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Introduction

The overall goal of the due diligence (DD) exercise is to assess what employment-related securities (ERS) and share schemes activity has occurred within the company (or corporate group), any resultant company liabilities, and where appropriate, quantify those risks and recommend mitigation appropriate to the client.

For example, a review of an EMI scheme could uncover an employee who has exceeded the £250,000 limit, and so some options will be treated as non-tax-advantaged, and an option granted to another employee at a discount to market value, meaning some of the eventual option gain is likely to be subject to income tax via PAYE, with NIC also applying.

For further example, a review of ERS shows shares acquired by a company director are restricted securities and no section 431 election has been entered into. A proportion of the disposal proceeds may therefore be subject to income tax via PAYE, with NIC also applying.

The DD project will generally be referred to verbally and in correspondence by an agreed project