BIM44295 - Specific deductions - employee share schemes: periods starting on or after 1 January 2003: Providing shares under FA03/SCH23, a/c periods from 1 Jan 2003 - company whose shares are acquired

“Qualifying shares” under FA03/SCH23 must be in a company which satisfies the required link to the employee’s employing company.

For shares acquired by exercising share options the required employment link must exist at the time the employee was granted a share option.

For other share awards the required employment link must exist at the time the employees acquire the shares.

The required employment link is that the shares must be in:

• the employing company,
• a company of which the employing company is a 51% subsidiary (a “parent company”),
• a member of a consortium that owns the employing company or a parent company,
• a company in the same “commercial association of companies” as the employing company or its parent company.

Consortium companies

A company is a member of a consortium owning another company if it is one of five or fewer companies:

• that between them own 75% of the company’s ordinary share capital, and
• each of which beneficially owns at least 10% of that capital.

Commercial associations of companies

A company is in the same “commercial association of companies” as another company if the companies are:

• associated companies (as defined in ICTA88/S416); and
• carry on businesses that are of such a nature that they, taken together, may be reasonably considered to make up a single composite undertaking.

This level of employment link is aimed at companies in a dual-headed ownership structure, with what might be described as two “parent companies”. These structures are unusual. Most such companies are likely to be dealt with by the Large Business Office. The Employee Share Schemes Unit, Capital & Savings, has notified those offices dealing with companies that it knows satisfy the “commercial association of companies” requirement.

If an employing company, in computing its taxable profits, has made a deduction under FA03/SCH23:

• for providing “qualifying shares” in another company,
• on the basis that the shares are in a company in the same “commercial association of companies” as the employing company,

before agreeing that the deduction is allowable you should seek advice from CT&VAT, unless they have already confirmed that the employing company and the other company are in the same “commercial association of companies”.