Relief for employee share acquisitions

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Relief for employee share acquisitions
  • Introduction
  • Conditions for relief
  • Structure diagrams
  • Available deduction
  • Accounting for share-based payments
  • Valuation
  • Restricted and forfeitable securities

Introduction

Subject to meeting various conditions which are discussed below, companies can claim a statutory deduction from profits for share awards to directors / employees or to another person acquiring shares by reason of an employment. The underlying policy of the provision is to recognise the increasing use of shares as part of an employee’s remuneration package. Remuneration expenses are generally deductible for corporation tax purposes, however, expenses relating to shares are usually classed as capital and are therefore not deductible. Therefore, specific legislation is required to allow a deduction for employee share acquisitions in certain circumstances, as described below.

Generally, the amount of relief available mirrors the amount chargeable to income tax on the recipient, eg there is no income tax charge under an EMI scheme (dealt with further below). The shares can be given as part of an approved share scheme with beneficial income tax treatment, an unapproved share option scheme or gifts of shares. See BIM44015 for a table which summarises the income tax and NIC treatment of various approved and unapproved share schemes.

Relief is available when shares are acquired, either where the shares are provided directly or via the granting of an option. For further guidance on the timing of relief, see below under ‘Available deduction’.

The company may be entitled to a deduction in calculating its taxable total profits. For further guidance, see the Taxable Total Profits (TTP) guidance note. The availability, timing and amount of any deduction will depend on how the shares are made available to the employee. This is considered further below.

Conditions for relief

There are conditions for the relief in respect of:

  • the employee in respect of whose employment the shares are awarded
  • the employing

More on Trading company computations: