BIM44185 - Specific deductions - employee share schemes: Accounting for ESOP trusts, a/c periods starting before 1 Jan 2003 - single company schemes
The table below summarises the minimum deductions in the employing company’s profit and loss account if the ESOP trust is used as part of a single company scheme. A single company scheme is one set up by an employing company only for its own employees and under which it grants them awards or options over its own shares.
In each case below the minimum deduction is spread over the performance period to which the awards or options relate, and is adjusted at each balance sheet date to reflect the level of options expected to be exercised and awards expected to vest.
Source of shares |
Minimum P&L deduction |
Balance Sheet entries |
New shares to be issued when options exercised or share awards vest (become unconditional) - whether issued direct to employees or via an ESOP trust |
Market value of shares at date of grant, less option exercise price payable by employees |
Reserves (“Shares to be issued”) |
ESOP trust subscribes for new shares at date of grant of options or awards |
Market value of shares at date of grant, less option exercise price payable by employees |
Shares held by ESOP trust shown as an asset (‘Own shares’) or deducted from shareholders funds |
ESOP trust buys existing shares in the market at date of grant of options or awards |
Price paid by ESOP trust for the shares, less option exercise price payable by employees |
Shares held by ESOP trust shown as an asset (‘Own shares’) |
ESOP trust buys existing shares in the market between date of grant and date options exercised / share awards vest |
Price paid by ESOP trust for the shares, less option exercise price payable by employees. Until the trust buys the shares the value at the date of grant is used, as in the new share issues situation above |
Provisions made until ESOP trust buys the shares |
Guidance on generally accepted accounting practice for subsidiary companies whose employees participate in “group schemes” is at BIM44195.
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.
