Employer tax consequences

Produced by Tolley in association with Ken Moody

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

  • Employer tax consequences
  • Corporation tax relief
  • The company’s business
  • Shares
  • Employing company
  • Employees
  • Beneficial treatment
  • Share Incentive Plans (SIPs)
  • Amount of relief
  • Timing
  • More...

Employer tax consequences

There are a number of different consequences that can arise for employers as a result of introducing and operating employee share incentive arrangements, some beneficial and some costly.

There may be an opportunity to obtain corporation tax relief on payments in the form of shares. This relief might also extend to the cost of implementing and running share schemes.

Companies are also obliged to account for PAYE and NIC in respect of employee share awards in certain circumstances and on certain ‘chargeable events’ in relation to employment-related shares.

Finally, companies that employ individuals who benefit from share schemes must budget for any employer’s NIC liability that might arise. This represents a real cost though in some circumstances it may be passed on to the employee.

This guidance note does not consider the implications of the disguised remuneration legislation since this is looked at in detail elsewhere (see the Disguised remuneration ― overview guidance note) and is only peripheral to employee share arrangements.

Corporation tax relief

In order for shares to qualify for corporation tax relief, they must meet a number of different requirements.

If certain statutory reliefs in respect of the costs of employee share schemes do not apply, the company may make a case to its HMRC office that it is entitled to make a deduction from corporation tax under general principles, eg where the expenditure was necessary to benefit the business.

The company’s business

In order to qualify for corporation tax relief in respect of employee shares awards the company must, as a matter of necessity, fall within the charge to corporation tax. The basic requirements are:

  1. a person (the employee) has employment with the employing company

  2. that employment (the ‘relevant employment’) is in relation to a ‘qualifying business’, ie a business within the charge to corporation tax

  3. the employee acquires shares or some other person acquires shares because of the relevant employment

  4. conditions relating to the employee and the shares are met


The relevant shares must be ordinary,

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