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HMRC internal manual

Business Income Manual

From
HM Revenue & Customs
Updated
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Specific deductions: employee share schemes: providing shares to employees: qualifying shares: restricted shares: examples

Example A

Facts

1/4/2009 Employee is given 1000 shares, subject to restrictions that the employee cannot sell the shares within the next 3 years  
     
  Market value of shares if unrestricted £1000
  Risk of forfeiture reduces their MV by 20% to £800
     
1/4/2012 Risk of forfeiture expires  
  Market value of shares (now unrestricted) is £2000

Employment Income Tax charges

If no elections made (see BIM44385):

2008/09 Income Tax charged on £800
     
2011/12 Income Tax charged on £2000 x 20% = £400

Deductions for employing company

a.p.e 31/12/09 Deduction £800
     
a.p.e 31/12/12 Deduction £400

Example B - Forfeitable shares - forfeiture period less than 5 years

Facts

1/4/2008 Employee is given 1000 shares, subject to a risk of forfeiture over the next 4 years  
     
  Market value of shares if unrestricted £1000
  Risk of forfeiture reduces their MV by 35% to £650
     
1/4/2012 Risk of forfeiture expires  
  Market value of shares (now unrestricted) is £3000

Employment Income Tax charges

If no elections made (see BIM44385):

2007/08 No Income Tax charge on acquisition  
     
2011/12 Income Tax charged on £3000

Deductions for employing company

a.p.e 31/12/08 Deduction Nil
     
a.p.e 31/12/12 Deduction £3000

Example C - Shares acquired before 16/4/2003: forfeiture period 5 years or more

Facts

1/4/2003 Employee is given 1000 shares, subject to a risk of forfeiture over the next 9 years  
     
  Market value of shares if unrestricted £1000
  Risk of forfeiture reduces their MV by 35% to £650
     
1/4/2012 Risk of forfeiture expires  
  Market value of shares (now unrestricted) is £5000

Employment Income Tax charges

2002/03 Income Tax charged on £650
     
2011/12 Income Tax charged on £5000 - £650 = £4350

Deductions for employing company

a.p.e 31/12/03 Deduction Nil
     
a.p.e 31/12/12 Deduction £5000