Case studies
Retirement of principal shareholder
Our client has been a family company established for over 40 years. Throughout that time we have acted as auditors and advisers to the company. Following the death of the chairman, the forthcoming retirement of the managing director, and with no further family members available or willing to take over the running of the company, a sale of the principal shareholder's shares was negotiated to a major foreign supplier. We continue to act for the company under its new owners, advising the new management on UK accounting and taxation issues as they affect the company.
The principal shareholder asked us to assist him in negotiating the 31 March 1982 value of his shares for the purposes of agreeing his Capital Gains Tax liability on disposal. Despite the difficult trading conditions prevailing in 1982, a robust value was proposed to HMRC and, after some negotiation, a satisfactory value was duly agreed, significantly reducing the amount of tax the shareholder had been expecting to pay.
Reorganisation on change of trade
Our client has operated for many years, the company having been passed down from father to sons. Following a period of several years of disappointing trading, the credit crunch started to significantly affect the company's market and the directors decided they needed to diversify the company's activities in order to try to preserve the family wealth invested in the company. We met with the directors to discuss the options and reported on the tax implications of each aspect of what they were thinking of doing.
A plan was agreed to buy out a shareholder not involved in the company's business, and a composite clearance application was agreed and submitted to HMRC and subsequently approved. This enabled the shareholder to sell his shares back to the company and be taxed on them at a reduced rate, and enabled a group restructuring to be put into place for future operations that should bring further tax saving benefits over the coming years.
Management incentives
Our client relies on active "rainmakers" to maintain its business success. Such individuals are given shareholdings in the company at beneficial rates in order to incentivise their activities, and thus, as employee-related securities, a market value for the shares has to be agreed with HM Revenue & Customs as at the time of issue. In addition, when such individuals leave the company from time to time, the shares have to be re-acquired either by the company or by the remaining shareholders, and so again a market value has to be agreed with HMRC. With our advice, the company has also set up an Enterprise Management Incentive option scheme.
We have provided advice on the tax aspects of these acquisitions and disposals of shares, and on the EMI option scheme, as well as providing valuations for each transaction submitted to HMRC for agreement. Due to the cyclical business pattern through which the company operates, negotiations with HMRC have often been prolonged, but in each case we have been able to negotiate a value that has been significantly lower than initially proposed by HMRC, thus gaining a large saving in tax payable by our client.
