CooperVision Lens Care Limited v HMRC [2026] UKFTT 324 (TC)

Overview

In 2014 CooperVision Holdings (UK) Limited (“CV”) acquired the entire share capital of Sauflon Pharmaceuticals Ltd, a contact lens business, for £665m. That global sale price was determined at arm’s length in the open market and represented market value. However, three individuals (Alan Wells, John Maynard and Bridget Maynard) received a higher price for their shares, pro rata, than the other majority and minority shareholders. The issues for the Tribunal were: (1) whether the shares were employment-related securities within the meaning of s.421B of Part 7 Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) (the “ERS issue”); (2) whether they were disposed of for above market value (within the meaning of ss.272 and 273 Taxation of Chargeable Gains Act (“TCGA”) 1992), such that the difference fell to be taxed as employment income (ss. 421 and 446X ITEPA 2003) (the “Market Value issue”).

The Appellant contended that: (1) Mr Wells and Mr Maynard acquired their shares as investors in the business, not by reason of their employment and that the original shares were made available to them by the original owners, not the employing entity, such that they (and all subsequently acquired shares) were not employment-related securities; and (2) the 2014 transaction took place at arm’s length in the open market such that the actual share price negotiated was the best possible measure of market value. They sought to rely on an expert report to the effect that the global value acquired for the shares, and the way in which that global value was divided unequally between the shareholders, was the best evidence of market value. The Appellant also contended that: (1) it had not been careless in failing to account for the income tax, such that HMRC were not entitled to assess outside of the standard time limit relying on s.36 Taxes Management Act 1970 (the “Carelessness Issue”); and (2) the regulation 80 determinations (made under the Income Tax (Paye As You Earn) Regulations) 2003) had been validly made on the grounds that they had not satisfied the Tribunal that it “appeared” to the officer that there was a shortfall in tax (the “Validity Issue”).

Facts

John Maynard and Alan Wells together established a contact lens business in the 1980s, which became very successful through (inter alia) its decision to market only through opticians [FTT ¶28]. Between 1985 and 1995 they acquired shares in four tranches. In the first acquisition (in August 1987) they converted loan notes, which themselves replaced options, into shares. The options were granted as part of the original shareholders agreement, pursuant to which both men agreed to become directors of the company. In the second acquisition (in December 1988) they exercised some rights / options to acquire further shares. Again, those options had been acquired under a variation of the original shareholders agreement. In 1991 during an investment restructuring, Mr Wells and Mr Maynard acquired further options to purchase shares. It was a condition of the new shareholders agreement that they would enter into a service agreement and give undertakings in relation to employment. Mr Wells and Mr Maynard exercised the options on 21 August 1991. The fourth and final tranche of shares were acquired in 1995 when two original shareholders wished to sell the remaining shares. They sold them back to the Appellant, which then issued the shares to the remaining shareholders, which included – by this point – a private equity investor.

By 1999 the Appellant had become the market leading solutions supplier in the UK with enough capital to enter the contact lens market. They expanded into contact lens manufacturing and raised investments and a loan from two further private equity funds.

In early 2014, CV approached the Appellant with a view to purchasing its entire share capital [FTT ¶150(2)-(3)]. Through lengthy negotiations, Mr Wells negotiated a global sale price of £665m [FTT ¶150(5)]. Once this was agreed in principle, Mr Wells held separate negotiations with the minority shareholders (the private equity firms), which took place between May and June 2014 and the other majority shareholders, which took place from 19 June 2014 onwards [FTT ¶¶151(1), 174(3), 255(3)]. Mr Wells justified the higher share price to the other shareholders by threatening not to sell unless it was achieved and by telling them that he and Mr Maynard (and Mr Wells’ sons, who were by then, involved in the business) were bound by forward looking warranties and post-termination restrictions.

However, during the negotiations, the advice received from Ernst & Young (“EY”) was that there would be income tax implications if Mr Wells and Mr Maynard received additional remuneration in consideration for forward looking warranties and restrictive covenants. A new structure was proposed whereby CV entered into two separate share purchase agreements: one with the majority shareholders and one with the minority shareholders. This was done to give the impression of two separate arms’ length sets of negotiations between CV and different shareholders, but did not reflect reality as CV had negotiated only with Mr Wells for the purchase of the entire share capital for a single sum [FTT ¶¶190, 194].

Mr Ricupati, acting for CV in the sale, received advice from EY, acting for Sauflon, comprising a brief formal opinion (stated in a valuation letter) and memorandum [FTT ¶202]. He requested that the opinion, which was couched in cautious terms, be more robust [FTT ¶¶209-212]. A second valuation letter was produced. Again, it was requested that this be re-drafted [FTT ¶217]. A final valuation letter was then produced [FTT ¶218].

FTT Conclusions

The ERS Issue

The FTT found that the first, second and third tranches of shares were employment-related securities by virtue of sections 421B(1) and (3) ITEPA 2003 as the shares had been acquired because of their employment and were made available by the Appellant, their employer. The steps in between did not break the chain of causation.

