BIM44170 - Specific deductions - employee share schemes: Accounting for ESOP trusts, a/c periods starting before 1 Jan 2003 - introduction
The generally accepted accounting treatment of employers’ contributions to employee share ownership trusts is mainly set out in two Urgent Issues Task Force (UITF) Abstracts:
- UITF Abstract 13 (UITF13) “Accounting for ESOP Trusts” - mandatory for accounting periods ending on or after 22 June 1995 - see BIM44175, and
- UITF Abstract 17 (UITF17) ”Employee Share Schemes” - mandatory for accounting periods ending on or after 22 June 1997 - see BIM44180.
UITF Abstract 13 (UITF13)
UITF13 developed from questions arising from the issue of FRS5 “Reporting the Substance of Transactions” in 1994. UITF13 is primarily concerned with the appropriate recognition of assets and liabilities on the company’s balance sheet. FRS5 requires companies to report the substance of transactions they have entered into, showing the commercial effect of the transaction rather than its legal form. To do this it is necessary to identify whether the transaction has resulted, in substance, in new assets or new liabilities for the company or whether there have been changes in its existing assets and liabilities.
Having identified the nature and extent of a company’s assets and liabilities arising from its contributions to an ESOP trust, UITF13 also considers the consequential timing of recognition of the company’s expenditure in its profit and loss account. The principles it sets out in this respect are consistent with those explained subsequently in UITF17.
UITF Abstract 17 (UITF17)
UITF17 applies to all employee share schemes, whether they are operated in conjunction with an ESOP trust or not. It is concerned with the company’s profit and loss account, in particular the measurement and timing of deductions to be made in respect of share awards and share options which have been granted.
Advice on accountancy issues
In any case in which the question of what constitutes generally accepted accounting practice (GAAP) is an issue, HMRC staff should consult their local HMRC accountant.
