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Purchaser tax position and employment related securities

If the management shareholders do not pay actual market value (AMV) for their shares in Newco, HMRC will either:

1. Ìý

   (a)ÌýÌýÌýÌý tax the difference between the AMV and the price paid as earnings¹. It is unlikely that HMRC will take the view that they are receiving their shares in Newco as investors rather than employees; or

2. Ìý

   (b)ÌýÌýÌýÌý use the legislation on employment-related securities² to tax any undervalue from AMV (see below)

Taxation difficulties could be complicated further if different investors are paying different prices for their shares. The valuation of Newco shares once the deal is complete should be based on the valuation of the entire company on a debt-free basis (which should be carried out in any case as a consequence of the transaction) with a deduction made for the debt in Newco to fund the transaction. The issue of shares to management on an MBO should be reported to HMRC using the appropriate online ERS return³.

Management buyouts and restricted