The value of Post Transaction Valuation Checks deemed negligible by HMRC

HMRC building in Whitehall, London

The Government remains keen to encourage greater employee participation in their employer companies given the benefits that employee engagement delivers – from increased productivity, reduced absenteeism and increased resilience in an uncertain economic environment.


Providing certainty

Where shares are delivered to employees via an HM Revenue & Customs approved scheme (such as Enterprise Management Incentives, Company Share Option Plan or a Share Incentive Plan), one can agree on the market value of the shares used under such arrangement with HMRC before the option is granted or share award made. This provides certainty to all parties as to future tax and National Insurance treatment.

Where shares are delivered outside of an HMRC approved scheme – for example, a straight award of shares or the exercise of an unapproved share option - income tax (and possibly National Insurance) will be due on the difference between the acquisition price and the market value at the date of acquisition.

Until March 2016, it was possible to formally agree on the market value of such acquisitions post-acquisition with HMRC under a Post Transaction Valuation Check (PTVC) albeit this process could take upwards of three months to complete.

Citing severely stretched resources and overly complex valuation scenarios being presented to them, HMRC removed the PTVC facility on 31 March 2016.

Consequently, we are now in an era under which tax returns will be submitted to HMRC reporting non-qualifying share acquisitions that incorporate values that have not been agreed with HMRC. These returns are therefore open to greater scrutiny and inquiry particularly if values returned by the employee and their employer company do not match!


Historic value

Where HMRC dispute any share valuation offered by the taxpayer, HMRC should not have the benefit of hindsight in determining a historic value. Where significant events have happened in the company post-acquisition – sale, listing, funding round etc - such events may guide HMRC’s view. It is, therefore, vital to keep contemporaneous evidence supporting the market value as reported, particularly noting the level and quality of information that would have been available to the employee at the time of acquisition.

 

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Comment

Matthew Eady

Partner, Employment Tax
​I am a Partner in the Employment Taxes department. A lot of my time is spent advising companies on employee share incentive and reward arrangements; implementing share schemes and agreeing share valuations with HMRC. I also advise clients on employment tax matters generally, employment status queries and get quite involved in the P11D and Share Scheme Annual Return process.

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