ICAEW Chartered Accountant, UK-wide
Growth share valuation services for UK companies
There is no HMRC pre-clearance route for growth shares. The valuation report you commission today is the evidence you will rely on if HMRC questions the hurdle, often years after the shares were issued.
Consult EFC prepares independent, defensible growth share valuations. We set the hurdle on evidence, value the share class with an option-pricing waterfall model, and give you the documentation pack that holds up at exit, at your next funding round or under an HMRC enquiry.
- ICAEW regulated
- Option-pricing waterfall model
- Section 431 support
- Fixed fee
- ICAEW Chartered Accountant
- Big Four trained
- Works alongside your solicitor and tax adviser
- Fixed fee, no hourly billing
What a growth share is
A share class that only shares in future growth
A growth share is a separate class of share that only participates in company value created above a set threshold, called the hurdle, from the date of issue. Existing shareholders keep the value already built into the business. The growth shareholder, usually a founder, director or key employee, benefits only from what happens next.
Because the shares carry little value on day one, the recipient can buy them at a low price, and future growth is usually taxed as a capital gain rather than as income. That only works if the hurdle and the share value are right. Set the hurdle too low and you have handed over existing value, which HMRC can tax as employment income. Set it too high and the class can look artificial.
When companies use growth shares
Common reasons to issue growth shares
Growth shares are flexible, which is why they are popular with companies that cannot use EMI or want something EMI does not offer.
Rewarding a new senior hire
Give a new director or CFO real equity in future growth without diluting the value existing shareholders have already built.
Companies that do not qualify for EMI
Businesses outside the EMI limits on size, employee numbers or trading activities, or with a non-qualifying ownership structure.
Immediate share ownership
Recipients who want actual shares now, with voting or dividend rights tailored to the class, rather than an option.
After a funding round
Incentivise the team on the growth investors are backing, with a hurdle informed by the round price.
Family and owner-managed businesses
Pass future growth to the next generation or management team while the current owners keep today's value.
Ahead of a planned exit
Align the management team with a sale, provided the shares are issued and valued well before the exit is in view.
See the mechanic in action
Growth share hurdle calculator
Enter illustrative figures to see how value is split at exit between existing shareholders and growth shareholders.
Enter all three figures to see the split.
This illustrates the hurdle mechanic at exit only. It is not a valuation. The value of a growth share on the day it is issued depends on rights, restrictions, timing and uncertainty, and is calculated with an option-pricing waterfall model. Get a proper valuation.
Our methodology
How we value growth shares
A growth share cannot be valued with a simple multiple of profit or revenue. Its value depends on how likely the company is to exceed the hurdle, and by how much. We follow a structured, documented approach so every assumption can be explained to HMRC, investors or a future buyer.
For the wider rules on valuing shares for tax, including EMI, gifts and inheritance tax, see our HMRC share valuation service.
Value the whole company at the issue date
Total equity value based on trading, forecasts, recent funding rounds, previous share transactions and comparable deals.
Map the share capital waterfall
Set out how proceeds flow to every class, including preference shares, liquidation preferences, existing options and the growth share hurdle.
Price the growth class with an option-pricing model
Treat the growth shares' participation above the hurdle like a call option, using time to exit and volatility to value it today.
Apply documented discounts
Reflect minority position, lack of marketability, voting and dividend rights, vesting and leaver terms, each with a stated basis.
Test the hurdle and document the conclusion
Stress-test the result, confirm the hurdle is supportable and set out the full reasoning in a signed report.
Where valuations go wrong
The six mistakes that turn a growth share issue into an HMRC problem
A weak valuation is usually a documentation problem before it is a numbers problem. For a deeper look, read our guide to growth share valuation mistakes.
A hurdle set on a guess
A near-zero value is not a safe harbour if the company already had contracts, recurring revenue or a live exit story. The hurdle must reflect the business on the day.
Rights and restrictions left unpriced
Voting and dividend rights, vesting and leaver clauses all affect value. Ignore them, or apply an arbitrary discount, and the number is hard to defend.
Forecasts that only work on a good day
HMRC and investors spot optimistic models quickly. A defensible forecast ties back to trading history and current performance.
No Section 431 election
Without the election, the tax position can stay open as restrictions lift. It must be signed within 14 days of acquisition, and it is easy to miss.
A file that cannot answer HMRC
HMRC wants the reasoning, not just the answer. A board minute without a supporting report and model rarely holds up.
Relying on a stale valuation
A valuation done at one funding round can be out of date months later. If the facts have moved, the valuation needs refreshing before new shares are issued.
What's included
A complete, defensible growth share valuation
Every engagement is fixed fee and covers the following, scoped to your share structure.
Company valuation at the issue date
Total equity value supported by trading performance, funding rounds and comparable transactions.
Hurdle setting and rationale
A hurdle that fairly reflects today's value and ring-fences the growth you want to reward, with the reasoning documented.
Waterfall and option-pricing analysis
Equity value allocated across every share class, with the growth share's participation above the hurdle properly priced.
Rights and restrictions discounts
Voting, dividends, vesting and leaver provisions each reflected with a documented basis rather than a round number.
Section 431 and reporting support
Guidance on the joint election and annual employment-related securities (ERS) reporting, coordinated with your adviser.
The full documentation pack
Signed report, valuation model and supporting schedules, kept together and ready if HMRC, investors or a buyer ask.
