Part A: Disguised Remuneration

basic dos and donts pitfalls to avoid examples

Part B: EBTs

where are we now? HMRC settlement opportunity income tax on share awards: now or later ? forfeitable shares vs. nil-cost options vs. conditional share awards using approved plans SIPs v EMIs using JSOPs restricted growth shares post Grays Timber deferred payment for newly-issued shares contracts for differences non employment-based ideas generous reliefs for owner-managed companies using SIPs

Part C: Planning against future withdrawal of 50% rate Part D: Planning ideas for delivering future growth

Part E: Other points of interest

Part A: Disguised Remuneration

Step 1
Is there an arrangement re rewards recognition or loans relating to an employment? s554A

Step 2
Is there a relevant step taken by a relevant third person? ss554B-E

Step 3
Is the relevant step excluded?

Step 4
How is the charge calculated?

Step 5
Is the amount charged reduced?

ss554E-W

ss554Z2554Z3

ss554Z4554Z14

Arrangement ? Relevant Step ?

Relevant 3rd Person ? Exclusion ?

Charge Reduction ?

Is there an arrangement for reward or recognition (or loan)?

Very broadly drafted and, for all practical purposes, if there is (or was, or is to be) an employment and the arrangement relates to it, then the new rules apply if a relevant step is taken in pursuance of the arrangement, or there is a connection between them If there is any doubt if such an arrangement exists ... it probably does!

Arrangement ? Relevant Step ?

Relevant 3rd Person ? Exclusion ?

Charge Reduction ?

Earmarking or quasi earmarking s554B Payment, loan or transfer of money or asset s554C Making an asset available s554D
5

Arrangement ? Relevant Step ?

Relevant 3rd Person ? Exclusion ?

Charge Reduction ?

earmarking with a view to a later relevant step being taken in relation to that money or asset (or money or assets derived from it) or

if a sum or asset starts being held specifically with a view to a later relevant step being taken in relation to it (or money or assets derived from it)

Arrangement ? Relevant Step ?

Relevant 3rd Person ? Exclusion ?

Charge Reduction ?

EIM 45110 suggests it has to be for named employee(s) What if EBT holds unallocated pool of shares against an obligation to satisfy existing or future awards and when called upon to do so?

What if employer earmarks, but EBT holds shares without knowing of such earmarking?
What if employee knows nothing?

Avoid supplying names and numbers to trustee in advance of transfers in satisfaction of awards/options?

Arrangement ? Relevant Step ?

Relevant 3rd Person ? Exclusion ?

Charge Reduction ?

Making of a payment or a loan Transfer of an asset (e.g. shares, car, horse or yacht)
Grant of option over, or interest in, any shares or securities Must be to, or at the discretion or request of, the employee or any person linked with the employee

Includes any form of loan or giving of security for a loan

Arrangement ?

Relevant 3rd Person ?

Charge Exclusion ? Reduction ?

Relevant Step ?

Loans to enable exercise of an employment-related share option, but only if:

exercise gives rise to an income tax charge: used only to pay exercise price, not tax on exercise (so no use if nil-cost option!) actually repaid within 40 days

Note:
loans must be to pay exercise price, not tax on exercise ! beware loans to be repaid on sale of shares in an illiquid market need to review cashless exercise procedures
9

Arrangement ? Relevant Step ?

Relevant 3rd Person ? Exclusion ?

Charge Reduction ?

Any person other than (i) the employee (A) or employer (B) or (ii) absent tax avoidance, any member of the same group as the employer
But, also the employee if acting as trustee, or B, if acting as trustee

group means 51% group (per TCGA 1992) If B is an LLP, B includes an wholly-owned subsidiary of the LLP
BUT: employer is normally the subsidiary, not the LLP ! does this mean 100% subsid of LLP is a member of the 51% group ?
example: Mr A (a member of LLP) is employed by subsidiary of LLP and awarded shares:
in corporate member in another subsidiary of LLP

