reality these rights can be reinstated into the employment contract.
There are very few restrictions on these shares and if growth shares are issued (shares which only have rights to capital proceeds over a set hurdle rate) then very low upfront values can typically be agreed with HMRC.
These shares are also suitable in venture capital scenarios. Here EMI options may be precluded either due to the nature of a group’s activities or because the independence requirement is not met (this is the case if a company is controlled by another company). In situations where a venture capital vehicle has acquired a company there is typically a high level of debt and preference shares in the new company which will depress its value. In our experience HMRC will agree low share valuations in these circumstances as most value equates to ‘hope value’.
We will be discussing the new Employee Shareholder Status at our free upcoming seminar taking place on Monday 7th July 2014 from 1.30pm at the Marriott Hotel in Worsley (see here). There are a limited number of spaces still available. Please contact Yvonne Walsh on 0161 927 9277 or by email on Yvonne@forbesdawson.co.uk if you would like to book a place.
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