Issue link: https://htpgraphics.uberflip.com/i/246991
Tax Issues Section 7 There are various potential taxation issues which may arise upon the establishment of a spin-out company. Income Tax on the Acquisition of Shares It is common for you, as a researcher, to acquire shares in the company. It is likely that HMRC will consider that such shares have been acquired by reason of your employment (either with the company or with the sponsoring research institution). As a result, you will be considered to have received a benefit from your employment, which will be subject to income tax if the market value of the shares acquired by you exceeds the amount paid by you for such shares. The risk of an income tax liability will be increased where assets and cash have been injected into the company by the Investor and/or the research institution. The assets and cash may cause the shares to have a value in excess of their nominal value. Fortunately in the case of many researcher shareholders the value of any IP transferred is ignored, because of a researchers' tax exemption. A charge to income tax will only arise if the amount you pay for the shares is less than their market value. If you are going to be contributing cash and/or assets to the company, you should ensure that these are used as payment for your shares. The Investor/research institution may receive shares with enhanced class rights, in which case it may be possible to argue that the value of the shares received by you is lower. If you pay nothing or only a nominal amount for your shareholding, you need to check if you may have to pay income tax. Future Charges to Income Tax Restricted shares are shares which, at the date of acquisition, are subject to restrictions which have the effect of reducing the value of the shares. The restrictions may affect the ability to retain the shares (for example, "compulsory transfer" provisions in the Articles of Association which oblige a departing employee to sell his/her shares) or the general rights attaching to the shares (for example, restrictions on transfer, dividend rights or voting rights). 42