BIM44060 - Measuring the profits (specific rules & practices) - receipts & deductions: specific deductions - employee share schemes: providing shares - accounting periods starting before 1 January 2003: contributions to APS trusts

Profit sharing schemes were approved by HMRC under ICTA88/SCH9. The approval of profit sharing schemes, and the associated tax and NICs advantages for employers and employees, have been phased out by legislation in FA00/S49 and FA00/S50. The last date for applications for approval of new schemes was 5 April 2001.

The Employee Share Schemes Unit, Capital & Savings, Somerset House deals with the approval of schemes and notifies offices dealing with participating employing companies when schemes are approved.

ICTA88/S85 gives a specific statutory deduction in computing an employing company’s profits for payments it makes to the trustees of an approved profit sharing scheme on or before 5 April 2002.

A deduction is given if the following conditions are met:

• within 9 months of the end of the period of account in which the payment is charged as an expense of the company, the payment is applied by the trustees in the acquisition of shares for appropriation to current or former employees or directors of the company making the payment who are eligible to participate in the scheme; or
• that the payment is to meet the reasonable expenses or the trustees in running the scheme.

Payments to trustees are treated on a first-in-first-out basis. HMRC may, in particular cases, authorise an extension of the period of nine months. Requests for such an extension should be referred to CTIAA (Technical).

For payments made by employers between 21 March 2000 and 5 April 2002 inclusive, as part of the phasing out of these schemes ICTA88/S85 only gives a specific statutory deduction if further conditions are satisfied. The further conditions are that the trustees must use the employer’s payment before 1 January 2003 either to:

• acquire and appropriate shares to employees during the period of account in which the employer made its payment, or within 9 months of the end of that period, or
• meet reasonable expenses of running the scheme within 3 years of the date of the last appropriation of shares to employees under the scheme.