EMI - overvaluation of company

EMI - overvaluation of company

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My client on inception of his company's EMI scheme insisted his company was worth £3 million. He now feels this is unrealistic given that he has only one major client. He feels the valuation to be nearer £1 million. The original valuation was not submitted to HMRC for agreement.

Options are in issue for exercise price of £30 per share which would have to be amended to £10 per share. The option holders would (obviously) not object to this.

The EMI rules seem to indicate that this would not be a disqualifying event since that market value of the shares are decreased rather than increased.

Does anyone have any views on whether this reduction is possible? I am certain it would be enquired into by HMRC but it is certainly possible to provide figures justifying the reduced valuation. The client feels he would not be able to sell his business for more than £1 million. Would new or replacement options have to be issued? are there any other logistical problems?

As an aside, if an exercise price was £10 but on exercise nil was paid, does the £10 have to be accounted for through PAYE or could the option holder declare it on his/her Tax Return as if it were a non-RCA?
Dave B

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