However, with respect to the fourth acquisition, the FTT found that these were not employment-related securities as: (1) section 421B(3) involves a straightforward examination

to ascertain who conferred the right or opportunity to acquire the shares (HMRC v Vermilion Holdings Ltd [2023] UKSC 3, [2023] 1 WLR 3908 at [24]); (2) as a matter of substance (rather than form), the opportunity was made available by the CLM owners deciding to sell their remaining shares; and (3) the shares were not acquired by reason of employment as the right or opportunity to acquire the shares was made available to all shareholders, some of whom (the private equity firm) were not employees [FTT ¶¶88, 90-91].

The Market Value Issue

The FTT held that the market value test (s. 421 ITEPA 2003, referring to ss. 272-273 TCGA 1992) requires the tribunal to identify the highest price reasonably obtainable by the hypothetical seller. In applying that test, the focus is firmly on the asset that requires to be valued and in the case of shares in a private company, that requires focus on the rights attached to the shares immediately by the purchaser (Grays Timber Products Ltd v HMRC [2010] UKSC 4; [2010] 1 WLR 497) [FTT ¶130]. In circumstances where the sellers of a company divide the sale proceeds between them by agreement amongst themselves, it cannot be said that, in the negotiations between them, one seller is “acting like a hypothetical buyer” of another’s shares for the purposes of the market value test in TCGA [FTT ¶253].

Applying that test, the FTT found that: (1) CooperVision agreed to buy all the shares for £665m as negotiated with Mr Wells and Mr Maynard and CV was not concerned with the division of the shares between other shareholders, which was negotiated separately between Mr Wells and Mr Maynard and the remaining shareholders; (2) the selling shareholders did not act as hypothetical willing seller and buyer in the open market may be expected to act [FTT ¶253]; accordingly, (3) all of the shares acquired by CV were of equal value to CV from and immediately after the purchase; and (4) the only relevant evidence of the market value of these shares to a buyer is the global price paid on a pro rata basis [FTT ¶¶132, 257].

The Carelessness Issue

The FTT found that CV failed to take reasonable care in making the making the decision not to account for income tax and NICs on the price differential under the PAYE system [FTT ¶278].

A prudent taxpayer would have (a) questioned the advice received by EY acting for the sellers in the memo and (b) sought further information on the basis for that advice from CV’s own advisors [FTT ¶278].

The FTT noted that Mainpay Ltd v HMRC [2025] EWCA Civ 1290 has established that for the carelessness test in s.36 TMA 1970 to be satisfied, HMRC must make a prima facie case (on the balance of probabilities) that (1) the appellant failed to take reasonable care as regards the tax charges in question and (2) that that failure to take reasonable care caused the relevant loss of tax. What HMRC must prove as their prima facie case will differ depending on the facts and nature of the conduct which HMRC allege was careless; HMRC “may not necessarily have to prove all the particulars of the counterfactual outcome” [FTT ¶293]. The FTT nonetheless went on to find that had had CV consulted such an adviser on that basis, “he would have advised that (a) the best evidence of market value of the shares for this purpose is the price paid by CV for the shares on a pro rata basis, and (b) accordingly, the appellant should account for income tax and NICs in respect of the price differential” [FTT ¶295].

The Validity Issue

The FTT rejected the Appellant’s contention that reg 80(1) involves (1) a subjective element, whether an officer has formed the opinion that tax may be payable which has not been paid or certified, and (2) an objective element, whether that opinion is reasonable: see Jerome Anderson v HMRC [2018] STC 1210 at [25] to [30] [FTT ¶¶260]. On its plain and natural meaning, reg 80(1) is not intended to provide a high threshold for an HMRC officer to be able to issue a valid determination that an employer is liable to account for income tax under the PAYE rules. The condition is simply that “it appears” to an officer that there “may be” tax payable for a tax year, in which case HMRC may determine the amount of that tax to the best of their judgment, and serve notice of their determination on the employee [FTT ¶265]. And the correspondence from HMRC demonstrated that this is what occurred [FTT ¶265].

Expert evidence

Whilst the FTT found that the expert’s evidence as to market value was admissible in principle, expert evidence was not required to resolve the market value issue and it placed no reliance on the expert’s evidence given he approached matters on the premise set out by the Appellant, which was wrong in principle (see FTT ¶¶135, 253 and the Appendix).

Conclusion

This case will be of interest to anyone considering: (1) employment-related securities and the application of the deeming provision in s.421B(3) ITEPA 2003, post Vermilion in the Supreme Court; (2) what constitutes ‘market value’ in the context of TCGA or ITEPA; (3) the application of the Court of Appeal decision in Mainpay; and (4) the use of expert valuation evidence.

A copy of the decision can be found here.

Akash Nawbatt KC, Georgia Hicks and Tom Westwell appeared as counsel for HMRC.