BIM44310 - Specific deductions - employee share schemes: Providing shares under FA03/SCH23, a/c periods from 1 Jan 2003 - when the deduction is given

Deductions under FA03/SCH23:

• are never given for a period before that in which the employees acquire the shares (the “acquisition period”);
• are given just for the “acquisition period” if the shares are unrestricted, not forfeitable and not convertible;
• in most cases are given for a “post-acquisition period” (as well as, or instead of, the acquisition period) if the shares are convertible, forfeitable, or subject to other restrictions at the time that the employee acquires them.

Special rules for convertible, forfeitable or other restricted shares

Special rules in FA03/SCH23 Parts 4 and 4A apply if employees acquire qualifying shares which are:

• Subject to a risk of being forfeited (“forfeitable shares”), or
• Subject to other kinds of restrictions (“other restricted shares”), or
• Convertible into other shares or securities (“convertible shares”).

From 1 September 2003 these special rules broadly align the timing and amount of deductions for the employer under FA03/SCH23 with the timing of amounts taxable on the employee as employment income in respect of:

• the acquisition of the shares, and
• subsequent post-acquisition events.

Guidance on deductions relating to convertible, forfeitable or other restricted shares is at BIM44360 onwards.