Please help with working out capital gains from selling company shares.

a1psx

I had approved shares in the company I work at and in february the company was sold for lots of money and all shares transfered to the new owners.

My 500 shares costing £1500 entitled me to a percentage of the sale, any royalties due, any money left in the company bank account etc.

We were advised that the payment would be around £45000, £10100 would be tax free and 18% capital gains on the rest.

I recieved this money before the end of the tax year however since Apr 2010 I have received another payment of £3000 and could get a little bit more in January.

I need to fill my on-line self assessment in but I am not sure if the £3000 should go on the 2009/2010 return or will it be taxed 2010/2011. My collegues paid £400 each to the company accountant to have their assessments done for them, I thought this was a waste of money but now I am stuck. :undecided

I would be very greatful for any advice.

chrismac1

£400 sounds a bit steep for a self-assessment return plus a CGT calculation, £200 is more like it or even £150 if your records are well kept.

18% will be the rate - on the grand total of all CGT assets disposed of during tax year 09-10, less the 10,100. The disposal date is the date on which the disposal has been made free of all conditions - which in the case of shares is either the date on the stock transfer form or on the contract note if sold through a broker.

The 3,000 has been received in tax year 10-11 so will count towards the 10-11 tax return. Unless you have other chargeable gains in 10-11 there will be no tax to pay so I wouldn't worry about that for now.

jimmo

chrismac1 wrote: »

The 3,000 has been received in tax year 10-11 so will count towards the 10-11 tax return. Unless you have other chargeable gains in 10-11 there will be no tax to pay so I wouldn't worry about that for now.

I don't think that's right.
It appears that the OP has disposed of his shareholding during 2009/10 and received the bulk of the money then. The payment of £3,000 he has received and the "little bit more" he may receive in January appear to be deferred consideration and the tax treatment depends on whether it was "ascertainable deferred consideration" or "unascertainable deferred consideration".
If it was ascertainable, that is it was capable of being determined at the time of disposal of the shareholding, the Capital Gains for 2009/10 should include the whole of the disposal proceeds.
Where the ascertainable deferred consideration is payable over a number of years then the 2009/10 tax could be paid by instalments.
http://www.hmrc.gov.uk/manuals/cgmanual/cg14912.htm
However if the deferred consideration was unascertainable, which seems most likely, the correct procedure is to treat that as a separate capital asset and determine its open market value at the date of disposal of the original shareholding and apply the part disposal formula.
Having said that I would suggest that the OP's best option would be include the £3,000 already received and the "little bit more" he may receive in January if possible in the 2009/10 Return and stump up 18% on that.
Admittedly we are talking £540+.
His potential problem is that, to capital gains nerds like me, cases involving unascertainable deferred consideration do not crop up every day and there will certainly be a number of CG specialists at HMRC who would jump at the chance to work one.
Another thing to consider may be that £3,000 is really a pretty small amount in unascertained deferred consideration and, taken in isolation, it would have probably cost the purchasers more in professional fees to set up than the amount being paid.
I therefore imagine that other shareholders in the original company had significantly more shares than the OP and are getting significantly more money than him.
If the company accountant knows what he is doing, and if his fee of £400 includes him accepting the responsibility to negotiate with Shares Valuation Division on the open market value of the unascertainable deferred consideration if necessary, then that £400 may not be so horrendous. If the accountant doesn't really know what he is doing then there is a very real danger that people with significantly larger shareholdings in the original company will be first in line for an Enquiry from HMRC but once one Enquiry is under way it is not too difficult for HMRC to track down the other shareholders.
To try to put this into perspective for the OP, I suggest you include the £3,000 + in your 2009/10 Return. If you were to do it more correctly you might judge that the open market value of your right to receive what has turned out to be £3,000+ at the time you sold your original shares was £2,000.
Then you will pay 18% Capital Gains Tax on the £2,000 for 2009/10 but your Capital gain of £1,000+ will be below your annual exempt amount and save you £180 compared to my suggestion.
Whilst there can be no guaranties, I really think that if you follow what I have said you will minimise the risk of an HMRC Enquiry. If an Enquiry does happen this is no place for amateurs and, quite frankly, no place for accountants who do not have experience in Company takeovers.

Dead_keen

As well as the points Jimmo makes, how you got your shares could also be relevant.

You say that you had "approved shares". If these came from an HMRC approved share incentive plan then there may be no, or much, less CGT due. For example, if you acquired the shares more than five years before you sold them then your base cost for CGT would not be the £1,500 but their market value when they came out of the trust (e.g. around £45,000 if they came out immediately before the sale in February 2010).

If the shares came out of a SIP within three years then you may be in a much worse position as income tax could be due on the tax market value when you sold them. However, it sounds like this is unlikely as your employer should have operated PAYE/NIC if this was the case (although, it is not unknown for companies to be unaware of this).

There are other "approved" plans but this is an issue related to share incentive plans (not CSOP, SAYE or EMI plans).

a1psx

Thanks to all that replied I am going to include the £3000 in the capital gains for 2009/10