10

If, for example, and subject to exclusions, an EBT (or other 3rd person):
makes a loan
begins to hold cash or assets for an identified employee

offers shares
grants share options

agrees, or is intending, to satisfy options granted by the company

makes, or will hold, bonus monies or shares

All DR charges are subject to PAYE

NICs due on charges arising on and after 6 December 2011:
except anti-forestalling charges arising on 6 April 2012 re step taken 9 December 2010 5 April 2011

11

If, for example, the employer company (or another member of the same 51% group):

issues new shares to employees/directors earmarks cash or treasury shares to satisfy awards to employees grants options to subscribe for new shares makes loans to employees (or directors)

If an EBT simply holds a pool of unallocated shares pending vesting of share awards/options, of which the trustee does not know names of award/optionholders

12

Grant of employment-related securities option is excluded But treated as distinct from earmarking So, what if an EBT (or individual shareholder) earmarks shares to satisfy an option? Amount on which Part 7A charge arises is reduced by exercise price if:
option shares are relevant shares the option is granted under Bs employee share scheme the number of earmarked shares does not exceed the maximum number reasonably expected to be needed to satisfy the option there is no connection with a tax avoidance arrangement (s554Z7)

Charge on exercise (under Chapter 5, Pt 7) but if neither a MV option, nor excluded (per s554L or M), then immediate Part 7A charge on value of earmarked shares less exercise price ! Amount on which Pt 7A earmarking charge arises is a deductible amount on Pt 7 charge on exercise (s480(5)(d))
13

Part 7A charge on earmarking

assume terms not excluded by s554L or M

Charge on exercise under Part 7

relief by way of deduction of amount charged on earmarking transfer of shares on exercise excluded from Part 7A charge (s554N(5)(a))

No relief from initial Part 7A charge as:

554Z5 not applicable would only reduce value of later step for Part 7A purposes 554Z6 not applicable charge on later step not a general earnings charge 554Z13 - no just and reasonable relief as charge on exercise is under Chapter 5, Part 7 554Z14 no relief as the later event is itself a relevant step

Effect is to accelerate time of charge, and impose NICs even if shares are not RCAs

14

Arrangement ? Relevant Step ?

Relevant 3rd Person ? Exclusion ?

Charge Reduction ?

A relevant step taken under an HMRC approved: SIP SAYE option scheme CSOP (whether or not for tax avoidance purposes!) is excluded
A relevant step taken for the sole purpose of granting, holding shares for, or satisfying EMI options is excluded Provided the number of shares does not exceed that required for such purpose over the next 10 years ....... and there is no tax avoidance Amend plan rules to provide for earmarking by an EBT ?
15

Arrangement ? Relevant Step ?

Relevant 3rd Person ? Exclusion ?

Charge Reduction ?

Applies only to shares issued by the employer company or another member of the same 51% group
5 types of exclusion:
o
o o o o

deferred remuneration (max 5 year)

deferred conditional share awards exit only conditional share awards

conditional (max 10 year) share options

exit only conditional share options

16

Condition(s) may run for a period ending in advance of vesting date Minimum condition(s)?
not being a bad leaver leaving only by reason of gross misconduct?

What should be the safe minimum period of conditionality?

if too short, exclusion is lost because of tax avoidance purpose

Subsequent lifting of conditions Deferred share awards take care when setting vesting date
17

In principle, these should not, if properly structured, fall foul of Part 7A

If, with no prior earmarking, shares jointly acquired (by purchase or subscription) and employee pays, or suffers an earnings charge to income tax on, the full IUMV of his interest, then :
(a) any up-front Part 7A charge is reduced to nil by ss 554Z6 (overlap with earnings) and 554Z8(6) (consideration given); and (b) any subsequent relevant step relating to the employees interest is excluded by s554N(11)

Any option granted to employee to acquire trustees interest must be on terms which satisfy the share options exclusion
18

Company asks EBT to invite employees to buy shares from the EBT for MV. EBT invites to each normal employee with offer
EBT earmarks shares? No charge to tax on acquisition of shares from EBT

No immediate relief/exclusion from earlier earmarking charge Possible relief if offer not taken up: s554Z14 (but is declining or ignoring offer an event?) HMRC attitude to timing? Answers:
structure as grant of MV option? impose short-term risk of forfeiture? (s554Z7) (s554N(1)(b))

19

Arrangement ? Relevant Step ?

