Introduction Summary
1.Section 42 counters avoidance arrangements which exploit the corporation tax (CT) reliefs available to approved Share Incentive Plans (SIPs). The avoidance involves companies making corporation tax-deductible payments to SIP trustees, for them to buy shares from existing shareholders for use in the SIP. However, few if any shares with real value are ever issued to employees under the SIP. Transactions by the company altering the share capital or rights attaching to SIP shares have the effect of stripping away the value of shares held in the SIP trust.
2.This section amends the current legislation, so that CT deductions will not be available where a payment to SIP trustees is made as part of tax avoidance arrangements, where the main purpose or one of the main purposes of the company making the payment is to obtain the CT relief.
3.It also closes potential loopholes in the provisions allowing HM Revenue & Customs (HMRC) to withdraw approval of a SIP where there are no participants in the SIP, or where no shares have been awarded under the SIP, at the time when alterations are made to the company’s share capital or to rights attaching to its shares, or when differences in the treatment of shares within a class of shares occur.
4.The changes will have effect in relation to payments made, alterations to share capital or rights attaching to shares taking place, and differences in the treatment of shares within a class of shares occurring, on or after 24 March 2010.