Corporate mistakes your business may have made

...and what you should do about them.

Corporate requirements can be fiddly and, sometimes, unintuitive. It is easy for businesses to trip up on corporate issues. In this series we look at 10 of the most common corporate mistakes companies make, and, more importantly, what they should do about them.

When does it happen?

Where a business wants to incentivise employees by giving them shares or promising to give them shares in the future, but hasn’t considered the tax consequences.

What mistakes are made? 

UK employees are given or promised shares at less than their market value without proper tax advice, which unexpectedly gives rise to income tax (and potentially employer national insurance and other employer tax liabilities). Common scenarios we see are:

  • Employees being “promised” shares (or more shares) for a certain price in principle, but the paperwork not being put in place. In the meantime, the business grows in value or a buyer is identified, significantly increasing the market value of those shares (and therefore the tax consequences of the employees being given those shares).
  • Shareholdings needing to be rebalanced to put shares in the hands of up-and-coming star employees. This is done with a rough and ready transfer of shares or issue of new shares.

Why does it matter? 

Employees may be faced with an unexpected tax bill, and also employer national insurance and other employer tax liabilities may potentially arise.

What can you do about it? 

It really depends. You may be able to terminate problematic arrangements, and implement a proper tax efficient employee share plan. However, it is almost always better to deal with unwanted liabilities as soon as possible.

Interested in reading what other mistakes you business may have made? You can read the full article with #1 – 10 here.