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E’ee bought shares in co, undisclosed

No formal share scheme...

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I am acting for Mr A, who in 2016 (15%) & 2017 (5%) purchased shares in his employer B ltd (subsid of foreign co C, in turn a subsid of foreign co D). Unsure of exact financials, but B Ltd prepares under FRS101, latest accounts at CoHo show BS of £250k, PAT c£650k. 
 

There was no formal share scheme in case, C Ltd said "Mr A, do you want to buy shares in your employer, B Ltd?". Mr A has become aware that he should have declared the MV/price difference on his SATR and paid tax on the benefit. I assume that nothing changes from this respect with it not being a share scheme? 
 

It's too late to amend the SATRs, so I was planning to write to HMRC with the calcs as an unprompted disclosure - is this the correct thing to do?

B ltd isn't my client, but would they have any reporting requirements? I've seen something online re Form 42, but that's when there's a share scheme ...?

 Thanks 

Replies (14)

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By Matrix
17th Feb 2020 18:57

He would only have had an income tax charge if the shares were purchased at a discount. B would have had to register an employee share scheme and filed the annual ERS form even if the transaction was at MV. I assume they would have advised your client if there was an income tax charge, so the transaction was not at MV? Or it could have already been subject to PAYE.

Why has this come to light now? Why do you think the transaction was not at MV?

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Replying to Matrix:
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By atleastisoundknowledgable...
17th Feb 2020 19:55

C is in the process of buying another uk subsid (B2). It came up in their DD that a similar (unreported) thing had happened in the past, they thought “oh, hang-on, we did that”. My client Mr A assumes discounted purchase, looking at NAV it will work out as such.

Nothing was filed, no schemes set up.

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Replying to atleastisoundknowledgable...:
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By Matrix
17th Feb 2020 20:28

For ERS purposes a scheme has been set up. I don’t see how you can write to HMRC unless you know the MV at the time of the transfers. It is up to A to obtain all the details and any recourse from B.

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Replying to Matrix:
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By atleastisoundknowledgable...
17th Feb 2020 21:55

Matrix wrote:

For ERS purposes a scheme has been set up. I don’t see how you can write to HMRC unless you know the MV at the time of the transfers. It is up to A to obtain all the details and any recourse from B.

A is planning to do a ‘Net Assets / no of shares’ calculation to get a figure to be used as MV.

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Replying to atleastisoundknowledgable...:
Psycho
By Wilson Philips
17th Feb 2020 20:46

“Scheme” is a misnomer. “Form 42” covers all reportable events, whether through formal arrangements or otherwise.

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Replying to Wilson Philips:
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By atleastisoundknowledgable...
17th Feb 2020 21:51

Wilson Philips wrote:

“Scheme” is a misnomer. “Form 42” covers all reportable events, whether through formal arrangements or otherwise.

Thanks. So the co (B) needs to complete Form 42.

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By atleastisoundknowledgable...
18th Feb 2020 09:36

It’s just emerged that the shares in B were purchased from C (100% parentco) rather than a new allotment.

Does this make everything discussed above null & void? or is it still all valid as he’s only been sold them due to his employment? (I seem to remember from my studies something about Eden Hazard getting a loan from Mrs Abramavic when he moved to Chelsea to buy a house and it being taxable).

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Replying to atleastisoundknowledgable...:
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By Matrix
18th Feb 2020 09:53

There is no difference, this is still a share scheme for employment related securities purposes. Any transfers between employee shareholders are also caught.

I think B’s accountants should be doing this work.

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Replying to Matrix:
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By atleastisoundknowledgable...
18th Feb 2020 10:19

Matrix wrote:

There is no difference, this is still a share scheme for employment related securities purposes. Any transfers between employee shareholders are also caught.

Suspected so.

Matrix wrote:

I think B’s accountants should be doing this work.

Ah, yes, but A wants to pay me to do it ...

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Replying to atleastisoundknowledgable...:
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By Tax Dragon
18th Feb 2020 10:25

It's a company Return.

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By Montrose
18th Feb 2020 11:19

Just an observation. Why do you think the shares were purchased at a discount, absent a shareholder's agreement and assuming there is nothing in the Mem & Arts about valuations ? The fact that a minority shareholding is sold for less than a pro-rata share of assets is not prima facie evidence of a sale at a discount to MV.

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Replying to Montrose:
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By atleastisoundknowledgable...
18th Feb 2020 11:45

Montrose wrote:

Just an observation. Why do you think the shares were purchased at a discount, absent a shareholder's agreement and assuming there is nothing in the Mem & Arts about valuations ? The fact that a minority shareholding is sold for less than a pro-rata share of assets is not prima facie evidence of a sale at a discount to MV.

Because A says so. Fair point though and one that I actually made to him.

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Replying to atleastisoundknowledgable...:
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By David Heaton
18th Feb 2020 16:19

Mr A needs to have fiscal valuation explained to him. It's not the same as commercial valuation. You don't value a profitable trading company on the basis of net assets, and for a minority holding you don't just take the % of shares held as a measure. Unless there's a mechanism in the articles or a shareholders' agreement by which he can realise any of his shares, his shares are potentially worth very little. He obviously thinks they are worth something, but the tax law test is what an unconnected third party would pay for the minority holding, not what an insider would pay. An outsider holding only 20% would have no right to the information that an insider would have, no right to force the payment of a dividend, no right to force a buy-back, and no right to force a liquidation to get at the value. And bear in mind that the basis of valuation for the 5% acquisition is slightly different from the basis for the 15% - the former has virtually no power or rights, other than to collect a dividend if declared or sue for oppression of minorities, while the latter at least has nuisance value, being more than 10%. He needs to value the holdings based on their dividend yield, then discount them by 85% and 75% or so respectively. If there's no dividend yield, and no special rights in the articles, ask him to tell you who would buy either the 5% or the 15% holding, and for how much.

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Replying to David Heaton:
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By atleastisoundknowledgable...
18th Feb 2020 16:23

Thanks David.

I'm grudgingly starting to agree that there might not be any billable work for me here ... :'(

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