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Business valuations are critical for startup founders, especially when implementing employee share schemes like the Enterprise Management Incentive (EMI) Scheme. A vital element of this valuation process is the VAL231 form. This form helps you obtain HMRC approval of your company’s valuation. This article will explain the VAL231 form and its role in the valuation process for the EMI scheme. By understanding the VAL231 form, you can ease the implementation process and make informed decisions for your startup that support its growth and attract top talent.
What is the EMI Scheme?
The Enterprise Management Incentive (EMI) scheme is a tax-advantaged share options plan that UK businesses can implement. By implementing this scheme into your startup business, you can grant share options to your employees.
Your startup might be eligible to offer these incentives if it owns less than £30 million in gross assets and fewer than 250 employees. Schemes like these are a great way to attract skilled employees to your startup. In the early phases of your company, when the budget is tight, you can still offer an attractive compensation plan by offering share option incentives.
You should seek HMRC approval of your company’s valuation to implement the scheme. To do this, you will need to complete a VAL231 form.
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The VAL231 Form and EMI Valuations
On the VAL231 form, you will provide essential information about your company and the shares, including:
- your company’s name, registration number, and contact details;
- the value of the shares;
- the exercise price;
- the deadline for HMRC approval;
- unrestricted market value (UMV) of the shares; and
- their actual market value (AMV).
The following table outlines the difference between UMV and AMV.
| Value | Explanation |
| Unrestricted Market Value (UMV) | UMV is the value of shares without any restrictions or conditions that could affect their price. It represents the hypothetical market value of shares without limitations. |
| Actual Market Value (AMV) | AMV is the price of your company’s shares on the open market at a given time. It reflects the actual value of shares based on current market conditions and a formal valuation. The AMV can be much lower than the UMV. |
You should wait for HMRC approval once you submit your VAL231 form and valuation report. Once you receive an agreement letter from HMRC, it is valid for 90 days unless a significant event affects your company’s share value during that time.
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Key Considerations
1. The Benefits of a HMRC-Approved Valuation
A HMRC-approved valuation is not mandatory for implementing an EMI scheme. You can implement the scheme without completing the VAL231 form. However, obtaining HMRC approval will significantly benefit your company and the employees who receive share options.
HMRC approval helps clarify the tax implications for your employees when exercising their options. When your company grants the options, whether your employees can benefit from the scheme’s tax advantages depends on whether the exercise price is less than the shares’ unrestricted market value. Therefore, agreeing on the market value of the EMI shares with HMRC before granting options is crucial.
With an approved valuation, you can grant options to your employees with certainty over share value, helping to ensure beneficial tax treatment. When implementing the EMI scheme, seeking HMRC approval by filling out a VAL231 form is standard practice. Without it, you risk your employees not being able to enjoy the critical tax benefits of the scheme and potential legal disputes as a result.
2. Seek Professional Advice
Company valuations can be complex. Seeking advice from legal and financial experts is the best way to ensure accuracy and enable you to implement the scheme smoothly.
Key Takeaways
As a founder, it is crucial to understand the VAL231 form and the benefits of seeking HMRC approval for a valuation before granting share options under the EMI scheme. You will submit a VAL231 form alongside a valuation report when seeking HMRC approval of a valuation before granting options under the EMI scheme.
Seeking approval of a valuation is not mandatory but can be beneficial. A crucial benefit is that it can clarify tax treatment when employees exercise their options.
Implementing an incentive scheme can be complex. However, seeking expert legal and financial advice can help clarify your obligations. Professional advice can help you to:
- understand whether your company qualifies for the EMI scheme;
- seek HMRC approval of your valuation; and
- successfully implement the scheme.
If you would like legal advice about VAL231 forms and the valuation process for EMI share schemes, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
The VAL231 is a form you will complete to obtain a HMRC-approved valuation of your company. You will submit the form alongside a valuation report.
Agreeing on the market value of shares with HMRC before you grant EMI options can be crucial. HMRC approval helps clarify the tax implications for your employees when exercising their options.
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