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HMRC internal manual

Business Income Manual

Specific deductions: employee benefit trusts: general-purpose EBTs: timing of deductions for contributions: interaction of Corporation Tax rules with employee share schemes deductions

S1001, S1290 Corporation Tax Act 2009

This part of the guidance does not apply to unincorporated businesses, as it concerns share acquisitions.

A specific statutory deduction applies for providing employees with shares which satisfy certain conditions, described in this guidance as ‘qualifying shares’. Guidance on the legislation is at BIM44260 onwards.

Broadly, the qualifying shares legislation disallows deductions in computing a company’s taxable profits for the costs of providing such shares until, at earliest, the period in which the employees acquire the shares (the ‘acquisition period’).

The interaction of the qualifying shares legislation and the employee benefit contribution legislation may need to be considered if:

  • a deduction for a period before the acquisition period has been disallowed under the qualifying shares rules because it relates to the expected costs of providing employees with qualifying shares; and
  • although the intention was for the employees to receive qualifying shares they end up receiving other kinds of benefits which are qualifying benefits for the purposes of the employee benefit contribution legislation - for example non-qualifying shares or a cash alternative on which Income Tax and NICs liability arises; and
  • the employees receive those other benefits out of a contribution by the employer to an EBT or other third party intermediary, rather than direct from the employer.

In these circumstances the amount disallowed for the earlier period should be treated as having been disallowed instead under the employee benefit contribution legislation.

The amount disallowed may then be available to be allowed as a deduction under the EBT rules for the period in which the qualifying benefits are provided by the EBT or other third party out of the employer’s contribution.

Specific rules apply  to employee benefit contributions made or to be made on or after 1 April 2017 (CT) or 6 April 2017 (IT).  This is  explained more fully at BIM44571 and in the example at BIM44611.