From 31 March this year, HMRC will no longer be agreeing what have become known as “PAYE healthchecks”.
When employees/managers acquire shares, there is always some doubt that they are paying undervalue and fear that tax might be payable. Although strictly these “healthchecks” just provide comfort that there is no PAYE due from the employer, in practice HMRC do not subsequently challenge valuations through personal tax returns where they have given these earlier rulings and so there is security all round.
Without these rulings, some more risk will now have to be taken by clients and their employees and for longer. Their accountants or specialist valuers will not have the safety of HMRC quickly opining on their work too. HMRC will still look at valuations but generally at far fewer and those that they look at they will review later on, when the knock-on effect on tax payable can be greater. Cases where shares were acquired at one price and then quickly sold at a much higher price would be one example.
This was not an unexpected announcement. The vast majority of HMRC rulings said “yes” with no tax raised and HMRC knew that in most cases a professional firm had been engaged to give the valuation in the first place and so HMRC was needlessly being engaged for a free, second opinion when none was warranted. Perhaps a fairer alternative would have been to continue offering the healthcheck service where there is no accountant/valuer involved, but that would have been a difficult service to operate and police.
HMRC will continue to agree employee shareholder share valuations (these are the arrangements where employees give up employment rights in return for up to £50,000 of shares with tax advantages) and HMRC tax-favoured employee share plans, such as EMI.