Receiving shares in settlement of invoice

Receiving shares in settlement of invoice

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Consultancy client working with an EIS qualifying company looking to get an AIM listing.

Rather than pay him cash for work invoiced, they have given him a number of shares in the Company.

Also, he has recently set up a company which he will now use to trade from, so he can be flexible as to whether he invoices via the company or his, soon to be ceased, sole-tradership.

Which do you think would be the better option?

Are there any implications to his trading company owning these shares that I should be aware of?

Many thanks for your thoughts.
Dave Paveley

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By Dave Paveley
14th Jan 2006 01:17

Thanks..
I am happy with the treatment as income and indeed the valuation of the shares.

I was thinking more of whether it would be better to hold the shares personally or keep them in the company?

Could this affect the status of the company if the market value of the shares increases considerably?

Any pitfalls to be aware of?

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By User deleted
13th Jan 2006 18:20

partial answer only
. The receipt of the shares is treated as trading income.
There is a valuation anomaly, as the usual CGT rules[TCGA s273(3)] do not apply to earnings in the form of shares.
The valaution does not have to follow the usual statutory basis , so for example deemed knowledge of the parties is ignored.

See Gold Coast Selection Trust v Humphrey [30 TC 209]
"the profits and gains must be arrived at for the year in which the transaction took place by putting a fair value on the asset received. The fact that it could not, as we will assume here, owing to its size be disposed of in the market in that year does not mean that no profit or gain for Income Tax purposes has been made out of the transaction. It might be wrong to say it is the value to the individual trader which is to be taken, because that might bring in irrelevant matters. We think it would be right to say that it is the value to him or to any similar trader who would have been in a position to carry out the deal, in other words, a fair intrinsic value."

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