Description
The employment-related securities ('ERS') legislation in Part 7, ITEPA 2003 is among the most complex pieces of legislation on the statute book. It seems doubtful whether anyone can write with complete assurance and authority on the subject, partly because the legislation is unclear or ambiguous in places and as a result a number of important issues defy precise analysis. Cynically one might suggest that the law is deliberately opaque in order to deter taxpayers and their advisers from trying to bend the rules. Another source of ambiguity is the guidance from H M Revenue and Customs. This has been put together by the Employee Share Schemes Unit ('ESSU') and on some vital issues is demonstrably wrong, particularly as regards some of the assumptions made concerning the valuation of shares for fiscal purposes. Some of the guidance appears ignorant of about 100 years of share valuation case law and one is tempted to suggest that the ESSU should not give opinions about share valuation and Shares & Assets Valuation ('SAV') should not try to interpret tax legislation. There seems to have been some lack of communication between the two, which all serves to muddy the waters and given that this legislation has been on the statute book for over four years at the time of publication, it is highly unsatisfactory that giving advice is so fraught with difficulty.
Another difficulty in giving firm advice is that we are dealing with a body of legislation which is largely untested by judicial review in the form of Special Commissioners' or Court decisions. It is always possible to take legal opinion of course in cases of difficulty but a legal opinion, however erudite, is just that. Moreover this is quite impractical except in the handful of situations where the (monetary) stakes may be high.
In short, there are quite a few questions which no-one really knows the answers to, though either bravely or foolishly I have tried not to avoid important 'problem' areas because these involve issues that cannot, in practical terms, be ducked.
Without being in any way critical of busy practitioners I would suggest that insufficient consideration is given to the tax consequences of acquiring and holding ERS. No doubt this is partly due to the complexity of this area of tax law and there is perhaps an understandable human tendency to ignore it and hope it goes away.
An analogy may be drawn with the loan relationship rules, which were introduced mainly with large financial institutions in mind but which of course also affect Joe Bloggs Limited. Therefore all general accountancy and tax practitioners need a passing acquaintance with the rules as they affect their client companies. However, we are discussing a highly complex body of legislation and even Joe Bloggs Limited may occasionally have a loan relationship issue which would take many general practitioners out of their depth. The ERS legislation is similar in many ways.
As this guide is aimed at the general practitioner it follows that the shares and securities with which we are concerned are those of private limited companies. The guide does not deal with any of the HMRC-approved share schemes, which is a specialist topic in its own right, though an overview of the Enterprise Management Incentives ('EMI') is included in Chapter 8, dealing with share options, partly as a comparison with the relatively unfavourable treatment of unapproved share options and partly because the EMI rules interact with the ERS legislation to some extent.
Where we shall be with ERS in ten or even five years time, who can say? There may be court decisions or perhaps even a major overhaul of the legislation which may bring some much-needed clarity to the rules. However, where we seem to be at present is described in the pages following. I would like to be able to say that I have been able to present the rules in a simple, easy-to-digest manner, but unfortunately it is difficult to simplify things that are not simple. However, I hope that the guide will be of practical use in everyday situations as well as a work of reference in dealing with the more out-of-the-ordinary circumstances.
Ken Moody CTA
Ken Moody CTA is author or many articles for profesional magazines and other publications. Apart from ERS, he also specialises in advice on other OMB tax issues.
Ashworth Treasure
Ashworth Treasure is a long established practice, employing a team of specialist professionals. This gives us the expertise and flexibility to provide a business advisory service to owner managed businesses and high net worth individuals.
