Deductions for employee share acquisitions

Mark Joscelyne, Tax Partner, CMS
Draft legislation has been published intended to “clarify” that companies can only claim CT relief in respect of shares acquired by employees (eg. through share options) if available under Part 12 CTA 2009; relief cannot also or instead be claimed under general accounting principles which require companies to recognise a fair value accounting expense in respect of such shares. 
 
Whilst, so far as we are aware, HMRC have generally if not invariably resisted such accounts based deduction arguments this should put the matter beyond doubt for accounting periods ending on or after 20 March 2013 – albeit that the measure will not apply to deny deductions for periods spanning that date in respect of shares acquired prior to 20 March 2013 (or options which have lapsed prior to that date) and so presumably we will continue to see debate on this with HMRC.
 
The general aim of HMRC here is to achieve tax symmetry betwen the incidence of the income tax charge for the employee and the CT deduction; not an unreasonable aspiration. However, it is unfortunate that HMRC do not apply this principle consistently and introduce legislation to provide CT relief wherever there is a share related income tax charge (for example, where employee shares are disposed of at more than market value resulting in income tax (under Chapter 3D Part 7 ITEPA) and NICs charges but no CT relief.

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