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HMRC internal manual

Shares and Assets Valuation Manual

ITEPA: Corporation Tax deduction


The Business Income Manual at BIM44250 onwards provides guidance on the statutory deduction under Schedule 23 FA 2003. Valuation issues can be found at BIM44325.

Award of shares

The relief for an award of shares is the difference between the market value of the shares when they are acquired and the total amount or value of any consideration given for them by the recipient.

The employee must be subject to a charge to income tax (or meet certain other conditions) in respect of the award of shares.

The idea is to match the income tax charge with the corporation tax deduction, in other words to use the same value for each.

The relief is allowed as a deduction in computing the profits of the business in the accounting period in which the recipient acquires the shares.

Grant of options - shares acquired pursuant to options

The rules here are essentially the same as for an award of shares.

For unapproved schemes the idea is again to match the income tax charge with the corporation tax deduction.

Where shares are acquired following an exercise of an option under an approved SAYE or CSOP scheme, or of a qualifying EMI option, there will not be a corresponding income tax charge against which to “match” the corporation tax deduction.

It is therefore possible that unrealistically high values for shares acquired in such circumstances will be put forward for relief purposes.

Restricted shares and convertible shares

When restricted or convertible shares are awarded or acquired pursuant to a share option, the effect of the rules is to fully match relief for the company with the taxation of the employee under Chapter 2 or 3 of Part 7 of ITEPA.

The measure of relief for CT purposes is the amount of employment income in the hands of the employee.

Share Incentive Plans (SIP)

Corporation tax relief for SIPs is covered by the SIP legislation (as amended).

Risk assessment

It should be borne in mind when risk assessing a valuation that providing income tax is being paid on a given figure, that the intention of the legislation is to match that with a deduction for corporation tax.

It is where approved schemes and the EMI code is involved that we need to be particularly careful because there will not normally be an income tax charge when the shares are acquired. This may not matter if a sale of the shares takes place shortly after they are acquired, because CGT will be in point, albeit at a much lower rate. However, where sales are called-off before completion, we should be wary in accepting claims that the sale was a certainty.

Practice - SAYE, CSOP and EMI

As mentioned above, in most cases, the acquisition of shares under the approved and EMI codes will not give rise to a corresponding income tax charge. You will not, therefore, be able to match values - see below. If a sale of the company or of the shares is not in prospect, you should ensure that any value agreed for the relief is in-line with contemporaneous prices being agreed for scheme purposes.

However, you should take care when agreeing prices for the contemporaneous grant, for example of new EMI options, that a suggested high grant price is not simply an attempt to lay the ground for a generous deduction for corporation tax purposes in respect of the exercise of existing options.

Practice - other valuations

You need to be very careful that you do not create a mismatch between the value of shares for the relief and the value for income tax purposes.

Where there is a charge for income tax we need to take steps to link the valuation to the question of the potential claim for corporation tax relief.

You should ensure that the same value is agreed with both the company and the employee. If the valuations are not being worked together, any separate agreement should be on a provisional basis until the matching valuation is resolved. Taxpayer confidentiality should be respected.

Holding to value

The holding of shares to value for the relief is the same holding acquired by the employee. You should not value the aggregate of all the shares issued to all the employees.

Company sales

It will often be the case that the exercise of an option takes place just before a sale of the company.

You should not usually discount the value of shares acquired by the exercise of an option immediately before the sale of the company. ‘Immediately’ for these purposes depends on the facts of each case.

Common sense should be applied in deciding whether or not to pursue a discount. This should reflect any uncertainty that the sale might not have gone ahead and the period of time involved.

The amount of tax at stake should be borne in mind.

Warranties and adjustment clauses

Most sales of companies include provision for warranties. Many also include clauses to adjust the sale price when final accounts are produced some months later.

These factors need to be taken into account if you are using the ‘headline’ (rather than the final) sale price to determine the value of shares for relief and income tax purposes.

Pre-transaction rulings

A pre-transaction ruling should not be entertained for the purposes of the relief. This includes giving a ruling on the value before exercise of shares under option.

Post-transaction valuation checks

We will entertain a PTVC for the relief provided it is submitted via the corporation tax Inspector. Such a request can only be considered after an employee has acquired shares. (See the Business Income Manual at BIM44325).


We need to inform our colleagues in Head Office of any attempt to exploit the relief by avoidance.

A full report of any such avoidance should be made to the relevant Assistant Director.

  Additional Guidance: SVM150000