Introduction Background
14.Where an employee obtains a share option or is awarded shares, CT legislation generally allows the employing company a CT deduction at the point when the employee acquires the shares and, where applicable, is charged to income tax on them.
15.These rules broadly aim to achieve symmetry between the availability of CT relief to the employing company and a charge to income tax on the employee (where applicable).
16.In addition there are more general provisions in CT legislation that a company's taxable trading profits should be calculated by reference to generally accepted accounting practice (GAAP), except where this is specifically overridden in tax legislation.
17.A statutory relief for employee share acquisitions was introduced in 2003 and was designed, where appropriate, to override GAAP. Accounting standards were subsequently introduced to require companies to recognise an accounting expense, measured at fair value, in respect of shares and share options they provide to employees.
18.The argument is sometimes made that companies can deduct accounting expenses recognised for share-based payments against CT, even if the option or award lapses and the employee does not acquire shares; or alternatively that both the accounting expenses and the statutory deduction can be deducted in cases where the employee acquires shares.
19.In the Government's view it is wrong for companies to claim CT deductions for accounting expenses relating to share-based payments where shares are not acquired by the employee, other than where this is specifically provided for in legislation; or to claim what are, in effect, two deductions in respect of an acquisition of shares by an employee. The law has been applied on that basis by HM Revenue & Customs (HMRC) since the current rules were introduced in 2003.
20.HMRC will continue to resist claims of this type, on the basis that they are inadmissible under the terms of existing legislation.
21.The present section is being introduced to clarify and confirm the position, and remove any uncertainty there may be among taxpayers and advisers about how the rules apply.