BIM44455 - Specific deductions - employee share schemes: Providing “non-qualifying” shares, a/c periods from 1 Jan 2003 - through an employee benefit trust

For accounting periods starting on or after 1 January 2003 deductions for contributions to employee share ownership trusts or general employee benefit trusts used to provide employees with “non-qualifying shares” depend on general tax case law principles, see BIM44140.

For employers’ contributions to such trusts on or after 27 November 2002 the EBT anti-avoidance legislation in FA03/SCH24 will apply. Its “matching” effect will defer the timing of any tax deduction for the employer’s contribution until, and restrict it to the extent that, the employee receives benefits in the form of money or assets (including the “non-qualifying shares”) on which both income tax and NICs liability arises.

Following amendments to ITEPA03/S700 made by FA03/SCH22 all “non-qualifying shares” are deemed to be readily convertible assets. Liability to income tax (collected under PAYE) and NICs arise, so they are “qualifying benefits” for the purposes of FA03/SCH24.

QUESTs and non-qualifying shares

It is reasonable to assume that shares acquired by employees from a qualifying employee share ownership trust (QUEST - see BIM44065) during accounting periods starting on or after 1 January 2003 will be “qualifying shares” under FA03/SCH23.