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One minute with… Emma Bailey

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What’s keeping you busy at work?

Things have changed significantly over the last couple of months. As a firm, much of our work is in the tech and fintech sectors and we were very busy with corporate transactional work, as well as implementing private company equity incentive arrangements. We were also preoccupied with preparing for the imminent arrival of the new private sector off-payroll rules. Whilst there has been a reduction in M&A activity, more deals than one might have expected are going ahead. The reduction has been balanced by an increase in restructuring and dispute-based work. Somewhat surprisingly, some clients are also still looking to put in place employee share option schemes, perhaps as a way of delivering value to staff when cashflow is so tight. Focus on the changes to IR35 has obviously taken a back seat, although not for long, I fear.

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

I would replace stamp duty with an integrated, digital, SDRT system. The fact that, in this modern technological age, it is necessary to have documents of transfer physically stamped is anachronistic. The current lockdown situation has only served to highlight the difficulties that can be encountered on transactions as a result of this. To my mind, there is little sense in having two separate taxes essentially applying to the same transaction, particularly when this can, in some instances, result in a double charge to tax. It is to be hoped that the temporary measures introduced by HMRC to the operation of stamp duty as a result of social distancing will provide impetus to the digitalisation of the stamp duty system, at the very least; perhaps they might also pave the way for the introduction of more of the OTS’s 2017 recommendations. 

What tax issues have arisen as a result of the lockdown?

One issue we have been grappling with is whether furloughing an employee who holds an EMI option could impact upon the tax advantaged nature of the option. Essentially, there is a concern that a furloughed employee may no longer satisfy the working time requirement in ITEPA 2003 Sch 5 para 26. Given that the employee is expressly prohibited from working for their employer for the furlough period, then the employee will not be able to meet the 25 hours (or 75% of working time) test. Whilst para 26(3) refers to specific situations (such as maternity or paternity leave, reasonable holiday entitlement or not being required to work during a notice period) where time will continue to count even where the employee is not actually required to spend such time on the company’s business, none of these would appear to cover the furlough situation. A failure to meet the working time requirement is a disqualifying event, meaning that any EMI options held will lose their tax advantaged status after 90 days. There doesn’t appear to be a technical solution to this. It is hoped that HMRC will find a way to prevent disqualification in these circumstances, perhaps by introducing a concession similar to ESC A103 which applies in the context of reservists called up by the MOD. Alternatively, there may need to be a legislative solution. We understand that HMRC is aware of (and potentially sympathetic) to the point, and hope it will be addressed in a soon to be published ERS bulletin dealing with Covid-19 related issues.

What do you know now that you wish you’d known at the start of your career?

You can’t be expected to know all the answers immediately. It’s okay to give a preliminary response, but say you’ll need to check further and revert.

What should we look out for later this year?

It is difficult to see how taxes will not need to rise to pay for measures arising from the pandemic. Suggestions that have been put forward include increasing the taxation of wealth, perhaps through a reduction in the annual capital gains tax exemption or equalisation of income tax and capital gains tax rates. No one knows, as yet, how the government will respond. But with Covid-19 support being extended to the self-employed, a reintroduction of Philip Hammond’s 2017 proposal to increase the rate of class 4 NICs may well be on the cards.

Finally, you might not know this about me but …

I’m currently studying for an MA in psychotherapy and counselling in my spare time. Not much overlap there with being a tax lawyer, you might think. However, in both cases, I find there is often a requirement to gently challenge a client (or colleague) on what they say they want and help them to accept what is possible!

Issue: 1486
Categories: One minute with