Share Valuations

All UK employee share plans, whether HMRC approved or unapproved, carry a potential or actual tax implication, and so companies must agree a valuation, with HMRC, of shares that are subject to those plans.

This process is relatively easy for listed companies, who can use stock exchange quoted prices to calculate market value. When discretionary awards are made it is common for the plan rules to specify that market value be calculated with reference to the mid-market price of the shares over the preceding 3 days.

Companies whose shares are listed on the Alternative Investment Market or PLUS-quoted market may find the process a little trickier. HMRC may accept the previous trading day’s closing price as representing market value. However, if the Company’s shares are thinly traded it will be more difficult, in which case more analysis may be required to agree a price.

HMRC’s specialist Shares and Asset Valuation unit in Nottingham is tasked with agreeing share valuations with unquoted companies. Their guidance notes suggest that companies should consider/provide the following information:

• Financial accounts for the preceding 3 years and any other information normally available to shareholders;
• The company’s dividend policy;
• Appropriate yields and price earnings ratios of comparable companies or sectors;
• A full explanation of how the suggested value has been calculated, including any assumptions or adjustments made.

If this seems daunting, do not worry! MM & K provide our clients with a full share valuation service. We will prepare a valuation in accordance with HMRC’s guidance and our models and present it to the Share and Asset Valuation unit, negotiating with them to agree a valuation.

Contact our share valuation team for further information.