Employment related securities question

Employment related securities question

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My client is about to become a shareholder and director in a tech start up company, I have concerns about a possible ERS issue and would be grateful for comments, the facts are as follows -

The company was formed in September 2012 and first year accounts to Sep 2013 showed very little activity with a small loss of £10,000 funded by the sole shareholder/director. The director and my client are both confident that the company had no value at this date, there was no intangibles, no IP or other possible value that wouldn't show up on balance sheet.

In November 2013 my client started working for the company and an agreement was reached in principle gifting him 30% of the shares of the company at par from the director subject to certain reverse-vesting conditions on these shares which would mean he would have to return them if certain milestones were not met over the next 3 years. These shares would therefore appear to be restricted shares subject to forfeit. There is an email exchange documenting this agreement but it was not formalised at this time as the exact details of the shareholder agreement were still to be finalised - so no stock transfer form or form 42 were completed.

In recent months as a result of work performed on new products an agreement in principle (not yet signed) has been reached to provide products to a major client and an SEIS share issue is due to take place next month with 5% of the share capital being offered at a value of £150,000, subscribers are already in place which does therefore suggest a significant market value of the company at this date.

My client is now being asked to sign the shareholder agreement so that the shares can be transferred to him and he is obviously concerned about the income tax implication as this does appear to be caught by the employment related securities legislation. I would welcome any comments or suggestions on both how HMRC would view this scenario and possible ways of mitigating my client's potential income tax exposure.

 

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Nichola Ross Martin
By Nichola Ross Martin
15th Sep 2014 14:17

yes they appear employment related

The new Finance Act heralds new penalties for failing to report employment related securities, but only for 2014/15. There would have been an obligation to file form 42 and then there is the small matter of reporting under SA.

Happy to hold your hand in sorting this out, but I would charge for my time, would need to take a look at the valuation and the detail.

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By yogic accountant
16th Sep 2014 14:58

thanks nichola

thanks for your thoughts Nicola, am still in discussion with the client about this matter but may come back to you at a later date depending on how this evolves

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