BIM44335 - Specific deductions - employee share schemes: Providing shares under FA03/SCH23, a/c periods from 1 Jan 2003 - identifying the amount deducted in an earlier period, example 1
Example 1 - ESOP trust and share awards - shares increase in value between awards and acquisition of shares by employees
Facts
- Conditional award of up to 1,000 shares; nominal value 10p each.
- Award becomes unconditional and vests in full if performance targets are met over a 3 year period.
- No consideration payable for the shares by the employee.
- 1/1/01: share awards made, when market value of shares is £5 each.
- 1/1/01: company contributes £5000 to ESOP trust.
- 1/1/01: ESOP trust buys 1000 shares in the market for £5000.
- Estimates of awards likely to be satisfied at end of 3 years:
-
- 31/12/01: 50%,
- 31/12/02: 80%.
- 31/12/03: 75% of awards actually satisfied.
- 31/12/03: 750 shares transferred to employee; market value £8 each.
Deductions in company’s Profit and Loss account
a.p.e 31/12/01 |
|
|
[£5000 x 50% x 1/3] = |
£833 |
(allowed for tax purposes) |
a.p.e 31/12/02 |
|
|
[(£5000 x 80% x 2/3) - £833] = |
£1834 |
(allowed for tax purposes) |
a.p.e 31/12/03 |
|
|
[(750 x £5) - £833 - £1834] = |
£1083 |
|
At 1/1/04 the ESOP trust holds 250 shares, shown as asset (‘Own shares’) on company’s balance sheet at cost £1250 (250 x £5).
Deduction allowed by FA03/SCH23 - a.p.e 31/12/03
Employees acquire 750 qualifying shares, market value |
£6000 |
Less deductions already allowed £833 + £1834 |
£2667 |
|
£3333 |
2003 Tax computation
Add back deduction in Profit & Loss account |
£1083 |
Deduct amount allowed by FA03/SCH23 |
£3333 |
Net deduction |
£2250 |