Relevant 3rd Person ? Exclusion ?

Charge Reduction ?

Transfers for consideration s554Z8

If transfer for consideration paid before, at or about time of transfer

up to 1 week either side?

If, for example, an EBT sells shares (or interest as joint owner) to an employee for cash paid before, at or about, the transfer of shares (etc.), then the value of the relevant step is reduced accordingly
If:

an EBT buys shares for cash;

the shares are transferred before, at or about, the cash is paid;

there is no tax avoidance

the value of the relevant step (payment of cash) is reduced by the market value of the shares sold

20

Identifying a relevant third person

examples:
grant of options by individual shareholders non-51% groups tax avoidance?

Is it reasonable to suppose that in essence:

the arrangement is a means of providing rewards, recognition or loans in connection with an employment ? and the relevant step is in pursuance of or there is a connection between the step and the arrangement ?
examples:
employer-provided petrol card target co. management incentives

21

Deferred payment sales of shares by an EBT

transfer of shares is a relevant step no exclusion if unconditional or requirements of s554H - M if not met no relief under s554Z8 (as consideration not paid before or at about time of share transfers)

Suggestion : have employer loan the consideration to employee who pays up-front MV for shares

22

Using LLPs
beware: legislation wrongly crafted LLP is not normally the employer ! examples:
A (a member of LLP) employed by subsidiary of LLP and awarded shares:
in corporate member in another subsidiary of LLP

Avoiding an earmarking Earmarking in advance of an award/option grant

23

Complying with the terms of an exclusion (ss554H M)

s554H: beware deferred awards of shares in independent unquoted company: if not RCAs, no PAYE due if they had been immediately awarded!

Remember vesting date:

s554H, J = date of transfer s554L = first (normal) exercise date

fallback charges Amend terms of trustee engagement ?

24

1. Family-owned company. Father (shareholder) grants option to acquire part of his holding to daughter employed in the business exercisable after 3 years, but not otherwise subject to any other conditions

2. Individual founder grants option to purchase shares to key employee

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3.

A key manager employed by a subsidiary of a small independent company is granted an exit-only option to subscribe for new shares in parent co. and, to secure ER relief, also acquires shares representing 5% nominal of ordinary share capital + 5% voting rights

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4. Mr C is an employee of a wholly-owned subsidiary of an LLP. He is invited (a) to subscribe for shares in S Ltd, a member of the LLP and (b) accept appointment as a director of S Ltd

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5. X plc has contributed funds to an employees trust which has purchased shares in X plc. 1,000 shares have, pre 6.4.2011, been appointed to a sub-trust for Mr D, an employee of a subsidiary of X plc on terms that the shares are at risk of forfeiture if the employee leaves within 4 years

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6.

A plc seeks to acquire control of TargetCo. A plc writes to selected managers of TargetCo. Stating that, if the acquisition is completed, they would be entitled to acquire 1,000 treasury shares in A plc

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7.

EBT earmarks shares for transfer to employees. Shares become worthless

30

Any loans to employees should be made by the employer or another 51% group company If paying deferred remuneration, check/amend documentation to ensure either :
it is to be paid by the employer; or the terms satisfy the s 554H exclusion (slides 18,19) no deferred remuneration can be paid after the vesting date

31

If EBT holds shares, avoid any fresh earmarking by withholding details of the names/number of shares being awarded to individual employees Check terms of linking agreements, EBT/company loan documentation, trust deeds (etc.) to avoid unexpected earmarking Amend CSOP/SAYE plan rules? HMRC view will allow CSOP/SAYE rules to provide expressly for earmarking (so that any earmarking is under the plan and therefore excluded) Amend trust deeds to oblige trustees not to take any relevant step without prior company consent
32

If share awards/options to be made, or satisfied by (or hedged through) an EBT, ensure the terms satisfy the exclusions in ss 554H-M as appropriate Amend plan rules to ensure:
compliance with relevant exclusion and shares/cash cannot be transferred/acquired after the vesting date vesting date is properly defined

33

Re-examine the terms of cashless exercise facilities which involve the making of loans (beware 40-day loans to be repaid from sales of illiquid shares)
leave exercise price outstanding against an undertaking?

