Employment, Share schemes, Finance Act 2003 & Private Equity Interests

Employee share ownership is an important feature in many finance acts worldwide. We advise in respect of performance-related rewards and employee incentives. Erroneous valuations can be detrimental whenever such as executive share options, approved and unapproved schemes, EMI’s, phantom share schemes and ESOP’s are considered and actioned. The requirement of benchmark valuations for incorporation (Limited and Limited liability Partnership) are often linked to incentive situations. Numerous clients include AccenturePA ConsultingPret A Manger and Saatchi & Publicis.

The Inland Revenue Share Scheme team’s heavy new approach to returns and the Share Schemes rules are as surprising as they are complex. The way the tax charge is calculated has changed. Shares subject to restrictions and conditional formulae mean several valuations; convertible shares will be valued with and without that right; securities with either artificially depressed or enhanced market value and those disposed of for less or more than market value are in the valuation spotlight.

Schedule 22 of FA 2003 and the Memorandum of Understanding model, particularly concerning the carrying interests of Private Equity funds have grey (very grey) areas. Negotiation with Shares Valuation where an Assistant Controller has responsibility for these demanding and unusual valuations will be required.

The International Accounting Standards Board (“IASB”) in the UK has issued FRS 20 (IFRS 2) share-based payment based on IFRS 2 issued by the IASB.

The fair value of equity instruments should be based on market price, if available, and should take into account the terms and conditions upon which those equity instruments were granted. In the absence of market prices, fair value is estimated, using usual valuation techniques to estimate what the price of those equity instruments would have been on the measurement date in an arm’s length transaction between knowledgeable, willing parties.

Beware FRS20 is complex.

The Philosophy of Incentive and Reward

An interview with Kelvin King. Click here to read.


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