HMRC Founder Pay Scrutiny raises concerns at Goodwin Procter, Macfarlanes and Crowe UK
HM Revenue & Customs is reportedly increasing its scrutiny of payments made to founders when companies are sold, particularly where receivables, deferred consideration or equity awards are linked to the seller remaining with the business after liquidation. The reported change raises a major classification issue: whether the payment represents equity consideration or employment income linked to ongoing services.
Tax experts at Goodwin Procter, Macfarlanes, S&W Group and Crowe UK explained HMRC's detailed review of these arrangements, including applications for sales agreements, payment documents and evidence explaining the commercial basis of individual payments. HMRC has not published data confirming the increase in investigations specifically involving the sale of founders' shares, so the development remains based on expert observations reported by tax advisers rather than an announced verification scheme.
The difference can significantly change the tax cost of the transaction. Capital gains are generally taxed at 18% or 24%, while the additional rate of income tax can reach 45%, and National Insurance contributions may also apply. Therefore the amount attributed as sale proceeds may give rise to a very large liability if HMRC concludes that it was gained through employment, maintenance or personal activity after the deal.
Benefits are a common feature of acquisitions when the buyer and seller cannot agree on the value of the company at closing. HMRC's own guidance notes that cash advances, loan notes or securities may form part of the purchase price. It identifies factors that support capital management, including whether the payment reflects the number of shares awarded, whether it is independent of future employment and whether personal performance goals are excluded. Where the scheme includes auction consideration and the award of services, HMRC says the amount may need to be split.
That puts a huge burden on CFOs and CFOs on both sides of the job. Purchase agreements, board documents, valuation work, salary records and post-deal employment terms should tell a consistent commercial story. A retention clause, a reduced salary, a personal target or a payment available only to active shareholders may weaken the argument that the total value is the acquisition price. Financial groups should also indicate potential PAYE and National Insurance exposures before signing, rather than treating tax classification as an issue for the founder alone.
The reported revisions amount to a wider extension of HMRC's compliance powers. The government's Spring Statement for 2025 provided funding for an additional 500 compliance staff on top of the 5,000 previously announced, while the Spending Review allocated £1.7 billion over four years for 5,500 compliance staff and 2,400 credit management staff. HMRC has estimated the UK tax gap at £46.8 billion by 2023–24.
Dulcie Daly of Goodwin Procter, Gideon Sanitt of Macfarlanes, Clare Halligan of S&W Group, Hayley Ives of Crowe UK and Matthew Brown of the Chartered Institute of Taxation have all linked to the latest reports on the matter. Their comments point to the practical need for upfront collaboration between finance, tax, legal and payroll teams. Corporate planning founder-led marketing it should consider that the documents of the transaction may be examined later together, with the purpose of the sale of each payment being examined with the continuing role of the originator.
