BIM44315 - Specific deductions: Employee share schemes: periods starting on or after 1 January 2003: providing shares under FA03/SCH23: amount of deduction for acquisition period
Deductions under FA03/SCH23 are given for the period in which the employee acquires the beneficial ownership of qualifying shares (the “acquisition period”) unless the shares are forfeitable shares acquired before 16 April 2003.
Unrestricted and non-convertible shares
The amount of the deduction given for the acquisition period is, for unrestricted and / or non- convertible shares:
- the market value of the shares at the date the employee acquires the shares;
LESS
- any consideration given (by the employee or by anyone else) for the acquisition of the shares by the employee;
LESS
- if the shares are being acquired by exercising a share option, any consideration given by the employee for the acquisition of the share option;
LESS
- any amount already given, for the costs of providing the shares to the employees, as a deduction in computing any company’s taxable profits for an accounting period beginning before 1 January 2003 (FA03/SCH23/PARA33).
In practice (a) – (b) – (c) will be broadly
equivalent to the amount on which the employee is chargeable to
income tax in respect of the acquisition of the shares, or would be
chargeable if there were no exemptions from income tax.
Market value for this purpose means the price that the shares
might reasonably be expected to fetch on a sale in the open market
(TCGA92/S272 and TCGA92/S273).
For the purposes of (b) and (c) above, the consideration
given for the acquisition of the shares or the share option by the
employee does not include services provided by the employee in
performing the duties of their employment with the employing
company. Nor does it include any consideration given for the
acquisition of the shares by any previous holder of the shares (for
example the trustees of an employee share ownership trust from whom
the employee may have acquired the shares).
Restricted and / or convertible shares acquired on or after 16 April 2003
For restricted and / or convertible shares acquired on or after
16 April 2003 special rules in FA03/SCH23 Part 4 (as amended by
FA03/SCH22) and Part 4A apply from 1 September 2003, see
BIM44360 onwards.
From 1 September 2003 the amount of the deduction given in
respect of these shares for the “acquisition period”
is:
- the amount which is taxable as earnings from the employee’s employment in respect of the acquisition of the shares;
LESS
- any amount already given, for the costs of providing the shares to the employees, as a deduction in computing any company’s taxable profits for an accounting period beginning before 1 January 2003 (FA03/SCH23/PARA33).
Deductions given for earlier periods
In practice reducing the amount allowable under FA03/SCH23 by
deductions already given for earlier periods is a transitional
measure which will cease to be relevant in computing deductions
under FA03/SCH23 when no more shares can be acquired by employees
under share options or conditional share awards granted during
accounting periods beginning before 1 January 2003. Under typical
share option schemes, options become exercisable 3 or 5 years after
they were granted.
BIM44325 onwards give guidance on how to
identify deductions given:
- in computing a company’s taxable profits (on the old accountancy-based treatment) for an accounting period starting before 1 January 2003;
- for the costs of providing “qualifying shares” which were acquired by employees during an accounting period starting on or after 1 January 2003 (for which relief under FA03/SCH23 is available).
Income tax position of the employee
It is one of the key requirements for the availability of relief under FA03/SCH23 that the employee is chargeable to income tax, or would be but for certain exemptions, in respect of the acquisition of either the shares themselves or the share option used to acquire the shares. Guidance on this key requirement is at BIM44320. In practice there will be very few circumstances in which the required income tax position of the employee will not be satisfied.
