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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Specific deductions: employee share schemes: providing shares to employees: qualifying shares: company whose shares are acquired

S1004, S1008, S1016 Corporation Tax Act 2009

‘Qualifying shares’ must be in a company which satisfies the required link to the employee’s employing company.

For shares acquired by exercising share options the required employment link must exist at the time the employee was granted the option. For other share awards the required employment link must exist at the time the employees acquire the shares.

The required employment link is that the shares must be in:

  • the employing company,
  • a company of which the employing company is a 51% subsidiary (a ‘parent company’),
  • a member of a consortium that owns the employing company or a parent company,
  • a company in the same ‘commercial association of companies’ as the employing company or its parent company.

Consortium companies

A company is a member of a consortium owning another company if it is one of five or fewer companies:

  • that between them own 75% of the company’s ordinary share capital, and
  • each of which beneficially owns at least 10% of that capital.

Commercial associations of companies

A company is in the same ‘commercial association of companies’ as another company if the companies are:

  • associated companies (as defined in S449 Corporation Tax Act 2010); and
  • carry on businesses that are of such a nature that they, taken together, may be reasonably considered to make up a single composite undertaking.

This level of employment link is aimed at companies in a dual-headed ownership structure, with what might be described as two ‘parent companies’. These structures are unusual. Most such companies are likely to be dealt with by the Large Business Service. The Employee Shares and Securities Unit has notified those offices dealing with companies that it knows satisfy the ‘commercial association of companies’ requirement.

If an employing company, in computing its taxable profits, has made a deduction:

  • for providing qualifying shares in another company,
  • on the basis that the shares are in a company in the same commercial association of companies as the employing company,

before agreeing that the deduction is allowable you should seek advice from CTISA (Technical), unless they have already confirmed that the employing company and the other company are in the same commercial association of companies.