BIM44240 - Specific deductions - employee share schemes: New shares issued direct to employees, a/c periods starting before 1 Jan 2003

When a company issues new shares it does not outlay any expenditure and so no deduction is allowable in computing the profits of the company’s trade for tax purposes (Lowry v Consolidated African Selection Trust Ltd 23TC259).

Until UITF17 was issued in 1997 there was no deduction in the issuing company’s profit and loss account when new shares were issued to employees under employee share schemes.

Following the issue of UITF17, effective from 22 June 1997, the circumstances in which an issue of new shares direct to employees will give rise to a deduction in the company’s profit and loss account will be limited to grants of “discounted share options” (see BIM44180).

Grants of market value options do not give rise to deductions in the issuing company’s profit and loss account.

Share award schemes

For share award schemes the new shares will typically be routed via an employee share ownership trust. The issuing company will fund the trust with an amount equal to at least the nominal value of the shares, which the trustees will use to subscribe for the new shares. This ensures that the shares are issued for not less than their nominal value, to comply with company law requirements.

Share option schemes

For share option schemes using newly issued shares, the new shares are also often routed via an employee share ownership trust. If this is done the issuing company will be laying out expenditure by funding the trust and the decision in the Lowry case will not be relevant.