Avoid arrangements involving share sales on deferred payment terms (unless using new-issue shares)
or, have employer group company loan cash to employee to fund up-front purchase

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Part B: EBTs

35

HMRC have yet to secure judicial authority in support of an earnings charge arising when trust assets were earmarked for an employee or loans made pre-9 December 2010
Glasgow Rangers case held over to January 2012

Authority is against them:

Sempra Metals Forde and McHugh Ltd v HMRC (re NICs)

But .......... is the tide turning? What if evidence that loans never intended to be repaid?
PA Holdings appeal

HMRC Settlement Opportunity: if HMRC secure a win on the point, the settlement opportunity could be withdrawn if a dialogue not already established

36

Case before First Tier Tribunal re what was the custom and practice at the time as regards s43 FA 1989 (ie pre 27 November 2002)

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Clearly, many EBTs have been wrongly operated:

loans made to 5%+ participators; or trust deed not excluded 5%+ participators from ever receiving benefits

Property appointed on revocable sub-trusts becomes relevant property

if no s13 protection (exclusion of 5%+ participators) then exit charges if sub-trust revoked, IhT charges under s65

If close company makes a contribution to an EBT with no s13 restriction on beneficiaries, then IhT charge arises on transfer of value apportioned to participators but charge primarily on the company
Postlethwaite case? cannot rely on exclusions re CT deductibility
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Note: children born after death of employee are not linked persons Loans to employer company (which then loans to employee): beware if made at behest of employee Sit tight ?
leave pre-9 December 2010 loans outstanding IhT advantages on death of employee post-retirement extraction at lower rates of income? invest in shares and appoint interest in dividends to employee?

Liquidate employer company? (solvent liquidation not possible) OR:

flee to Cyprus?
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Part C: Planning against future withdrawal of 50% rate

40

Income tax on share awards: now or later ?

41

Is it better to structure awards as restricted shares with income tax payable up front or as nil cost options, where income tax is payable on exercise and when income tax rates might be lower ?

42

10,000 share awards Nominal value negligible ignored Market value (UMV) at grant date 1 Share price growth 10% per annum 3 year conditionality s431 election made on acquisition (to ensure all growth taxed as capital) Ignore dividends, present value of money

43

Ignore NICs Ignore corporate taxes Capital gains nil rate band frozen at 10,600 Sell shares after 5 years Sufficient cash to fund tax (ie dry tax charge acceptable) Simultaneous reduction to top rate from 50% to 40% and CGT rate from 28% to 18%

44

Now

1 year

2 years 3 years 4 years 5 years

1.10

1.21

1.33

1.46

1.61

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Scenarios (a), (b) and (c)

(a) Share award with s431 election

Immediate income tax 50% x 10,000 x 1 = 5,000 CGT - sell after 5 years 28% x 10,000 x (1.61 - 1) = 1,708 (would be zero if nil rate band available)

(b) Nil cost option

Income tax on exercise after 3 years 50% x 10,000 x 1.33 = 6,650

CGT - sell after 5 years 28% x 1000 x (1.61 - 1.33) = 784

(would be zero if nil rate band available)

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(c) Assume after 3 years 50%

40% and 28%

18%

Nil cost option income tax CGT on sale Share award CGT on sale

40% x 10,000 x 1.33 18% x 10,000 x (1.61 - 1.33)

= =

5,320 504

18% x 10,000 x (1.61 - 1)

1,098

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Restricted Share Tax Rates Income Tax CGT Combined

If ER applies Combined
Share surge to 2 in year 5

Nil Cost Option Current 6650 784 7434

6930

Current 5000 1708 6708

5610

Potential 5000 1098 6098

5610

Potential 5320 504 5824

5600

Combined
Share surge to 10 in year 5

7800

6800

8526

6526

Combined

30,200

21,200

30,926

20,926

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If you do not expect tax rates to fall, then can be cheaper to take the upfront tax on initial value of shares with a restricted share award (providing a dry tax charge can be funded) But if tax rates fall it should be cheaper to grant and exercise a nil-cost option

