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HMRC internal manual

Company Taxation Manual

Corporation Tax: management expenses: employee share schemes costs

Detailed instructions on the costs that can be allowed to trading companies in respect of employee share schemes are at BIM44000 onwards. Relief for investment companies (or ‘companies with investment business’, for periods starting on or after 1 April 2004) follows for the most part that to be allowed for trading companies.

There is one major difference in treatment for investment companies and this relates to expenditure debited in the accounts before 1 April 2004 in respect of ‘case law trusts’ as outlined at BIM44140 onwards.

The basics of the treatment of employee share scheme expenses are as follows:

Accounting periods starting before 1 January 2003

For shares provided through SIP trusts (BIM44045 onwards) and QUESTS (BIM44065 onwards), the special rules explained at BIM44040 onwards also apply to investment companies.

For other shares it is necessary to consider deductions for management expenses on first principles, namely:

  • Has a sum been disbursed?
  • Was it disbursed as an expense of management?
  • Was it disbursed as an expense of management for that period?

Accounting periods starting on or after 1 January 2003

  • For shares which satisfy the qualifying conditions in FA03/SCH23 (‘qualifying shares’) the same rules apply for trading and investment companies, see BIM44250 onwards.
  • For other shares the treatment of expenditure debited in accounts after 1 April 2004 follows the accounting treatment for the most part as for trading companies (see BIM44465). For periods before that date it is necessary to consider deductions on the first principles as outlined above.