BIM44265 - Specific deductions - employee share schemes: Providing shares under FA03/SCH23, a/c periods from 1 Jan 2003 - introduction
FA03/SCH23 gives a specific statutory corporation tax deduction, in computing the taxable profits of a business of whatever nature for accounting periods starting on or after 1 January 2003, for providing employees with shares which satisfy certain qualifying conditions (“qualifying shares”).
The statutory deduction applies on the same basis, whatever way the employing company chooses to structure and fund the employee share schemes from which its employees may benefit. It is irrelevant whether a trust is used in conjunction with a scheme, whether new shares are issued or whether existing shares are purchased in the market.
The statutory deduction overrides the accounting treatment. For periods starting on or after 1 January 2003 no other deduction for the cost of providing “qualifying shares” is allowable for any corporation tax purposes, either to the company entitled to the statutory deduction or to any other company.
There are therefore two steps required in computing a company’s taxable profits for a period starting on or after 1 January 2003:
1. Add back any deduction in the company’s profit and loss account which relates to the costs of providing employees with “qualifying shares”.
2. Deduct the amount allowed to that company for the period by FA03/SCH23.
Providing shares to persons who are not employees
The statutory deduction under FA03/SCH23 also applies where qualifying shares are provided to persons who are not employees, if they acquire the shares (or options to acquire the shares) by reason of their, or another person’s, office or employment with the company entitled to the deduction. This may therefore include qualifying shares acquired by ex-employees, directors, ex-directors, and relatives of employees or directors.
Incidental expenses
Deductions for expenditure not directly relating to providing the shares themselves (such as administrative expenses of operating the employee share scheme or trust through which the shares are provided) are not affected by FA03/SCH23.
The timing and amount of deductions for funding such incidental expenditure continues to be determined by general principles for computing taxable profits.
For incidental expenditure met out of employers’ contributions to an employee share ownership trust or a general employee benefit trust made on or after 27 November 2002, the timing of deductions may be affected by the EBT anti-avoidance legislation in FA03/SCH24 if there is a significant delay between the employer’s contribution and the trustees using it to meet the incidental costs.
