The document summarizes strategies for companies and individuals to mitigate the impact of the upcoming increase in the UK tax rate to 50% for those earning over £150,000. It discusses advancing salary and bonus payments before April 2010 to avoid the higher tax rate. It also covers salary sacrifice arrangements, emigration, expatriate assignments, bonus deferral with loans, clawing back bonuses, accelerating share option vesting, approved share option plans, partly paid shares, growth shares, and growth shares in a subsidiary. Key issues addressed include employment law, cash flow, accounting impacts, and tax authority approval for some strategies.

1. ON TOP OF TAX
Preparing for the upturn: debt restructuring, anti-avoidance attitude
of the courts and the 50 per cent tax rate
2 March 2010
Copyright © March 10 BDO LLP. All rights reserved.

2. Agenda
8.55am Chairman’s welcome
by Paul Eagland
9.05am Company taxation and the courts: the Ramsay principle
post Barclays Mercantile
by Rex Bretten, QC
9.40am Restructuring your debt and escaping unexpected tax
charges – the opportunities and pitfalls
by Angela Foyle
10.15am 50 per cent tax rate and planning techniques for
companies to tackle the tax increase
by Amanda Flint
10.40am Q&A/Coffee and informal chat

3. DEBT RESTRUCTURING
Angela Foyle
Tax Partner
Copyright © March 10 BDO LLP. All rights reserved.

4. DEBT RESTRUCTURING
Overview
• Background
• Why restructure?
• Issues to consider
• Further help

5. DEBT RESTRUCTURING
Background
Shareholder Bank debt
Loan £2m £10m
UK Plc
Intercompany I/co Loan Loan
Account £1m £1m £5m €5m
Overseas
UKCo 1 UKCo 2
Co
UKCo 3
£500k
supplier loan
• UK Plc has borrowed £10m from the banks. In addition, it has borrowed £2m from a shareholder.
There are intercompany balances with UKCo 1 (£1m asset) and UKCo 2 (£0.5m liability)
• It has loaned €5m to its overseas subsidiary at a 2 per cent interest rate
• It has loaned £6m to UKCo 2)
• Interest of £100k has rolled up on the shareholder loans and £500k rolled up on the bank loans. UK Plc
has suffered adverse trading and needs to restructure

6. DEBT RESTRUCTURING
Building blocks
• Sources of debt
- External
- Connected party
• Types of debt
- Interest bearing
- Non-interest bearing
- Convertible

7. DEBT RESTRUCTURING
Outline proposals
• The shareholder loan is to be formalised in a loan document and the
interest rolled up is to be settled by increasing the amount of this loan.
Half of this loan is to be exchanged for shares
• The intercompany account with UKCo 1 is to be waived
• UKCo 2 is currently trading profitably after a period of losses and agrees
to set off its intercompany balance against the loan from its parent
(which has been interest-free)
• The supplier agrees to sell its loan in UKCo 2 to UK Plc for £250k
• UK Plc issues new shares equivalent to 51 per cent of its enlarged share
capital to a new investor for £2.5m. The investor also subscribes for
£7.5m of convertible debt. The bank is repaid, but waives a proportion
of the accrued interest

8. DEBT RESTRUCTURING
Tax issues
• Debt waiver
- External
- Connected party
• Funding bond legislation
• Debt arising from trading transactions rather than financing
• Connected party rules
- Interest
- Sales of impaired debt
- Other anti-avoidance
- Transfer pricing
• Forex
• Anything else?

9. DEBT RESTRUCTURING
Tax implications – shareholder loan
• Shareholder loan
- Formalisation should not cause any tax problems
- But consider interest rate
- Connected party loan: thin capitalisation?
• Rolled up interest
- Late paid interest rules?
- When “capitalised” as part of new debt – is this a “bond, stock, shares, securities or
certificate of indebtedness”?
- Funding bond rules
• Debt/equity swap
- Connected party
- Ordinary shares

10. DEBT RESTRUCTURING
Bank debt
• Repayment of bank debt
- No tax issues
• Waiver of bank debt
- Will give potential tax charge in UK Plc

11. DEBT RESTRUCTURING
Intercompany Account
• The waiver of an intercompany account used to cause problems
• New loan relationship treatment has been extended to waiver/release
of items which were deductible for trading purposes
• Waiver between connected parties is not taxable

12. DEBT RESTRUCTURING
Supplier Loan
• Sale by supplier will create a loss in the supplier – tax deductible
• Sale is to UK Plc so no waiver
• But …..

