This is a great piece and sets out many points that I've thought about when advising small and growing companies as a corporate solicitor.
My main issue though is with the existence of employment-related securities in the first place. That they exist adds layers of complications to companies that may be revenue-light or just starting up. For instance, if you want to bring on a new director into a company and you issue them shares so that they can have a stake in the company's profits, if they're issued for less than market value it attracts income tax. If you want to convert debt into equity to reduce the amount of debt in a company, if you issue too many shares then you risk an income tax liability.
The end result is that you force directors to either risk a massive income tax liability at some point in the future as HMRC is an unknowable and unpredictable beast to these people or you force small businesses to obtain legal and tax advice which can cost tens of thousands of pounds. Either way it's a penalty for taking a risk.
This is a great piece and sets out many points that I've thought about when advising small and growing companies as a corporate solicitor.
My main issue though is with the existence of employment-related securities in the first place. That they exist adds layers of complications to companies that may be revenue-light or just starting up. For instance, if you want to bring on a new director into a company and you issue them shares so that they can have a stake in the company's profits, if they're issued for less than market value it attracts income tax. If you want to convert debt into equity to reduce the amount of debt in a company, if you issue too many shares then you risk an income tax liability.
The end result is that you force directors to either risk a massive income tax liability at some point in the future as HMRC is an unknowable and unpredictable beast to these people or you force small businesses to obtain legal and tax advice which can cost tens of thousands of pounds. Either way it's a penalty for taking a risk.
Thank you for your thoughts Laveen!