IPOs and Share Schemes 23 September 2014 Webinar David Pett and Stephen Woodhouse Pett Franklin AND

Paul Stoddart Computershare www.pettfranklin.com

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Today’s Webinar • Introduction Pre IPO • Owner tax position • Impact on existing plans • Planning for the transition • Administrator role and experience Post IPO • Impact of listing and listed company requirements

Note: If you have any questions, please submit these into the question box as we aim to deal with them at the end.

©2014 Pett, Franklin & Co. LLP

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Owner tax position • Corporate owners – Loss of reliefs applicable to groups?

• Individual owners – Capital gains tax payable on sale of shares or dilutions of shareholdings? – Loss of tax reliefs such as Entrepreneur’s Relief? – Impact on share valuation of reduction of shareholdings below critical thresholds? ©2014 Pett, Franklin & Co. LLP

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Existing share plans • Will awards vest or options become exercisable? • Will HMRC approved plans lose tax advantages? • Are lock-in/holding requirements for shares planned? • Dry tax charges?

©2014 Pett, Franklin & Co. LLP

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Existing share plans • Exercise of options will give rise to income tax charges • Exercise on or before listing date may cause shares to become subject to PAYE and NICs • Similar issues on vesting where “restrictions” fall away – However, in most cases s.431 election will have taken place at outset ©2014 Pett, Franklin & Co. LLP

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Existing share plans • Dry tax charges – 45% top tax rate + 2% NICs – Transfer of employer NICs to employee can lead to effective tax rate of over 50% – Interaction with retention requirements

• Loss of tax advantages of HMRC approved plans – Consider early vesting/exercise or compensation for loss of reliefs – Need to communicate with employees ©2014 Pett, Franklin & Co. LLP

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Pre-IPO share plans • What is the plan trying to achieve? – Should employees receive some of the uplift in value on the IPO? – receive historic value from before the IPO? – or only take part in the growth in share value afterwards?

• All-employee share plan or executive / discretionary scheme? • If senior employees realise significant value on the IPO, how will you motivate them going forwards? ©2014 Pett, Franklin & Co. LLP

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Timing of pre-IPO awards • When does a share become a “readily convertible asset” (subject to PAYE and NICs)? – Are “trading arrangements” likely to come into existence?

• Valuation issues – When does increase in value because of potential flotation become reflected in price?

©2014 Pett, Franklin & Co. LLP

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Advantages of pre-IPO share plans • More flexibility – Awards don’t impact on headroom limits – Don’t need shareholder approval

• Private company share valuation – Discount for lack of marketability – Uplift on IPO from ‘discounted’ value to pro rata value may be tax-free gain for employees – But remember timing issues ©2014 Pett, Franklin & Co. LLP

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Some ideas • Tax-advantaged plans – EMI – CSOP – SAYE – SIP

• Growth shares • JSOP

©2014 Pett, Franklin & Co. LLP

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Some ideas • ‘Exit only’ awards made in advance but conditional on successful IPO – Disguised remuneration: exclusion from earmarking charge for exit-only deferred share awards (s.554K)

• Company makes £10,000 interest-free loan to each exec director to subscribe for shares at preIPO value – If close company, director must have