49

Allows employee flexibility to determine when to exercise and trigger tax liability. Could delay tax point until later when rates fallen but beware if value surges e.g. rates fall in year 5 but value surged
exercise Income Tax CGT year 3 6650 15606 22256 year 5 40000 _____ 40000

but if sale and exercise after 5 years at least dry tax charge avoided
50

Do you want employees or company to be able to control tax point for income tax and statutory corporation tax relief and when employees become shareholders
Restricted shares - shareholder at start Contingent shares - shareholder after end of performance period

IFRS2 expense may increase with longer expected life Employers NIC transfer

51

Market value option e.g. 1 exercise price

Exercise after 3 years and assume no changes in tax rates for 5 years vs rate changes in 5 years and delay exercise

52

Exercise after

(50%) 3 years

(40%) 5 years

Income tax & CGT 10% pa growth 2434 2440

Surge to 2 Surge to 10

3526 17266

4000 36000

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Assume have to (and can) sell shares on exercise to fund exercise price and tax charge arising (ignore transaction costs)
e.g. 10,000 mv option worth 1.33 per share, total value 13,300

exercise price
tax on exercise

10,000 1650 11,650

Need to sell 87.6% of shares leaving only 1240

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Value on Exit (5 years) 1.61 x 1240 = CGT 1240 x 28p x 28% =

1996 (97) 1889

OR delay exercise (tax rates still 50%) Gain on exercise 61p x 10000 = Tax 50% 6100 (3050) 3050

55

Given flexibility of nil cost option and potential to optimise tax point why would one ever grant a restricted share?
Consider if:
company wants control of tax point/time of issue IFRS2 expense shares expected to grow substantially in value but no rate changes expected

Might not grant a restricted share as such, but would seek to grant an unrestricted share which contained as inherent features conditions which were not restrictions and so were reflected in UMV and AMV market values
56

Share Incentive Plans

but keep them simple

57

Offer cash bonus with choice of investing up to 1,500 (min 10) of gross bonus in Partnership Shares Effective 50/40/20 per cent discount For so long as held in plan, growth in value is free of CGT Clawback of initial relief if shares leave plan within 5 years Share valuation issues

Shares must be offered to all eligible employees Beware: if company sold < 3 years, clawbacks could be greater than upfront relief

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Share price

Time

Acquisition

> 3 -5 years

Sale

59

EMI
Growth in value charged to CGT

vs

SIP
Growth in value free of CGT Discount (ie saving of tax on purchase monies + value of Matching Shares) free of tax
Ind. limit 1,500 + 3,000 + 3,000 = ) 7,500 per tax year (AMV) Dividends can be reinvested tax-free (up to 1,500 p.a.) None

Discount on grant charged to IT on exercise

Ind. limit 120,000 (UMV)

No dividends until shares acquired on exercise Overall limit 3m (UMV)

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Part D: Planning ideas for delivering future growth

61

What is a JSOP or JOE? JSOPs vs traditional m.v. share options

Experience to date HMRC attitude

62

Share price

Employees gain Tax point

[3]% p.a. Carrying Cost
Threshold amount

Co-owners gain

Time

Acquisition

3 years

Sale

63

In executing the JOA and acquiring shares (by subscription or purchase) jointly with an EBT, the employee acquires a (restricted?) beneficial interest in employment-related securities Employee/employer must make a s431(1) election (to protect against future charges under Chapter 2) What is the IUMV of the employees interest?
valuation of the jointly-owned shares splitting that value between the joint owners effect of the carrying cost typical values

Insofar as employee does not pay full IUMV, employee has upfront charge to IT/NICs subject to PAYE best estimate: HMRC healthcheck procedure Growth in value accruing to employee charged to CGT No CT relief for growth in value

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In principle, these should not, if properly structured, fall foul of DR rules:

If, with no prior earmarking, shares jointly acquired (by purchase or subscription) and employee pays, or suffers an earnings charge to income tax on, the full IUMV of his interest, then :
(a) any up-front Part 7A charge is reduced to nil by ss 554Z6 (overlap with earnings) and 554Z8(6) (consideration given); and

(b) any subsequent relevant step relating to the employees interest is excluded by s554N(11)

Any option granted to employee to acquire trustees interest must be on terms which satisfy the share options exclusion
65

Valuation
Significance of the carrying cost No ability to agree IUMV in advance of execution of JOA Will HMRC Shares & Assets Valuation accept the valuation methodology? HMRC not obliged to agree value under health check procedure Need to apply for a PTVC at same time ?

