Introduction Background Note
14.SIPs are tax-advantaged employee share schemes that allow employees to obtain shares in the company they work for (or, in the case of a group scheme, shares in the parent company of their employing company). Subject to limits, employees may receive shares free of charge; they may use their own money to buy shares; or there may be a combination of free and bought shares. If the shares are held in the SIP for five years, there is no income tax or National Insurance contributions liability for employees.
15.Section 989 of CTA allows a CT deduction where (subject to conditions) a company pays money to the trustees who operate the SIP, for them to acquire shares from non-corporate shareholders for use in the plan. HMRC may withdraw the deduction (under section 990 of CTA) if shares are not appropriated to employees under the SIP within certain time limits - 30 per cent of the shares within five years of their acquisition and 100 per cent within 10 years.
16.Some companies are using avoidance arrangements involving a SIP to obtain a CT deduction for money paid to SIP trustees, where it is clear that they have no intention of passing shares with real value to their employees under the SIP.
17.These avoidance arrangements involve companies entering into transactions which alter the share capital or the rights attached to the shares, with the effect of stripping away the value of shares held in the SIP trust.
18.The amendments under this section will allow HMRC to deny the CT deduction if it was the main purpose or one of the main purposes of the company making the payment to obtain the deduction. This will apply in those cases where there is evidence that the company was involved in avoidance arrangements of this type. It will not affect companies (the great majority) that make payments to SIP trustees with the intention of genuinely providing shares to their employees under the SIP.
19.The section also ensures that HMRC can withdraw approval of the SIP where ‘value shifting’ transactions involving the company's share capital or the rights attaching to the shares materially affect the value of participants’ plan shares. This change is a limited one, designed to put it beyond doubt that approval may be withdrawn even where there are no participants in the SIP, or where no shares have been awarded under it, at the time the transactions take place.