If you run a limited company and you are thinking of introducing a new shareholder, then you may find this trickier than you had anticipated.
Shares issued to an employee must be paid for at the current market value if you want to avoid any tax implications – but you might not know what that market value is. It also presents complications because the current value may be a lot higher than the current shareholders and the employee were expecting to contribute for the shareholding.
The temptation is to pay less than the current market value, which is an option, but the discounted rate will be subject to Income Tax and potentially National Insurance.
There are a few ways to overcome this, such as:
This new class of share would then have nominal value only and additional amounts paid would be credited to the share premium account. There is one drawback to this – if you are expecting several new incoming shareholders over the year, this will create ‘alphabet shares’, something HMRC is not overly fond of.
In which case, should there be another incoming shareholder in the pipeline, you may wish to consider bringing them in sooner such that the value would still stand, and therefore the same new class of share could be issued to that person.
Each case is different and it is recommended that you seek appropriate advice from the tax advisers at Wilkins Kennedy before making any arrangements. Contact us for more information.
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