Relief for employee share schemes

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Relief for employee share schemes
  • Deductions ― particular employee share acquisition schemes
  • Deductions ― other employee share acquisitions

Subject to meeting various conditions discussed below, companies can claim a deduction from profits for share awards to directors, employees or to another person acquiring shares by reason of an employment.

Generally the amount of relief available mirrors the amount chargeable to income tax on the recipient. This is the case even where there is in fact no income tax charge, eg under an Enterprise Management Incentive (EMI) scheme. The shares can be given as part of a tax advantaged (formerly known as ‘approved’) share scheme with beneficial income tax treatment, a non-tax advantaged (formerly known as ‘unapproved’) share option scheme or gifts of shares.

Relief is available when shares are acquired, either where the shares are provided directly or via the granting of an option. Timing of relief for each scheme is discussed below.

The company may be entitled to a deduction in calculating its Taxable Total Profits (TTP). For more information, see the Taxable Total Profits 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.

This guidance covers the rules relating to accounting periods starting on or after 1 January 2003.

There are essentially two specific routes to receiving a corporation tax deduction for an employee share scheme:

  • meeting the requirements of a tax advantaged employee share scheme under CTA 2009, Part 11
  • meeting the general requirements for employee share schemes under CTA 2009, Part 12

These two sets of rules essentially cover the corporation tax relief for tax advantaged and non-tax advantaged share schemes. See the Share schemes for SMEs ― overview guidance note for more information. If the expenditure does not meet the requirements of either of these two sets

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