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HMRC internal manual

Business Income Manual

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Specific deductions: employee share schemes: providing shares to employees: Share Incentive Plans: general rules

S985, S988, S994-S998 Corporation Tax Act 2009

A specific statutory deduction in computing the profits of a company’s trade is allowable for shares awarded to an employee under a SIP. This relief overrides the prohibition on deducting capital items (see BIM35000 onwards). No deduction is allowed for expenses in providing dividend shares.

Period for which deduction is given

The general rule is that the deduction is given in computing the employer’s taxable profits for the period of account in which the shares are awarded in accordance with the Plan. There are special rules for trusts acquiring 10% of the ordinary share capital, see BIM44255.

The amount of the deduction

For free and matching shares awarded to employees during the period the deduction is equal to the market value of the shares at the time they are acquired by the trustees of the plan trust. Where the trustees acquire shares on different days then it is assumed that shares acquired on the earlier day are awarded before those acquired on a later day.

For partnership shares awarded to employees during the period the deduction is equal to the market value of the shares at the time they are acquired by the trustees less any amount paid by the employees for the shares.

Interaction with other deductions

These specific statutory deductions replace any deduction that would otherwise have been allowed for contributions the employer may make to the trustees of a trust used to provide shares to employees under the SIP.

Deductions for employers’ contributions to SIP trusts used by the trustees to meet the incidental costs of running the scheme are not affected by the specific statutory deductions for providing the shares. They remain deductible under general trade profits principles, see BIM44025. For this purpose incidental costs of operating a SIP:

  • do not include the trustees’ expenses in acquiring the shares, other than incidental acquisition costs such as fees, commission, Stamp Duty and Stamp Duty Reserve Tax;
  • do include the payment of interest on money borrowed by the trustees to acquire the shares.

Exclusions

The specific statutory deduction does not apply to shares within any of the following categories:

  • shares awarded to an excluded employee (generally, this has the effect of excluding shares awarded to non-UK resident employees);
  • shares in a company which are liable to depreciate substantially for reasons not applying generally to the company’s shares;
  • shares for which a deduction has already been made by the employing company or an associated company;
  • shares acquired by the trustees as a result of a payment for which a deduction has been made under the special rules for trusts acquiring 10% of the ordinary share capital (see BIM44255);
  • shares awarded after having been forfeited by a participant.

Withdrawal of deduction

The specific statutory deduction is withdrawn in full if approval for the SIP is withdrawn by the Employee Shares and Securities Unit. Withdrawal of the deduction is made by a notice issued by the Employee Shares and Securities Unit. The effect of a withdrawal notice is to treat the amount of the deduction as a trading receipt of the company for the period of account in which the withdrawal notice is issued.