Client gifting shares - tax and IR35 situation?

[northernladuk]

I'd be very interested to get in to the detail of his IR35 status when working for a startup as well. The poster says..

I maintain a strict boundary on these things to ensure I remain outside of IR35.

Going to be very difficult indeed to do that at a fast moving startup, particularly when the client has given you what he may consider a reasonable chunk of his business to do what you need to get it going.

I appreciate it does depend on the exact details of the gig but would be interesting to know. I can't see a defined piece of work happening so D&C is going to be a nightmare. I can't imagine they'd be happy with RoS either and I wouldn't think they give a monkeys about the treating contractors any different to perms in the quest to deliver. Now we've been discussing it this payment of shares can't help either. QDOS specifically say bonus's have been picked up by HMRC so can't see gifting of shares would be any better.

https://www.contractoruk.com/forums/...ml#post1623836

So I think the OP is going to struggle with his defined boundaries.

But anyway... I'll shut up.

[northernladuk]

I don't think it's impossible to say some things. If they want to give him shares, whether it is worth £40K or £4K or £400, you don't tell them to FRO, you tell them thank you, let's figure out the most efficient way to do this for tax.

The person to whom I was responding said 'get paid in cash for the services you supply.' OP already did, this is a gift, and not in lieu of cash payment. So his comment was right up near the top of the stupid scale.

Must admit I don't totally agree but it certainly wasn't the best statement. The fact the OP thinks they are worth 40k yet the start up hasn't even launched so there is a 90% chance they won't be worth the paper they are written on shows a possible level of nativity on the OP's part so nothing really goes well from there. So yes, FRO isn't the best but something looks extremely fishy and you can't blame someone for reading between the lines here. I'm struggling to believe the OP is being paid a decent rate with normal terms as you would with a normal gig and the shares, maybe not they are instead of payment, but must be there to make something up. The only times we've ever had posts on here about shares they weren't totally in lieu of payment either but came to naught leaving the contractor high and dry so might be one for most people to pass (but not maybe tell them to FRO)

Why would they do it? Maybe he's contracted for them for four years and they want to give him an incentive to stay involved because they like his work. Maybe he's been sleeping with the boss's wife, or maybe the boss has been sleeping with his, or maybe he himself has been sleeping with the boss, or maybe all three. Maybe they are finally taking their product to market and think it's going to be worth £40 million and they feel guilty him not getting a cut of the action. Maybe the boss was too drunk at the Christmas party to be able to pay the tab, and he covered it until the boss sobered up, and the boss has always felt indebted to him. Maybe they're afraid of Komrade Korbyn winning an election and want to be able to say, 'See, we gave EVERYBODY shares, even the contractor, go pick on someone else!' Maybe he just tells good jokes.

All fair reasons but it's likely he'll get squat for them so if they are part of the overall package to stay he needs to be very aware of the most likely outcome and as you also say later, may have a strong bearing on the answer. His accountant is likely to give him the tax answer but not the real answer to the whole situation which I think would be a big mistake on the part of the OP.

I'm not sure there's a thing 'wrong' in this thread. There's a lot unknown but actually the reason 'why' might not be all that relevant to the question he's asking. It might have a lot to do with IR35, but he's somewhat alert to that. What he wants to know is tax treatment. The reason why may or may not be relevant to that.

Chances are good there are things he doesn't want to say on an open forum, which is why he probably just needs to pay for advice, unless he thinks it really is only worth about £4K, rather than £40K. In that case, it may not be worth paying for advice, if you can defend the lower valuation.

IMO the fact he's asking a question that's based very heavily on the details yet not giving any detail is what's wrong. Being pedantic, is wrong the incorrect word to use? OK, I'll go with that but something certainly isn't right here. You say yourself the reason may or may not influence the decision but as the thread stands that detail is missing so it's a pretty poorly laid out question at the very least. I'm probably biased though as I can't stand these questions where someone asks a question of a small part of a situation that's attractive to them and conveniently forgets everything else that would cause the answer to be something they don't want to hear.

