Relief for employee share schemes

Produced by Tolley

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

  • Relief for employee share schemes
  • Deductions ― particular tax advantaged employee share schemes
  • SIPs
  • SAYE options schemes and CSOPs
  • Deductions ― other employee share schemes and EMI
  • Conditions relating to the employee
  • Conditions relating to the employment
  • Conditions relating to the shares acquired
  • Takeovers ― pitfall
  • Structure diagrams
  • More...

Relief for employee share schemes

Remuneration expenses are generally deductible for corporation tax purposes as they are considered to be incurred wholly and exclusively for the purposes of the trade. However, expenses relating to shares are usually classed as capital and are therefore not deductible. For this reason, specific legislation is required which allows a deduction for employee share acquisitions, which are often used as a means of incentivising key employees. Subject to meeting the various conditions 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 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 share scheme with beneficial income tax treatment, a non-tax advantaged share option scheme or gifts of shares. See BIM44015 for a table which summarises the income tax and NIC treatment of various tax advantaged and non-tax advantaged share schemes.

Relief is available in calculating trading profits when shares are acquired, either directly or via the granting of an option.

The availability, timing and amount of any deduction will depend on how the shares are made available to the employee, and often differs from that charged to the P&L for accounting purposes. This is considered further below.

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

  1. meeting the requirements of a tax advantaged employee share scheme under CTA 2009, ss 983–1000 (Pt 11)

  2. meeting the general requirements for employee share schemes under CTA 2009, ss 1001–1038B (Pt 12)

These two sets of rules essentially cover the corporation tax relief for tax advantaged and non-tax advantaged share schemes. See the Introduction to share schemes guidance note for more information. If the expenditure

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