The pandemic has sparked a heightened interest in the life sciences sector, and we are very fortunate at Confluence Tax to have been busier than ever since the onset, given our firm’s focus on tech and biotech clients. The tax topics that our clients present are like buses: you go from three sets of employee equity incentive issues to three sets of messy R&D tax credit and patent box structures. The main topic that is keeping us busy currently is NASDAQ preparatory IPO work for UK companies. Should they put a US or UK company on top of the group? What about the share option scheme?
Another thing occupying our time is our merger with US accountancy and tax firm, Frazier & Deeter. This merger offers our clients audit, financial reporting, US tax and transfer pricing capability that previously we could not provide internally. Getting to grips with an organisation of 500 people and making client introductions across the board is satisfying but complex.
If you could make one change to tax law or practice, what would it be?
I’d amend ITA 2007 s 164A. The EIS scheme helps bring capital into high-risk companies. But you cannot become an EIS investor in such a company if you already hold any non-SEIS or EIS shares in it. There are multiple reasons why you might already hold shares, but there is no motive test in s 164A, just a blanket prohibition. The Treasury has implemented my idea of ‘knowledge-intensive companies’, which has driven more EIS investment into the knowledge economy. Further to this, it would be great to add some subtlety to s 164A to remove an unnecessary barrier for these good causes.
What do you know now that you wish you’d known at the start of your career?
If you have an idea that suits your skill set, then you should go for it. There is a world of incredibly generous clients, law firms, NEDs and finance people who are all happy to make introductions and link you to sources of work. You just don’t know they are there until you have stepped off the cliff. Choosing to target a select industry, such as life sciences, has been key to success in my case.
Are there any new rules that are causing a particular problem?
HMRC has caused absolute havoc with its (unpublicised) change in approach on EMI share option schemes and board discretion. In a nutshell, everyone knows that the terms of an EMI option must be set at the time the option is granted. When EMI options are granted, it is commonplace to be able to use board discretion (for example, to accelerate vesting on an exit). This is a generous move on the part of the board, and the employee has no say in the matter. There is nothing tax-motivated or underhand going on. The problem now is that HMRC takes a harsh view on using board discretion, apparently in light of the Eurocopy case ([1992] BCLC 1067). Eurocopy dealt with changes to option terms post-grant, so there seems no common ground between that case and using a board discretion clause that was always in the option terms. However, HMRC has been steadfast in its view that any use of board discretion is tantamount to the grant of a new non-EMI option. Consequently, we have seen multiple situations, including company sales, where PAYE and NICs are having to be operated and employees are losing out. My hope is that common sense will prevail within HMRC at some point soon.
What issues have clients been raising?
The November announcement in the Budget about changes to R&D tax credit rules, arising from the recent Treasury consultation, is going to bring some legal and operational changes to the system. Most notably, the planned restriction on overseas subcontractor spend in tax credit claims could really damage the UK life sciences sector, an industry where we are world leaders.
You might not know this about me but...
My wife and I own a small number of sheep and cows, and we are looking forward to our first lambing and calving season!
The pandemic has sparked a heightened interest in the life sciences sector, and we are very fortunate at Confluence Tax to have been busier than ever since the onset, given our firm’s focus on tech and biotech clients. The tax topics that our clients present are like buses: you go from three sets of employee equity incentive issues to three sets of messy R&D tax credit and patent box structures. The main topic that is keeping us busy currently is NASDAQ preparatory IPO work for UK companies. Should they put a US or UK company on top of the group? What about the share option scheme?
Another thing occupying our time is our merger with US accountancy and tax firm, Frazier & Deeter. This merger offers our clients audit, financial reporting, US tax and transfer pricing capability that previously we could not provide internally. Getting to grips with an organisation of 500 people and making client introductions across the board is satisfying but complex.
If you could make one change to tax law or practice, what would it be?
I’d amend ITA 2007 s 164A. The EIS scheme helps bring capital into high-risk companies. But you cannot become an EIS investor in such a company if you already hold any non-SEIS or EIS shares in it. There are multiple reasons why you might already hold shares, but there is no motive test in s 164A, just a blanket prohibition. The Treasury has implemented my idea of ‘knowledge-intensive companies’, which has driven more EIS investment into the knowledge economy. Further to this, it would be great to add some subtlety to s 164A to remove an unnecessary barrier for these good causes.
What do you know now that you wish you’d known at the start of your career?
If you have an idea that suits your skill set, then you should go for it. There is a world of incredibly generous clients, law firms, NEDs and finance people who are all happy to make introductions and link you to sources of work. You just don’t know they are there until you have stepped off the cliff. Choosing to target a select industry, such as life sciences, has been key to success in my case.
Are there any new rules that are causing a particular problem?
HMRC has caused absolute havoc with its (unpublicised) change in approach on EMI share option schemes and board discretion. In a nutshell, everyone knows that the terms of an EMI option must be set at the time the option is granted. When EMI options are granted, it is commonplace to be able to use board discretion (for example, to accelerate vesting on an exit). This is a generous move on the part of the board, and the employee has no say in the matter. There is nothing tax-motivated or underhand going on. The problem now is that HMRC takes a harsh view on using board discretion, apparently in light of the Eurocopy case ([1992] BCLC 1067). Eurocopy dealt with changes to option terms post-grant, so there seems no common ground between that case and using a board discretion clause that was always in the option terms. However, HMRC has been steadfast in its view that any use of board discretion is tantamount to the grant of a new non-EMI option. Consequently, we have seen multiple situations, including company sales, where PAYE and NICs are having to be operated and employees are losing out. My hope is that common sense will prevail within HMRC at some point soon.
What issues have clients been raising?
The November announcement in the Budget about changes to R&D tax credit rules, arising from the recent Treasury consultation, is going to bring some legal and operational changes to the system. Most notably, the planned restriction on overseas subcontractor spend in tax credit claims could really damage the UK life sciences sector, an industry where we are world leaders.
You might not know this about me but...
My wife and I own a small number of sheep and cows, and we are looking forward to our first lambing and calving season!
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.jpg?sfvrsn=335a554c_0 "300 x 250 (MPU)")