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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Specific deductions: employee share schemes: providing shares to employees: qualifying shares: when the deduction is given

S1013(1), S1021(1) Corporation Tax Act 2009

Deductions in respect of qualifying shares:

  • are never given for a period before that in which the employees acquire the shares (the ‘acquisition period’);
  • are given just for the ‘acquisition period’ if the shares are unrestricted and not convertible;
  • in most cases are given for a ‘post-acquisition period’ (as well as the acquisition period) if the shares are convertible or restricted at the time that the employee acquires them.

Special rules for convertible or restricted shares

Special rules apply if employees acquire qualifying shares which are:

  • subject to restrictions (‘restricted shares’), or
  • convertible into other shares or securities (‘convertible shares’).

Exceptionally, special rules may still apply to shares acquired before 16 April 2003 which are subject to a risk of being forfeited (‘forfeitable shares’). Forfeitable shares acquired on or after that date fall within the category of restricted shares.

These special rules broadly align the timing and amount of deductions for the employer with the timing of amounts taxable on the employee as employment income in respect of:

  • the acquisition of the shares, and
  • subsequent post-acquisition events.

Guidance on deductions relating to convertible and restricted shares is at BIM44360 onwards.