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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Specific deductions: staffing costs: incentive awards

A trader who has set up an incentive award scheme is allowed a deduction for providing awards under the scheme where:

  • each award was provided under a firm contractual obligation, and
  • was reasonable in relation to the task performed by the recipient and the value to the trader of having it performed, and
  • was a genuine scheme undertaken by the trader for real business reasons.

If all the above tests are not met, the cost of the award may be disallowable as a gift or entertainment (see BIM45000 onwards), or because it is not wholly and exclusively for a trade purpose (see BIM37000 onwards and BIM42105).

For the Income Tax treatment of incentive awards in the hands of employees, see EIM11200 onwards.

Guidance on deductions relating to share incentive schemes and share option schemes to provide employees with shares in their employing company or group is at BIM44250 onwards.