Employment Tax

Accounting for share schemes

Produced by Tolley in association with RSM
  • 09 Nov 2021 10:00

The following Employment Tax guidance note Produced by Tolley in association with RSM provides comprehensive and up to date tax information covering:

  • Accounting for share schemes
  • Introduction
  • Recognition and measurement
  • Equity-settled share-based payments
  • Share-based payment arrangements with cash alternatives
  • Valuation techniques
  • Black-Scholes option pricing model
  • Monte Carlo option pricing model
  • Cancellation and settlement
  • Disclosure requirements
  • More...

Accounting for share schemes


The accounting requirements for Share Based Payment (SBP) arrangements are set out in the International Accounting Standards (IFRS 2) and the corresponding UK standard FRS 102, s 26.

Under previous UK GAAP, smaller companies which were applying the Financial Reporting Standard for Smaller Entities (FRSSE) were not required to account for equity-settled share-based payment arrangements. However, the accounting requirements for SBP arrangements now apply to all companies for periods commencing on or after 1 January 2016 except for the very smallest UK companies that choose to apply FRS 105 “The Financial Reporting Standard applicable to the Micro-entities Regime”. The underlying principles in respect of SBP accounting under FRS 102 are similar but not identical to those under FRS 20 (the previous UK standard for SBP arrangements).

The principal feature of share-based payment arrangements is that shares are provided in return for other assets, goods or services. Such arrangements have accounting implications even where no cash changes hands, for example where employees receive shares in return for services provided by those employees. In such instances the employer records a cost in its income statement in respect of the services being provided. The effect on the balance sheet depends upon whether the SBP arrangement is equity-settled or cash-settled, as discussed below.

The SBP requirements distinguish between two different types of arrangement. Awards of share options, shares and interests in shares are usually accounted for as equity-settled SBPs whereas cash bonuses linked to the share price (ie phantom share schemes) are generally accounted for as cash-settled SBPs. In most cases it is relatively easy to distinguish between the two types of awards, but this is not always the case. For example, consider a share buyback arrangement where the entity is forced to acquire the shares initially for cash. The award is treated as an equity-settled SBP if the employee will receive shares. The fact that the entity may be forced to acquire the shares in the first

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

Think Tax.
Think Tolley.

Critical, comprehensive and up-to-date tax information


Popular Articles

Self assessment ― amendments and corrections

Once a self assessment tax return has been filed, both HMRC and the taxpayer (or the agent) has the right to make changes to the return. There are different time limits depending on whether it is a correction by HMRC or an amendment made by the taxpayer.CorrectionHMRC has the right to amend the tax

19 Oct 2021 22:37 | Produced by Tolley Read more Read more

Statutory sick pay (SSP)

Statutory sick pay (SSP)Statutory sick pay has its origins in the Social Security and Housing Benefits Act 1982, Part 1. Various amendments have been made to this Act to give us the SSP system we now operate.Temporary changes to SSP for coronavirus (COVID-19)New legislation has been put in place in

19 Oct 2021 23:18 | Produced by Tolley in association with Vince Ashall Read more Read more

Capital allowances computations

Plant and machinery allowancesThree types of allowance are available for expenditure on plant and machinery:•the annual investment allowance (AIA), which currently provides a 100% allowance for the first £1,000,000 of expenditure per year, see the Annual investment allowance (AIA) guidance

19 Oct 2021 08:11 | Produced by Tolley Read more Read more