13. DEBT RESTRUCTURING
Supplier Loan
• Anti avoidance – s361 CTA 2009
- If a debt is purchased by a group member at an “undervalue” taxable on deemed
“profit”
- Used to have a useful exclusion
- FB 2010 changes – exclusion only if
- Change in ownership in 12 months prior to debt purchase
- Debt purchase intrinsic to change in ownership
- Debtor in severe financial difficulty prior to repurchase; but
- Future cancellation of debt gives rise to taxable income

14. DEBT RESTRUCTURING
Intercompany offset
• Offset of intercompany against UK Plc loan
- No specific tax issues
- Interest?
- Thin capitalisation/transfer pricing?

15. DEBT RESTRUCTURING
Overseas issues
• Loan to overseas company
- Forex exposure
- Hedging?
- Transfer pricing
- Thin capitalisation
- Quasi-equity?

16. DEBT RESTRUCTURING
Equity issue
• Share issue
- As this is an issue of new shares there should be no disposal
- Looks like there could be a change of control – any implications?
• Convertible debt
- Accounting treatment – bifurcated or not?
- Interest
- Any additional finance cost?
- Distribution rules?
- Withholding tax
- Quoted Eurobond exception
- SDRT?

17. DEBT RESTRUCTURING
Group reorganisations
• Can be transferred at book value
• Degrouping provisions – one way only

18. DEBT RESTRUCTURING
Conclusions
• Debt restructuring may be crucial to a business
• Tax rules are complex
• Early advice

19. BEATING THE 50 PER CENT RATE – THE
HUMAN CAPITAL ANGLE
Amanda Flint
Human Capital Partner

20. SETTING THE CONTEXT
How will the 50 per cent tax rate affect your people?
1. Salary
}
2. Bonus
3. Share
Incentives
4. Pensions

21. 1. SALARY – SOME PARTICULAR ISSUES
Salary levels over £150,000
• Subject to 51 per cent tax rate
• Don’t forget the uncapped National Insurance Contributions
Salary levels from £100,000 - £113,000
• Not subject to 51 per cent tax rate but if income over £100k, for every £1,
lose £2 personal allowance – 60 per cent tax rate
• Salary sacrifice does work!

22. 1. SALARY – ADVANCE PAYMENT
Pay salary before 6 April 2010 Idea
• Advance a pay rise – pay in a lump sum before 6
April 2010
• Pay salary in advance
How it works
• Unconditional entitlement essential!
Issues
• Employment contract – will need to be changed
• What if the recipient ceases employment?
• What if the Company needs cash?

23. 1. SALARY – SALARY SACRIFICE
Salary sacrifice arrangements Idea
• Reduce tax payable by sacrificing pay for certain tax
and/or NIC efficient benefits
How it works
1. Employees sacrifice a portion of their income in
exchange for lower pay and benefits/allowances
2. Certain benefits can be provided tax and/or NIC free
Company even to the highest earners
3. For those earning between £100,000 and £113,000
could save >60 per cent tax
Benefits Salary 4. Reduces taxable income and therefore tax rates
5. Employees get degree of choice over the package
6. Savings can be shared between employer and
employee
Issues
• HMRC approval/agreement for certain benefits.
Employees • Implementation.
• Does not work in reducing the £150k limit for pension
contribution higher rate relief restriction purposes

24. 1. SALARY - EMIGRATION
Emigration
Idea – Emigration - The ultimate 50 per cent planning
How it works
Need - become not resident and not ordinarily resident in the UK.
HMRC view leaving the UK for a settled purpose as being for at
least three tax years/one year if you leave the UK for a
complete tax year to work on a full time contract abroad
• Additional benefits arise for Non UK domiciliaries. After four full
tax years of non UK residence the IHT (17 out of 20 year deemed
domicile) clock is reset
Overseas
Issues
• Is it practical?
• Now harder to argue that a long term UK resident has effectively
left the UK for tax purposes - move needs to be permanent and
dramatically reduce ties with the UK
• If return to the UK within five tax years - subject to tax on
capital gains arising on assets held prior to your departure and
disposed of whilst away

25. 1. SALARY – EXPATRIATES – IS THE UK THE BEST PLACE?
Mobile employees could work in lower tax jurisdiction
Idea
• Employees relocate to a lower tax
OR
jurisdiction/send them home!
How it works
Company 1. Employee moves overseas to perform
Offshore
duties
subsidiary
2. Can transfer or assign employment to
or parent
overseas branch, to overseas subsidiary or
parent
Overseas
Issues
branch
• Commercial needs – where are they?
• Need to identify appropriate territory –
home territory may not be better
• Allocation of time spent in UK and in new
location
• Employment contracts – how flexible are
they?