Choosing the right structure
Growth shares vs EMI options vs ordinary shares
Not every company qualifies for EMI, and not every situation suits an option. If EMI is the better fit, see our EMI valuation service.
| Feature | Growth shares | EMI options | Ordinary shares |
|---|---|---|---|
| What is issued | A real share, immediately | A right to buy shares later | A real share, immediately |
| Value on issue | Kept low by the hurdle | No shares issued until exercise | Full current market value |
| HMRC pre-agreement of value | Not available | Available before grant | Not available |
| Who can use it | Any UK company | Qualifying companies and employees only | Any UK company |
| Tax on future growth | Usually capital gains, if acquired at market value | Usually capital gains on qualifying options | Capital gains, but costly to acquire at full value |
| Best suited to | Non-EMI companies, or where immediate ownership is preferred | Qualifying trading companies wanting tax-advantaged options | Founders and early co-founders |
Getting started
What we need from you
Most companies already have this information. If something is missing, we will tell you what matters and what does not.
- Latest statutory and management accounts
- Forecasts or budget, if available
- Current cap table and share register
- Articles of association and shareholders' agreement
- Proposed rights and hurdle for the growth class
- Details of recent funding rounds or share transfers
- Who will receive the shares, and how many
- Your planned issue date
How it works
From scoping call to signed report
Typically 5 to 10 working days from receiving complete information.
Free scoping call
We confirm the share structure, timing and recipients, then agree a fixed fee.
Information review
Accounts, forecasts, cap table and proposed share rights, reviewed against a checklist.
Valuation and hurdle
We build the waterfall model, test the hurdle and value the growth class.
Signed report and pack
A signed report and supporting file, ready for the Section 431 election and future scrutiny.
Get the hurdle right and get the file right, and a growth share structure keeps working long after anyone remembers how it was set up. Most problems I see started as a rushed valuation with nothing behind it.
Kish Patel ACAFounder, Consult EFC
Get a fixed-fee quote
Tell us about the share structure. We will confirm the fixed fee.
Share a little about the business and Kish will reply personally with a scope and fixed fee, usually within one working day.
- Every valuation prepared by an ICAEW Chartered Accountant
- Fixed fee confirmed before any work starts
- Confidential, nothing shared without your agreement
We will get back to you within one working day.
FAQs
Growth share valuation questions
What is a growth share?
A growth share is a separate class of share that only participates in value created above a set threshold, the hurdle, from the date of issue. Existing shareholders keep the value already in the business, while the growth shareholder benefits only from future growth above the hurdle.
How is a growth share valued?
Growth shares are valued using an option-pricing waterfall model, not a simple profit or revenue multiple. The model allocates total equity value across every share class according to its rights, then values the growth shares' participation above the hurdle based on time to exit and uncertainty, before applying discounts for rights and restrictions.
Does HMRC pre-approve growth share valuations?
No. Unlike EMI options, there is no HMRC process for agreeing a growth share valuation in advance. That makes the valuation report and supporting documents more important, because they are the main evidence if HMRC queries the position, often years after the shares were issued.
What is the hurdle and how is it set?
The hurdle is the company value that must be exceeded before growth shares receive any return. It should reflect the company's value at the issue date, informed by recent funding rounds, trading and comparable transactions. Too low and you hand over existing value, which can be taxed as employment income. Too high and the class can look artificial.
What happens if the growth share valuation is wrong?
If HMRC concludes the shares were worth more than the price paid, the difference can be taxed as employment income, with National Insurance and interest, rather than as a capital gain. The issue often surfaces years later, at an exit or funding round, which is why the original valuation and documentation matter so much.
How is a growth share different from an EMI option?
An EMI option is a right to buy shares in future at a fixed price, with an HMRC valuation route and specific tax reliefs. A growth share is an actual share issued now, in a class that only participates above a hurdle. Growth shares suit companies that do not qualify for EMI, or where immediate ownership is preferred. See our EMI valuation service if EMI fits better.
Do restrictions and rights affect the valuation?
Yes, materially. Limited voting rights, no dividend rights, vesting conditions, leaver provisions and transfer restrictions all reduce what a growth share is worth. A properly prepared valuation reflects each one with a documented basis rather than an arbitrary discount.
What is a Section 431 election and do I need one?
A Section 431 election is a joint election between the company and the employee or director that fixes the tax value of restricted shares at acquisition. It is standard practice for most growth share issues and must be signed within 14 days of the shares being acquired. It is kept on file rather than sent to HMRC.
Do growth shares need to be reported to HMRC?
Usually yes. Shares acquired by employees or directors are normally reportable on the company's annual employment-related securities (ERS) return. The return is filed online by 6 July after the end of the tax year. Late filing can lead to penalties, so your adviser should diarise it.
When should a growth share valuation be updated?
Whenever new growth shares are issued after a material change, such as a funding round, a major contract, a strong trading period or exit discussions. A valuation reflects one date. Issuing further shares later on an old valuation is one of the most common reasons positions are challenged.
How much does a growth share valuation cost and how long does it take?
Fees are fixed and quoted after a free scoping call, based on the company's complexity and share structure. Most valuations are delivered within 5 to 10 working days of receiving complete information.
Related services and guides
Related valuation support
Before the shares are issued
Get the hurdle right the first time
Once the documents are signed, easy fixes disappear. Book a free 30-minute call to talk through your share structure.
ICAEW regulated. Fixed fees. Typically 5 to 10 working days.