Policy change ? Trapping value in an EBT: use a Guernsey/Jersey purpose trust?

66

Share price

Employees gain Tax point

[3]% p.a. Carrying Cost
Threshold amount

Co-owners gain

Time

Acquisition

3 years

Sale

67

Beware transfers by EBT (1) into joint ownership of employee and EBT (2) section 554Z8 Issues for a close company
s455 CTA 2010 loans to an EBT will give rise to 25% tax charge is it close?

PLCs: what if no distributable reserves? Entrepreneurs Relief from CGT

recognition of joint ownership: individual to be treated as sole beneficial owner of so many as is proportional to the value of his share s169S(4) TCGA 1992 but, time only runs from when interest grows to represent over 5%

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Have employee agree to pay full IUMV but leave outstanding unpaid: Chapter 3C charges?
only appropriate if shares subscribed by joint owners otherwise, DR charge on relevant step by vendor EBT

Loan to employee to fund the tax?

from group company from EBT X

Pay a grossed-up bonus to fund the tax? Invite employee to apply cash bonus in funding either IUMV of the employees interest as joint owner or the tax on acquisition?
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Participation in future growth in value of shares: other ideas

70

HMRC SAV: distinction between AMV/IUMV Variable entitlement on exit:

hurdle rate of exit proceeds, below which shares worthless other classes convert into deferred shares

Beware creating convertible securities Rights must not be personal

71

Employee invited to agree to subscribe for new shares for a consideration equal to their AMV/UMV, but on terms that the consideration is left outstanding against an undertaking to pay in cash at a future date Do not have shares sold by EBT ! If shares restricted, consider making a s431(1) election If a plc, undertaking cannot be for more than 5 years (s587 CA 2006)
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No general earnings charge on acquisition (as consideration MV) If purchased from EBT, immediate DR charge unless shares subject to short-term risk of forfeiture ! Annual notional loan charge under Chapter 3C, Part 7 by reference to Official Rate (so eg 50% x 4% = 2% p.a. on amount outstanding) Amount outstanding must be paid up when, or before, shares sold for consideration (else IT charge under s446U) If s431(1) election made, growth in value is charged to CGT
73

Shares in a private company may be issued for consideration in the form of an undertaking to pay at a future date If a plc, undertaking must not be longer than 5 years Annual charge on notional loan unless employee involved in management and conduct of a closely-held trading company Real commercial and tax risk if share value falls
Chapter 3D charge if shares sold for > MV Section 446U charge if notional loan released

Beware partly-paid (as to par value) shares! ER relief: must have 5% nominal + 5% of voting rights
74

If shares fall in value, it becomes a disincentive ! If amount outstanding is released or written-off, a charge to IT (and NICs) arises on that amount If shares sold to EBT at an overvalue, then charge arises under Chapter 3D, Part 7 (not under DR rules see s554N(5)(c)) If shares sold for value reflecting amount outstanding, a s446U charge still arises !

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HMRC practice: no charge under s446U if underpayment paid up when shares are sold
If partly-paid (as to par value) shares sold for an amount which reflects liability to pay calls, tax still charged under s446U on full amount of underpayment (relative to mv of a fully-paid share on acquisition) If shares acquired for MV, but on deferred payment terms, are sold but employee remains liable to pay up original acquisition price, then (currently) a charge still arises under s446U on the sale (even if subsequently paid up). Understood that HMRC intend that charge should only apply if and when the liability is released or written off (as with an actual loan)
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If shares are held by EBT, consider having employer make a loan to employee to fund cash purchase from EBT for AMV/UMV
to avoid a DR charge, the consideration must pass to EBT before, at or about the transfer of the shares

If legal title to shares retained by EBT, no further DR charges see s554N(7) (11) or because bare legal title of no value ! CCA: is loan recoverable ?

