BIM44050 - Specific deductions - employee share schemes: periods starting before 1/1/2003: Contributions to SIP trusts, a/c periods starting before 1 Jan 2003 - general rules

ICTA88/SCH4AA gives deductions to an employing company for shares awarded to its employees under Share Incentive Plans (SIPs) approved under ITEPA03/SCH2 (previously FA00/SCH8). These specific statutory deductions apply in computing employers’ taxable profits for all periods, whether they start before, on, or after 1 January 2003.

Period for which deduction is given

The general rule is that the deduction is given in computing the employer’s taxable profits for the period of account in which the shares are awarded in accordance with the Plan. There are special rules for trusts acquiring 10% of the ordinary share capital, see BIM44055.

The amount of the deduction

For free and matching shares awarded to employees during the period the deduction is equal to the market value of the shares at the time they are acquired by the trustees (ICTA88/SCH4AA/PARA2).

For partnership shares awarded to employees during the period the deduction is equal to the market value of the shares at the time they are acquired by the trustees less any amount paid by the employees for the shares (ICTA88/SCH4AA/PARA3).

Interaction with other deductions

These specific statutory deductions replace any deduction that would otherwise have been allowed for contributions the employer may make to the trustees of a trust used to provide shares to employees under the Share Incentive Plan.

Deductions for employers’ contributions to SIP trusts used by the trustees to meet the incidental costs of running the scheme are not affected by the specific statutory deductions for providing the shares. They remain deductible under general Schedule D principles, see BIM44025.

For this purpose ICTA88/SCH4AA/PARA8 makes it clear that incidental costs of operating a SIP:

• do not include the trustees’ expenses in acquiring the shares, other than incidental acquisition costs such as fees, commission and stamp duty;
• do include the payment of interest on money borrowed by the trustees to acquire the shares.