Getting Share Scheme Valuations from HMRC

Introduction

If you're offering shares or share options to your employees through certain approved schemes, you may need HMRC to agree the value of those shares. Getting formal agreement from HMRC's Shares and Assets Valuation (SAV) team can provide certainty and avoid disputes later about the tax treatment of your share scheme.

Why you might need HMRC to value your shares

Different employment-related share schemes have different requirements for valuation:

• Enterprise Management Incentives (EMI) and Share Incentive Plans (SIP) require you to obtain a valuation from HMRC
• Company Share Option Plans (CSOP) and Save As You Earn (SAYE) schemes allow you to ask HMRC to agree your proposed valuation

Getting HMRC agreement ensures both you and your employees know the tax position from the outset, particularly important for calculating any tax or National Insurance charges that might arise.

Getting a valuation for Enterprise Management Incentives (EMI)

EMI schemes are tax-advantaged share option plans designed for smaller, higher-risk trading companies. To get HMRC to agree a valuation for EMI shares, you need to complete form VAL231.

When completing the form, you must propose both:

• The unrestricted market value (what the shares would be worth without any restrictions)
• The actual market value (if the shares carry restrictions that affect their value)

Validity period for EMI valuations

EMI valuations remain valid for 90 days from the date of the agreement. After this period expires, you'll need to request a fresh valuation if you want to grant more options.

Getting a valuation for Share Incentive Plans (SIP)

SIPs allow employees to acquire shares in various ways, including free shares, partnership shares, and matching shares. To obtain a SIP valuation, complete form VAL230.

You'll need to provide:

• Your proposed value for the shares
• Background information supporting your proposed valuation

Validity period for SIP valuations

SIP valuations can last for up to 6 months, giving you more flexibility than EMI valuations. However, the valuation period ends immediately if a "significant event" occurs that's likely to impact the share value.

You can request the valuation period to end at any point within the 6 months by contacting SAV.

After 6 months, you may apply to extend the valuation period by writing to SAV. In your letter, you must confirm that:

• No significant events have occurred since the original valuation
• No significant events are likely to happen during the extension period

What counts as a significant event

A significant event that would invalidate your SIP valuation includes (but isn't limited to):

• Any change in the share or loan capital of the company, whether completed or actively being considered
• Any arm's length transaction involving company shares, completed or being contemplated
• Negotiations or preparations for a flotation or takeover
• Any dividend declaration on any class of shares
• Publication of new financial information such as annual accounts, interim results, or announcements

If any of these events occur during your valuation period, you must re-apply to have your shares valued.

Getting a valuation for Company Share Option Plans or Save As You Earn schemes

For CSOP and SAYE schemes, the process is less formal. You don't need to use a specific form. Instead, write to SAV including:

• Your proposed value for the shares
• Three years of accounts before the valuation date (or if the company is newly trading, whatever accounts are available at the valuation date)
• Any other relevant information, such as plans to sell or float the business

HMRC will then either agree your proposed valuation or discuss an alternative value with you.

How to contact the Shares and Assets Valuation team

For all share scheme valuations, you'll be dealing with HMRC's Shares and Assets Valuation (SAV) team. You can contact them for:

• Advice about share valuations
• Submitting valuation requests for CSOP or SAYE schemes
• Requesting early termination or extension of SIP valuations
• General queries about the valuation process

SAV can also provide information about what to expect from the valuation process and how they handle your information.

Planning ahead

The different validity periods for different schemes mean you need to plan your option grants carefully:

• For EMI schemes, the 90-day window is relatively short, so don't apply for a valuation until you're ready to grant options
• For SIP schemes, the 6-month validity period (potentially extendable) gives you more flexibility to plan multiple awards
• Be alert to significant events that might invalidate your SIP valuation and require a fresh application

Bear in mind that HMRC will need time to review your application and supporting information, so factor this into your timescales when planning to grant options or shares to employees.

Sources

• Get a share scheme valuation from HMRC

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.