BIM44055 - Specific deductions - employee share schemes: Contributions to SIP trusts, a/c periods starting before 1 Jan 2003 - special rules for trusts acquiring 10% of ordinary share capital

Special deductions for contributions to SIP trusts after 5 April 2003 were introduced by the Employee Share Schemes Act 2002.

The deduction is dependent on the company's contribution being used by the trustees to purchase shares:

• in the company or a company which controls it;
• from an existing shareholder which is not a company;
• which give the trust a holding of not less than 10% of the total ordinary share capital of the company in the 12 months immediately following the initial purchase of shares made with this money (to allow time to administer and pay for a substantial acquisition of this sort).

A deduction for the company’s contribution is given for the period of account in which the trustees holding of shares reaches 10%.

Shares already awarded to employees under the Share Incentive Plan, as long as they continue to be subject to the Plan, count towards the calculation of the 10% holding of the trust.

The full amount of the deduction is withdrawn if:

• at least 30% of the shares acquired with the payment have not been distributed to employee beneficiaries within 5 years, or
• all the shares acquired with the payment are not distributed to employee beneficiaries within 10 years.

Withdrawal is made by a notice issued by the Employee Share Schemes Unit, Capital & Savings, Somerset House. The effect of a withdrawal notice is to treat the amount of the deduction as a trading receipt of the company for the period of account in which the withdrawal notice is issued.

Where the deduction has been withdrawn and all of the shares acquired with the relevant payment are subsequently transferred to employees, the deduction is given again by ICTA88/SCH4AA/PARA10. This reinstated deduction is given for the period in which the last of the shares is transferred to the employees.