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One minute with... Thomas Dalby

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What’s keeping you busy at work?

I think that there is a growing awareness among owner-managed businesses that employee share schemes can be an effective tool to reward and retain their key employees. We have clients with relatively straightforward schemes like EMI, but increasingly we are seeing clients with an interest in growth shares as well. In the wider team, we are dealing with increasing numbers of queries relating to the incoming private sector off-payroll working regime as well as the continuing fall-out from HMRC’s GSK enquiries.

If you could make one change to tax law, what would it be?

The rules on restricted securities would come top of any hit-list. The rules have a straightforward premise: because employees hold shares with restrictions attaching to them, they don’t receive the full value of the shares until the restrictions are lifted, and therefore they shouldn’t suffer tax on value that they don’t enjoy; let’s only tax employees on the restricted value that they receive when they acquire the shares and then we’ll charge them on the uplift in value when the restrictions lift. In the 16 years that the legislation has been in force, I have never met an employee or employer who wanted to take advantage of this regime, because the differential between restricted and unrestricted values is likely to be trivial when shares are acquired, but the likelihood is that restrictions will lift when shares are sold, when the differential between restricted and unrestricted values will be material; many transactions have been delayed and tens of thousands of pounds in professional fees expended trying to resolve the issues that arise from these rules. The rules essentially penalise businesses that don’t have access to specialist tax advice.

Has a recent tax case has caught your eye?

The decision in Vermillion Holdings Ltd v HMRC [2019] UKFTT 230 (TC) was extremely interesting. The case concerned an investor who had been granted an option to buy shares and subsequently been co-opted to the company’s board; the company’s share capital was later reorganised and a replacement option was granted to the investor. The question was whether the replacement option was an employment-related securities option under ITEPA 2003 s 471(3), which deems options to be employment-related securities options if they are granted by a person’s employer. On the face of it, s 471(3) appears not to take any account of actual motive for granting the options and, unlike the normal employment-related securities rules, there are no specific provisions in the options legislation to deal with replacement options. In this case, the tribunal judge found that the deeming provision should not apply where an option was manifestly granted for reasons unconnected with employment. Although this is only a First-tier Tribunal decision and HMRC has obtained leave to appeal (unsurprisingly, given the centrality of the deeming provisions to the operation of the employment-related securities regime), it highlights a gap in the rules on share options and an interesting approach by the judge, Dr Heidi Poon, to tackling that gap.

Anything we should be looking out for as we head into 2020?

At risk of being obvious, the rules on off-payroll working in the private sector are likely to come into force irrespective of the election result, and we expect them to mark a material change in the way that companies do business. There is still a large number of businesses that have not addressed the new rules or are relying on ‘gut feel’ or blanket decisions to apply the rules. 

Finally, you might not know this about me but…

I love to spend my weekends in the Autumn wandering around the local woodlands hunting for wild mushrooms (the non-magical varieties!), because hunting through a dense and sometimes prickly thicket looking for culinary gems, which might prove poisonous if you don’t know what you are doing, is entirely unlike practicing in the tax profession. 
Issue: 1467
Categories: One minute with