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The Joy of Enterprise Management Incentives
Read our free guide to the UK's most tax-efficient share scheme.
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2 min read

What is a VAL231 form and why do I need one?

What is a VAL231 form and why do I need one?
What is a VAL231 form and why do I need one?

Last updated: 19 April 2024

If you're reading this, you're probably familiar with Enterprise Management Incentives (EMIs). But just in case this is all new to you, EMI is a government-backed, tax-friendly share option scheme for UK startups and SMEs.

To implement an EMI scheme, it's common practice to get a HMRC-approved valuation. That valuation determines the share price of the options you'll issue to your employees, which is based on the value of the company at the time.

Unlike other valuations, a lower valuation is better for EMI recipients, which sounds a little odd, but we'll explain why shortly. Around this time, you will be introduced to the VAL231 form. We'll cover that too, but first...

Why does an EMI valuation need HMRC approval?

Technically speaking, you don't need the nod from HMRC. You could award EMI options without it. But in all honesty, it's not worth the risk.

As EMI is a HMRC-backed incentive, it offers fantastic tax benefits, but those could be stripped away if HMRC disagrees with how you priced the shares in the first place.

Securing HMRC approval will give employees (and you) some certainty regarding the tax treatment of their options going forward and confidence in the value of their options when they exercise (buy) them.

This level of transparency will stand you in good stead and help get employee buy-in.

How do I get an EMI valuation?

You can prepare a valuation report yourself, ask your accountant, or if you're a Vestd customer, let us take care of it.

There are two critical values you'll come across during the valuation process:

  1. Unrestricted Market Value (UMV)
  2. Actual Market Value (AMV)

These two values will influence the exercise or "strike price" you set. That's the price per share your employees will pay to get their hands on them (when and how is another matter).

A low valuation means you can set a more attractive price (within reason). Attractive in the sense that if the value of your company soars, so will the value of their shares, which means they'll benefit from the difference between the exercise price and the prevailing worth of the shares at the time.

Of course, there are tax implications but essentially, the further apart those two values, the greater the potential gain. It also means the barrier for entry is lower as the price to participate isn't offputting to employees.

EMI valuations are a specialist area so if you're ever in doubt, lean on a professional for support. Self-serve, Standard and Guided customers can get their EMI valuation sorted through us.

So, where does a VAL231 form come in?

When your valuation report is ready, you'll submit that and a signed VAL231 form to HMRC.

The VAL231 provides a comprehensive breakdown of the company's financials, structure, and other relevant details needed to establish a fair valuation, including but not limited to:

  • The company name
  • The company's registration number
  • Contact details
  • Class of share e.g. ordinary
  • The nominal value per share
  • The date for which you want the valuation
  • Total number of shares on which options are to be/have been granted
  • Proposed AMV and UMV
  • The exercise price per share
  • Whether there will be an opportunity for shares to be sold or exchanged

It can take up to six weeks for HMRC to approve your valuation. From our experience, it usually takes around four weeks. If you forget to sign your VAL231 form, HMRC will reject it. Your EMI valuation is valid for 90 days from the date of the agreement letter you'll receive from HMRC in return. 

You could submit your valuation and VAL231 form by post, but it's 2024, save the trees and do all this digitally instead.

Get an EMI valuation approved fast, tailor your scheme to suit your business needs and manage every EMI-related task on Vestd. When the time comes, your team can exercise their EMI options via the platform too. 

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