Employee Equity Incentive Schemes

It will often be necessary to agree the value of unquoted shares with HMRC in connection with employee incentive arrangements such as share awards and the grant of EMI or other tax-approved options to managers and other staff.

For example, where an individual acquires shares in their employing company and pays less than market value for them an income tax charge is likely to arise. Although the award of share options may not have immediate tax consequences, in order to obtain favourable tax treatment the option exercise price must not be set materially below market value.

We are able to give reliable valuation advice to assist in a wide variety of employee share incentive schemes including the following:

  • acquisition of shares by employees
  • awards under phantom or virtual share schemes
  • tax approved option schemes such as EMI, CSOP etc
  • performance related share awards and long term incentive plans
  • annual valuations for internal share sales or shareholder exits
  • IFRS2/FRS20 accounting valuations of equity-based awards

How we can help

We are often asked by the employee benefits departments of law firms on behalf of client companies to assist in the design/pre-implementation phase of a proposed share scheme. Many of these cases involve complex schemes using growth shares or some form of joint ownership between the employee and a third party, such as an EBT. Our advice in these situations usually focuses on the value likely to be placed on the shares or options by SAV, and in particular whether the draft share rights will achieve the company’s valuation aims.

We also work with private companies who approach us directly for advice in connection with the valuation aspects of their employee incentive schemes. Our role depends on the stage the scheme has reached and the client’s specific situation. We can assist with:

  • preliminary valuation advice which can prevent possibly costly mistakes being made
  • preparing a formal valuation report to be used should HMRC query the pricing basis on which the awards were made
  • so-called ‘health check’ valuations to enable the company to operate PAYE once shares have been awarded
  • obtaining a post transaction valuation check from HMRC so that the value can be agreed with HMRC before personal tax returns have to be filed
  • negotiations with SAV to agree market value

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