26. 1. SALARY – EXPATRIATES – 50 PER CENT = 100 PER CENT
FOR TAX EQUALISED
Review remuneration packages for individuals assigned to the UK
Idea
• Review structure of remuneration for employees
assigned to UK
How it works
Coming to 1. Overseas employee moves to the UK to perform duties
Assignee
UK
2. Can structure assignment length, employer and
payment location to reduce tax and NIC
Issues
• Need to review tax and NIC impact in UK and home
country
• Employment law issues in UK and overseas territory
• Potential payroll/withholding implications.

27. 2. BONUSES – ADVANCE PAYMENT
Pay bonus before 6 April 2010 Idea
• Advance a bonus – before 6 April 2010
How it works
• Unconditional entitlement essential!
Issues
• Pay before year end?
• Pay for performance before your people have
performed
• What if the recipient ceases employment?
• What if the Company needs cash?

28. 2. BONUSES – DEFERRAL AND LOAN
Bonus deferral with linked loans Idea
Defer bonuses until tax rates return to a more
reasonable level
How it works
Subsidiary • As bonuses are not paid they will not be subject
to the new rate
• Loan funds to employees to make up the
Loans Waive bonus temporary shortfall
• Declare bonuses to clear loans once rates are
reduced
Issues
• BIK charge on the loans.
• Longer term approach – what happens to
Employees leavers?
• Potential s419 charge for close companies
• Material – impact on accounts?
• Waiver needs to be effective

29. 2. BONUSES – CLAW BACK
Clawing back bonuses Idea
1. Enables the company to claw back
Bonus paid
bonuses in the event of executive poor
into a trust performance.
and deferred
Group Trust How it works
1. Group establishes an employee benefit
trust (‘EBT’).
2. An executive’s earned bonus is
transferred by Group to the EBT.
3. Subject to further conditions the bonus is
Claw back for Payment at paid out at a later date by the EBT.
poor a future
Issues
performance point
1. Deferral only – wait and see!
2. Can manage tax charge

30. 2. BONUSES - LOANS FROM AN EBT
Use Employee Benefit trusts to make loans to employees/shareholders
Idea
• An EBT is established making loans to higher
paid employees/shareholders
Loans
How it works
1. Group funds EBT by way of contribution or
loan to provide benefits to
employees/shareholders
2. EBT then makes interest-free loans to
employees/shareholders
3. Employee/shareholder is only taxed on the
Group EBT ‘interest’ benefit
Issues
• HMRC may challenge
• Close company issues – funding trust;
Inheritance Tax issues
• Loan – when will it be repaid?
• Residence change possible?

31. 3. SHARE INCENTIVES – ACCELERATE OPTION VESTING
Allow early vesting of share options
Normal vesting Idea
• If unapproved share options (or EMI options which were
granted at a discount to MV on grant) are exercised post
5 April 2010, income tax plus NIC of 50 per cent + may
be suffered on exercise
? How it works
1. Company and employee agree to amend the terms of the
option to provide for early exercise of the options
2. Employee exercises their options pre 6 April 2010 thus
accelerating the tax point and accessing the 40 per cent
rate.
Issues
• Have performance conditions been met?
• Attitude of shareholders?
• Setting a precedent….
• Accounting implications of the change to the option
require careful scrutiny

32. 3. SHARE INCENTIVES – APPROVED PLANS
HMRC approved share option schemes
Idea
• Share awards – boost pay without cash
Group • Employees should be subject to 18 per cent (ie
CGT rates) rather than 50 per cent+ (ie PAYE
and NIC rates)
Share • The company may be entitled to a corporation
options/share tax deduction even if no income tax
purchase/share
How it works
awards
1. Group gets approval for plans & makes awards
2. The employee sells the shares and uplift in
value from the date of award of the options
should be subject to CGT
Issues
• Can the company qualify for approved plans?
• Low level awards
• Is there a market for shares?
• Administration

33. 3. SHARE INCENTIVES – PARTLY PAID SHARES
Partly-paid shares
Idea
• Buy now, pay later!
• Growth in value of the shares should be subject to CGT
at 18 per cent and not PAYE and NIC at 50 per cent +
• Usually an annual tax charge based on the value of the
shares at acquisition – currently low
Capital Gains
Tax on growth How it works
1. Issue/transfer shares – at current market value
2. Defer payment
3. Pay later – time controlled by company
Issues
• Risk – biggest issue - must pay up shares
Income tax
• Fund with bonuses?
Income tax
exposure • Share price drives exposure
exposure • Must NOT transfer before payment
• Works well with low value shares
• Works well where want ‘skin in the game’ but executive
is ‘cash poor’

