Shares instead of pay (S.E)

Shares instead of pay (S.E)

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A consultant takes shares rather than a fee for work carried out on a limited company, for which he isn’t connected. Would you just declare the value of the work in his D1 turnover?

Thank you
Bob Anderson

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By GrahamASA
04th Dec 2008 17:05

Valuations
The initial value is normally determined by the "barter" value of the work. For example, if our client was working for 6 months on a movie set he'd value the work at say £180,000 - which he would invoice if we wasn't swopping it for shares.

In almost all cases, the shares he acquires are minority shares and in a category that have limited or no voting rights. Now and then he gets ordinary shares if he's swopping work for shares in a small limited company - but the valuation method doesn't change.

My thinking is that: he is "buying" the shares for the value he is losing out on by not charging a fee. What the intrinsic value actually is is so subjective that it would be almost impossible to determine a fair market value for the shares anyway, other than in 1 case they were non-marketible shares in ltd companies.

A word of caution though on these "barter" transactions - we treat the transaction as a vatable transaction. From what we received from a tax expert is that there is still a sale of services and is therefore VATable, but receipt for the services is a non-cash transaction. This wouldn't be the case if he contributed time/expertise to a new venture and received subscriber shares though... that would be an allotment of shares for non-cash.

I hope this helps.

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By AnonymousUser
04th Dec 2008 11:02

Graham ...
how do you arrive at your valuation of what is presumably a minority interest in an unlisted investment. Are you focusing on the value of the consultancy services provided or the valuation on the investment?

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By GrahamASA
03rd Dec 2008 22:24

Recording the value
We have this quite often with a client who does the exact thing on film work, music recordings, special events etc where he "swops" a fee for an interest in the project.

We record the income through: crediting sales and debiting unlisted investments. Any income from the unlisted investments are brought in as income from investments.

In your case, if you didn't want to disclose the value of "debit" as an unlisted investment, you could debit drawings and the SE consultant would hold the shares in their own name outside of the sole trade. By holding the shares in his/her own name you could take advantage of the div tax credits, etc.

If you wanted the long way 'round:
1. Debit debtor account
2. Credit sales
- Raise the value of the work

1. Debit unlisted investments/Drawings
2. Credit debtor account
- Settle the client's account and raise the value in investments.

I hope this helps.

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