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HMRC internal manual

Business Income Manual

Specific deductions: employee share schemes: providing shares to employees: non-qualifying shares: introduction: contents

The statutory deduction for provision of shares to employees in BIM44260 onwards is not available where shares are provided to employees which are not ‘qualifying shares’.

Deductions for the costs to employers of providing non-qualifying shares are determined by general tax principles, subject to the anti-avoidance provisions for employee benefit trusts in BIM44500 onwards.

The costs of providing ‘non-qualifying shares’ to employees fall into the following categories:

  • shares provided through ‘case law’ employee benefit trusts to which the employer makes contributions, see BIM44455,
  • shares provided to employees under global share schemes for which the employer pays an intra-group recharge, see BIM44460,
  • new ‘non-qualifying shares’ issued direct to employees, see BIM44465.

Non-qualifying shares

The following shares are not qualifying shares for these purposes:

  • partly-paid shares, or
  • redeemable shares, or
  • preference shares, or
  • unlisted shares in a subsidiary company (unless its parent company is listed on a recognised stock exchange and is not a close company), or
  • shares in a company which is not sufficiently linked to the employing company (see BIM44295) at the date on which the employee acquires:

    • the shares, or
    • any earlier right (share option) to acquire the shares.

The following paragraphs give further guidance on deductions for providing non-qualifying shares to employees.