Earlier this month, HMRC announced that it is ceasing its Post-Transaction Valuation Check (PTVC) service from 31 March. Any private equity investors who rely on HMRC’s PTVC service need to be aware of this significant development when putting their management incentive structures in place.
The PTVC service is currently used to obtain HMRC’s agreement to the value of shares granted to management. This service gives certainty on the income tax and national insurance (NICs) impact for management ie confirmation that HMRC accepts that the shares were not granted at undervalue, or quantification if not. The company receives certainty on the valuations to be declared in its reporting and if NICs applies.
Clearly, if withdrawal of the service will catch any imminent submissions, on recently completed or forthcoming transactions, then it is imperative that you take advice based on your specific scenario and make a submission prior to 31 March if relevant.
HMRC is continuing its valuation service in connection with tax-advantaged arrangements such as enterprise management incentives (EMI) options or employee shareholder status – albeit that HMRC’s announcement notes that these are under review. Therefore, you may want to consider running another type of tax-advantaged plan, in parallel with other arrangements, so that HMRC agreement to the value of shares can be obtained. Whilst, strictly, the valuation obtained would only apply to tax-advantaged arrangements, some comfort will be obtained assuming the class of shares involved is equivalent.
For more information or to see how these changes could affect you, please get in touch with Steve Jacob, Fiona Bell, or your usual RSM contact.