77

Entitlement to cash sum calculated by reference to fluctuations in share price Employee buys the security Idea is to create a security, elect under s431(1), so that future growth in value is subject to CGT Need to establish that it is a genuine security, not a mechanism for delivering a bonus Helps to have downside risk HMRC scrutiny:
what is IUMV?

78

Become self-employed? Convert to LLP? Have business carried on by LLP make loan to a trust for the benefit of one or more partners?

Beware:
non-s86 trust CGT anti-avoidance provisions ss714 751 transfer of assets abroad is it a distribution of profit share?

79

Up-front CT relief for funding a SIP to acquire a 10% interest Of interest to independent companies seeking to establish employee ownership model or proprietors seeking a tax-efficient exit SIP trust must acquire 10% within a 12 month period Shares must be acquired otherwise than from a company 30% of shares must be awarded as Free, Matching or Partnership Shares within 5 years, and 100% within 10 years. If not, HMRC may withdraw all of the relief by treating amount as taxable receipt when direction given Limits, of 1,500 Partnership (with up to 3,000 Matching) and 3,000 Free shares, means that employee profile may not enable sufficient shares to be awarded in time! If shares not awarded within 2 years (5, if not RCAs), then SIP trustees subject to CGT on growth in value
80

The individual vendor can roll-over the gain on sale to a SIP which acquires 10% or more within 12 months if, within 6 months of the SIP trust acquiring 10%, all of the consideration is reinvested in chargeable assets, excluding (only):
private residence EIS shares same group company shares

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Part E: Other points of current interest (December 2011)

82

Lady Justice Arden in Astall Case

if, on purposive construction, it is consistent with legislation, doesnt matter that HMRC dont like it!

Deutsche Bank case

was the result what Parliament envisaged?

Aberdeen Asset Management (money box companies) and PA Holdings (dividends on SPV shares)
form used to deliver earnings does not alter tax treatment

DR: a main purpose is the avoidance of tax or NICs G.AAR QC publishes GAAR

83

HMRC assert that shares in a company of which the founder is/will be/has been a director are employmentrelated securities Not so if opportunity to acquire shares was selfgenerated or by reason of personal relationship Test case awaited HMRC challenge sale of shares to EBT/employees as being at greater than (fully discounted) MV (Chapter 3D, Part 7) If sold to EBT using contribution from the company: transactions in securities charge

84

Our opportunity to effect change:

allow:
restrictions as to voting rights (on unquoted shares) pre-emption on leaving (see below) any other restrictions if they also affect all other ordinary shares

remove:
the requirements as to other shareholdings test

Amend permitted pre-emption rights so that obligation to sell on leaving need only apply to shares of that class. Employee/directors holding shares of any other class should not be bound to offer shares for sale on leaving Allow approved plans in private-equity backed companies SIPs: remove risk of penal clawback charge on takeover within 3 years CSOPs/SAYE: allow tax relief if company sold within 3 years

85

6 April 2012 6 April 2017 Relief 50% (even if investor is 40% tax payer) 1 year carry-back allowed, [but not from 2012/13?] Investors may be directors but neither they nor associates can be employees Limit of 100,000 on investment qualifying for relief Company must have:
gross assets 200K (count proportion of partner entity assets) less than 25 fte employees not raised more than 150K under SEIS (blue pencil rule) carry on or establish a new qualifying trade

Investor must have not more than 30% interest Company must not be partner or member of an LLP CGT reinvestment relief for gains in 2012/13

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Questions

87

David Pett david.pett@pettfranklin.com Office: Mobile: Twitter: 0121 348 7878 07836 657 658
www.twitter.com/pettfranklin

William Franklin william.franklin@pettfranklin.com

Office: Mobile: Twitter:

0121 348 7878 07889 726 767

www.twitter.com/pettfranklin www.pettfranklin.com

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