Tax implications of equity for business in exchange for services

[PMan]

Hi,

I consult with a few companies including some start-ups, one of which has offered me some equity in exchange for a fixed amount of my services.

Let's assume I'm OK with the offer in principle and fully aware that this equity has a high chance of being worth nothing. I'm also aware that if this start-up gets going there will be dilution if other investors come along, other investors with preferences shares, and CGT due on any exit, etc.

My question is more about how this would be dealt with now in terms of taxes. Do I need to record any income for this transaction (which would count toward corporation tax)? I'm set up as a limited company, accounting on a cash basis so there's no actual cash changing hands.

Anyone done this in the past? Any other pitfalls I should be aware of?

 

[dub_nerd]

My only experience is getting equity in a startup as an employee. You pay tax on the shares when you receive them, but assuming it's a startup that is not publicly traded the nominal share value can be set very low, and effectively worthless until a liquidity event.

 

[Gordon Gekko]

My sense is that the market value of the stock is subject to income tax, PRSI, and USC upfront.

Then CGT on any future uplift.

Simple really.

 

[llgon]

Could you carry out this work in a personal capacity outside your company? Make yourself part of the start-up. I don't see how income tax would apply to your stake under these circumstances, obviously CGT would be applicable in the future.

I'm open to correction though.