[WordIsBond]

Yup but why would a start up give a 40k incentive?. That is also the clients valuation which is, looking at the percentages of start up success, going to really be zero.

So much wrong and unknown in this thread it's impossible to say either way.

I don't think it's impossible to say some things. If they want to give him shares, whether it is worth £40K or £4K or £400, you don't tell them to FRO, you tell them thank you, let's figure out the most efficient way to do this for tax.

The person to whom I was responding said 'get paid in cash for the services you supply.' OP already did, this is a gift, and not in lieu of cash payment. So his comment was right up near the top of the stupid scale.

Why would they do it? Maybe he's contracted for them for four years and they want to give him an incentive to stay involved because they like his work. Maybe he's been sleeping with the boss's wife, or maybe the boss has been sleeping with his, or maybe he himself has been sleeping with the boss, or maybe all three. Maybe they are finally taking their product to market and think it's going to be worth £40 million and they feel guilty him not getting a cut of the action. Maybe the boss was too drunk at the Christmas party to be able to pay the tab, and he covered it until the boss sobered up, and the boss has always felt indebted to him. Maybe they're afraid of Komrade Korbyn winning an election and want to be able to say, 'See, we gave EVERYBODY shares, even the contractor, go pick on someone else!' Maybe he just tells good jokes.

I'm not sure there's a thing 'wrong' in this thread. There's a lot unknown but actually the reason 'why' might not be all that relevant to the question he's asking. It might have a lot to do with IR35, but he's somewhat alert to that. What he wants to know is tax treatment. The reason why may or may not be relevant to that.

Chances are good there are things he doesn't want to say on an open forum, which is why he probably just needs to pay for advice, unless he thinks it really is only worth about £4K, rather than £40K. In that case, it may not be worth paying for advice, if you can defend the lower valuation.

[Lance]

Yup but why would a start up give a 40k incentive?. That is also the clients valuation which is, looking at the percentages of start up success, going to really be zero.

So much wrong and unknown in this thread it's impossible to say either way.

Jam tomorrow.

[northernladuk]

When you decide you know all you need to know, you can make a fool of yourself by missing something pretty important like:

Yup but why would a start up give a 40k incentive?. That is also the clients valuation which is, looking at the percentages of start up success, going to really be zero.

So much wrong and unknown in this thread it's impossible to say either way.

[WordIsBond]

the business is a start-up and yet to launch

This is all that I need to know in order to tell the "business" to FRO.

When you decide you know all you need to know, you can make a fool of yourself by missing something pretty important like:

- This gift is not in lieu of payment - so I don't consider renumeration, rather a gift/incentive.

[wattaj]

...the business is a start-up and yet to launch...

This is all that I need to know in order to tell the "business" to FRO.

Get paid in cash for the services that you supply to any such business... unless you see it as a hobby and you're doing the work for kicks and the unlikely future payback.

[Iliketax]

Hi - first post here!

Hoping somebody might have been in my situation before and can offer some advice.

One of my clients wants to gift me shares, which is great! However, I really don't understand the tax situation here, and I'm trying to figure out a few points:

- I know I'll be liable for CGT when I eventually sell the shares, but I'm not too worried about that. What I am concerned about is that these will be considered income, and therefore taxable. The client has valued the shares at £40,000, and I don't want to end up paying tax on that (especially since I'm not sure I could sell them at that valuation at the moment, given the business is a start-up and yet to launch.) I obviously expect to pay tax on any dividends.
- This gift is not in lieu of payment - so I don't consider renumeration, rather a gift/incentive. The founders are very keen to share success any success the business does get with those who have been involved from the start.
- I'm concious that this could impact my IR35 status. I maintain a strict boundary on these things to ensure I remain outside of IR35.
- I don't know whether it would be better for either my tax or IR35 status if I receive shares personally or through my ltd. company.

Ultimately I do have a call with my accountant to discuss this, but having to wait til Friday to get their time, so hoping I can get an idea of where this conversation will go (especially if I might end up rejecting the offer).

Thanks in advance!

I don't do IR35 and so you will have to ask someone about those aspects.

