Contractors' Questions: How to thank my IT company's advisers?

Contractor’s Question: I’m effectively a one-person limited company supplying IT services but I enjoy the support of some experienced industry contacts who I call my advisory board. As they do not get paid, I would like to grant them share options in my company as an acknowledgement of their input. I’ve heard that Enterprise Management Incentive (EMI) options could be ideal, partly because they qualify for Entrepreneurs’ Relief. So what is the best way to issue these?

Expert’s Answer:  You are correct to identify that EMI options can be useful for a company like yours, as they are a good way to rewards key members of the management team.

However under the EMI scheme rules, a person being granted the share options must work in the business at least 25 hours a week or, if less, 75% of their working time.

Instead of the EMI route, there is nothing to stop you issuing other share options or even actual shares in the company to your management team – the persons you call your advisory board.

If you are hoping that any grant to your board will be free, the transaction will need to be treated as a barter by the recipients. This is because they are receiving value in exchange for their advice. As a result, they would need to add this value to the sales income in their own businesses and potentially account for VAT as well.

In addition, it would be beneficial to agree a value for any shares with HM Revenue & Customs so that all parties can use the same figure. If not, ensure your advisers pay the market value for the shares or options, so that there will be no other tax consequences.

The expert was Chris Lane, a partner at Top 20 chartered accountancy firm Kingston Smith LLP.