HMRC-approved valuations are needed before granting either EMI or CSOP options.
One of the benefits of the Enterprise Management Incentive (EMI) and the Company Share Option Plan (CSOP) is that you can get an agreed valuation from HMRC ahead of granting the options. This means that the recipients of the options (and the company itself) have some certainty regarding tax treatment going forward - so long as all due criteria and processes are followed.
Getting a valuation agreed by HMRC will typically take 2-4 weeks from the date of submission, depending on whether you submit by email or post. The valuation will usually be valid for 90 days from the date of the agreement letter back from HMRC. No extension will typically be allowed for this.
The first step is to get a valuation report carried out for your company, which is free* if you're on our Guided or Standard plan. Simply go to your valuations page, click New valuation > Start a new valuation.
You'll then be asked some questions about your company and its finances before submitting the details to our Valuations team.
They will then provide a valuation report for your approval, which will include the following two values:
Unrestricted Market Value (UMV), which values all the shares as if they had no restrictions and could easily be bought and sold at the prevailing worth of the company at the time. This figure is used to calculate the maximum value of options allowable to be granted to an individual (£250,000) or by the company (£3m).
CSOP valuations determine the UMV only, as the exercise price for the CSOP must be set at or above the UMV approved by HMRC. It's also worth adding that there are no maximum grant values for CSOPs, which is why many companies grant CSOPs once they have used up their EMI allowances.
Actual Market Value (AMV), which won't be higher than the UMV, but may be significantly lower as (for example) any shares offered via EMI will make up a small proportion of the company's total equity, and may not be readily saleable on exercise. The AMV is used to set the income tax point for the options when they are exercised.
Once you have approved our valuation, you will then submit it to HMRC along with the VAL231 form.
HMRC typically takes 2-4 weeks to approve your valuation, and the valuation will be valid for 120 days from approval, unless there is a 'significant event' which has a material change to your company value. This can include (but isn't limited to):
- any change (completed or actively contemplated) in the share or loan capital of the company
- any arm’s length transaction (completed or actively contemplated) involving shares of the company (eg a cash investment)
- negotiations or preparations for a flotation or takeover
- any declaration of a dividend on any class of shares in the company
- the publication by the company of any new financial information, for example, the annual accounts or interim results or announcement
You only need to tell HMRC about a significant event when you next need a valuation. After a significant event, you must reapply to have your shares valued. This doesn't impact any options already granted, but does impact the grant of new options.
*Guided customers get 4 free valuations per year, while Standard customers get 1 free valuation per year. There's a one-off fee for valuations for Self-serve customers, which we'll discuss with you upon receiving your valuation request.
Our team, content and app can help you make informed decisions. However, any guidance and support should not be considered as 'legal or financial advice.'