34. 3. SHARE INCENTIVES – GROWTH SHARES
Growth shares
Idea
• Create a new class of share and issue to employees giving
Group
them value if the business grows in value over and above
a pre-determined ‘hurdle rate’
• Tax on the vesting of the awards ie the value which the
employees receive
• Growth should be subject to CGT at 18 per cent and not
PAYE/NIC at 50 per cent +.
How it works
Growth in 1. A new class of share is created and subscribed for by key
value = employees
share value 2. The employees acquire the shares at day one
to
3. Growth in value linked to future performance of company
employees
4. The growth in value should be subject only to CGT
Issues
• Subject to performance – forfeit if don’t achieve
• Not suitable for listed companies
• No corporate tax relief

35. 3. SHARE INCENTIVES – GROWTH SHARES IN A SUBSIDIARY
Freezer scheme in a subsidiary
Idea
• Create a new class of share in a subsidiary carrying rights
Group to the future value only and award the ‘B’ shares to key
individuals
• The individuals should be subject to CGT at 18 per cent per
cent rather than PAYE and NIC at 50 per cent
Subsidiary How it works
1. Subsidiary creates a new class of ‘B’ share
New class of 2. These shares carry only the right to the future value of the
share subsidiary
3. Subject to achieving performance conditions, the ‘B’
shareholders exchange their shares for shares in the
parent. On sale of the shares- should be subject only to
CGT at 18 per cent
4. Can potentially use with HMRC approved plans
Issues
• Is dilution in subsidiary acceptable to shareholders?
• Accommodating new joiners – gets more difficult as share
value grows
• Subject to performance

36. 3. SHARE INCENTIVES – SPLIT INTEREST SHARES
Idea
‘Split Interest’ share incentive scheme
• A shared ownership of shares – between employees
and trust – growth in value in hands of employee
• Tax on the sale of shares should be subject to CGT
Share at 18 per cent and not PAYE and NIC at 50 per cent
+
How it works
Current value Future value 1. Company funds ESOT & it subscribes/purchases for
shares
2. EBT splits the beneficial interest of shares -
transfers the future interest to employee and
retains the historic interest
3. Subject to achieving performance conditions (the
ESOT
employee is subject only to CGT on growth in value
of his interest
Issues
• Unapproved options – can deliver whole value of
the shares (analogous to an LTIP)
• Not considered aggressive BDO has received
HMRC’s ‘sign off’
• Up front tax charge
• Can fit with current share plan

37. 4. PENSIONS – POSITION UNTIL APRIL 2011
Pension Contribution Planning
Idea - Maximising higher rate tax relief on
contributions in 2009/2010 and 2010/11
How it works
• If your income is generally below £130,0000 -
can pay the maximum pension contributions
• If your income exceeds £130,000 and you are
subject to the anti-forestalling rules:
£ - Can continue regular (monthly or
quarterly) pension contributions
- If historically made irregular
contributions can contribute up to
£30,000 in both 2008/9 and
Pension 2009/2010
- If current contributions are below
the £20,000 can increase your
contributions to this level
Issues
• Government limits on drawdown
• Lack of flexibility

38. 4. PENSIONS – POST APRIL 2011- EFURBS
Use EFURBS for pension provision
Idea
• An Employer Funded Unapproved Retirement
More flexible Benefits Trust (“EFURBS”) is established by
Pension provision Group
• It funds retirement benefits
How it works
Group EFURBS
1. Group funds EFURBS by way of contribution
to provide retirement benefits to employees
2. EFURBS establishes funds for relevant
individuals
3. More flexible investment and benefits
Issues
• Tax certainty on funding
• IHT issues for close companies
• Delay in corporation tax deduction
• Portable retirement provision
• Alternative to ‘extra cash’

39. WHAT HAPPENS NEXT?
The next 12 months….
1. Budget – a damp squib – but fat Finance Bill
2. Second Budget – the real rules
3. But – how long will it take to ‘unscramble the current rules’?
4. Will capital gains tax rates go up? If so, by how much?
5. Anti-avoidance – not a vote-catcher! Likely to continue and increase in
scope?
Corporate strategy – flexible and cost effective

40. Thank you
Questions for the panel?