If you get the shares personally though, your company will have to operate PAYE/NIC on the best estimate that your company can make on the value of the shares you get. Whether that value is £40,000 or not is another story. If there are restrictions on the shares then the position gets more complicated.

As far as share plans being for employees, yes often they are. But it is relatively common to give suppliers shares or share options.

[northernladuk]

Share plans are usually for employees only, what I make of it, his client wants to include him in the employee share plan, which would put him inside IR35, without any doubt

I didn't quite see it like that (an option yes) but with the complete lack of detailed information in his post we are just guessing. I asked him because from what he's put it looks a) decidedly dodgy or b) quite permie as you say. By asking him he may avail us of a little more detail when he's explaining his thinking. Either way it needed a LOT more clarification before we could give anything near a reasonable answer but I'd be willing to bet the whole situation is a proper can of worms which is exactly why the OP didn't go in to the detail and hasn't been back.

[Eirikur]

How does getting shares affect your IR35 status? Could you explain further?

Share plans are usually for employees only, what I make of it, his client wants to include him in the employee share plan, which would put him inside IR35, without any doubt

[northernladuk]

I guess we'll never know.

[GhostofTarbera]

I seem to remember at least two people who opted for being paid shares on here and neither saw a penny.

How does getting shares affect your IR35 status? Could you explain further?

Exactly why are they giving your 40ks worth of shares? Maybe the reason why they are doing it will go a long way to answering some of your questions.

Indeed they will be worth heehaw or a few grand

Sell them for £40K (no one wants to buy them - big surprise !!!) then ask for advice

When you get £40K I’ve some magic beans for sale


Sent from my iPhone using Contractor UK Forum

[WordIsBond]

Getting shares could affect his IR35 status because it isn't that uncommon for employees to be given shares but contractors generally aren't. HMRC would argue it is a strong indicator he's part and parcel, and if he's been involved enough for them to want to give him a £40K share, I'd bet there's other stuff that would fit that description as well. For one thing, he's been there a while, you don't give that much to a guy who's been there six months.

OP, is the £40K legit, or not? What's the company revenue and profit (approximately) and how big of a percentage are you being given? It may be to their advantage or bolster their ego to put a high value on it but it may be quite detrimental to you.

A read of this might be helpful: gifting shares | Gannons Solicitors. Obviously, it's dealing with gifts of shares to employees and you aren't one. Some of the accountants who contribute here might be able to help you but I suspect you may be best off paying for some advice. One option might be to agree with them ways to ratchet down the price as absolutely low as can possibly be justified under the most pessimistic scenario and put that price on it, rather than £40K.

[northernladuk]

I seem to remember at least two people who opted for being paid shares on here and neither saw a penny.

How does getting shares affect your IR35 status? Could you explain further?

Exactly why are they giving your 40ks worth of shares? Maybe the reason why they are doing it will go a long way to answering some of your questions.

[spasmos]

Hi - first post here!

Hoping somebody might have been in my situation before and can offer some advice.

One of my clients wants to gift me shares, which is great! However, I really don't understand the tax situation here, and I'm trying to figure out a few points:

- I know I'll be liable for CGT when I eventually sell the shares, but I'm not too worried about that. What I am concerned about is that these will be considered income, and therefore taxable. The client has valued the shares at £40,000, and I don't want to end up paying tax on that (especially since I'm not sure I could sell them at that valuation at the moment, given the business is a start-up and yet to launch.) I obviously expect to pay tax on any dividends.
- This gift is not in lieu of payment - so I don't consider renumeration, rather a gift/incentive. The founders are very keen to share success any success the business does get with those who have been involved from the start.
- I'm concious that this could impact my IR35 status. I maintain a strict boundary on these things to ensure I remain outside of IR35.
- I don't know whether it would be better for either my tax or IR35 status if I receive shares personally or through my ltd. company.

Ultimately I do have a call with my accountant to discuss this, but having to wait til Friday to get their time, so hoping I can get an idea of where this conversation will go (especially if I might end up rejecting the offer).

Thanks in advance!