BIM44255 - Specific deductions - employee share schemes: Providing shares under a Share Incentive Plan (SIP), a/c periods from 1 Jan 2003

ICTA88/SCH4AA/PARA2 gives specific statutory deductions to an employing company, in computing its taxable profits, for shares awarded to employees under a Share Incentive Plan (SIP) approved under ITEPA03/SCH2 (previously FA00/SCH8).

Guidance on the specific statutory deductions allowable for accounting periods starting before 1 January 2003 is at BIM44050 onwards. The same rules apply for accounting periods starting on or after 1 January 2003. They are not affected by either:

• FA03/SCH23 (CT deductions for employee share acquisitions), or
• FA03/SCH24 (restriction of deductions for EBT and other employee benefit contributions).

Interaction with other deductions

The specific statutory deductions under ICTA88/SCH4AA replace any deduction that would otherwise have been allowed for contributions the employer may make to the trustees of a trust used to provide shares to employees under the Share Incentive Plan.

Deductions for employers’ contributions to SIP trusts used by the trustees to meet the incidental costs of running the scheme are not affected by the specific statutory deductions for providing the shares. They remain deductible under general Schedule D principles, see BIM44025.

For this purpose ICTA88/SCH4AA/PARA8 makes it clear that incidental costs of operating a SIP:

• do not include the trustees’ expenses in acquiring the shares, other than incidental acquisition costs such as fees, commission and stamp duty;
• do include the payment of interest on money borrowed by the trustees to acquire the shares.