BIM44330 - Specific deductions - employee share schemes: Providing shares under FA03/SCH23, a/c periods from 1 Jan 2003 - deduction reduced by amounts already allowed for earlier periods

As a transitional measure, the amount of the deduction given by FA03/SCH23 for the period in which the employee acquires the shares is reduced by the amount of any deduction given, for the cost of providing those shares, in computing the taxable profits of the employing company or any other company for any earlier period.

If the amounts allowed for tax purposes for earlier periods exceed the gross amount allowable under FA03/SCH23, the FA03/SCH23 deduction is reduced to nil.

This transitional requirement reflects the fact that in computing taxable profits for accounting periods starting before 1 January 2003 deductions (based on generally accepted accounting practice) may have been made for the costs of shares which had not been acquired by employees by the end of the accounting period concerned.

Guidance on generally accepted accounting practice for employee share schemes and contributions to employee share ownership trusts, which was the starting point in computing employers’ profits taxable under Schedule D Case I or Schedule A for accounting periods starting before 1 January 2003, is at BIM44165 onwards.

Examples

The examples at BIM44335 onwards explain how to identify amounts that:

• were deducted in computing a company’s taxable profits for a period starting before 1 January 2003, and
• relate to the costs of “qualifying shares” under FA03/SCH23 acquired by employees during accounting periods starting on or after 1 January 2003.

They cover the following main variations: