Timing of relief in case of shares subject to forfeiture
22 (1) Where the recipient acquires shares that are subject to forfeiture, this
paragraph applies in place of paragraph 10 or 17 (timing of relief).
(2) The relief is given for the accounting period in which—
(a) the shares cease to be subject to forfeiture, or
(b) the recipient disposes of the shares, or dies, without the shares
having ceased to be subject to forfeiture.
Transfer of business within a group
23 (1) This paragraph applies where—
(a) between the time when an award of shares, or the grant of an option
to acquire shares, is made and the time of the relief-triggering event
for those shares, there is a transfer of the whole, or substantially the
whole, of the business for the purposes of which the award or grant
was made (“the relevant business”),
(b) the transfer, or each of them if there is more than one, is a qualifying
(c) as a result of the transfer or transfers, the whole or substantially the
whole of the relevant business is carried on at the time of the relief-
triggering event by a different company (“the successor company”)
or by different companies (“the successor companies”) from the one
by which it was carried on at the time of the award or grant.
(2) For the purposes of sub-paragraph (1)—
(a) the “relief-triggering event” for shares is the event that, in accordance
with paragraph 10, 17 or 22, determines the accounting period for
which relief under this Schedule is given in respect of them;
(b) there is a “qualifying transfer” of a business (or a part of one) where
the business (or part) is transferred from one company to another
company that is, or to two or more companies that are, members of
the same group.
(3) Where this paragraph applies—
(a) relief under this Schedule in respect of the shares is given to the
successor company or, as the case may be, to whichever one of the
successor companies is jointly nominated by them, and
(b) the reference in paragraph 1(1)(a) or (b) to “that company” shall be
read as a reference to the company by which the relevant business
was carried on at the time of the award or grant.
Relationship between relief and other deductions: priority of deductions under SIP code
24 (1) Deductions available under any of the following provisions of Schedule
4AA to the Taxes Act 1988 (share incentive plans) are to be given in priority
to relief under this Schedule—
(a) paragraph 2 (deduction for providing free or matching shares);
(b) paragraph 3 (deduction for expenses in providing partnership
(c) paragraph 9 or 10(3) (deduction for contribution to plan trust).
(2) No relief is available under this Schedule in respect of shares in relation to
which a deduction is allowable, or has been made, under any of those
Relationship between relief and other deductions: exclusion of other deductions
25 (1) Where relief under this Schedule is available for any accounting period, no
other deduction is allowed for any corporation tax purposes (whether for
that or any other period) in respect of the cost of providing the shares.
This applies to any deduction, whether by the employing company or any
other company, in computing chargeable profits for the purposes of
(2) For this purpose the cost of providing the shares—
(a) means expenses directly related to the provision of the shares, and
(b) includes, in a case where the shares are acquired under an employee
share scheme, any amount paid or payable by the employing
company in respect of the participation of the employee in that
(3) The following are not regarded as part of the cost of providing the shares—
(a) expenses incurred in establishing the employee share scheme under
which the recipient acquires the shares;
(b) expenses incurred in meeting, or contributing to, the costs of
administering the scheme;
(c) the costs of borrowing for the purposes of the scheme;
(d) fees, commission, stamp duty and similar incidental expenses of
acquiring the shares.
(4) In this paragraph “employee share scheme” means any scheme or
arrangement for enabling shares to be acquired by reason of employees’
Meaning of “employment”
26 For the purposes of this Schedule—
(a) references to employment by a company include holding an office
with that company, and related expressions have a corresponding
(b) members of a company whose affairs are managed by the members
themselves are treated as holding an office with the company.
Exercise of option after death of employee or recipient
27 (1) Where an option to acquire shares obtained by reason of the employee’s
employment is exercised by the recipient after the employee’s death, the
condition in paragraph 14 (income tax position of the employee) is treated as
met if it would be met were the employee still alive.
(2) Where an option to acquire shares obtained by reason of the employee’s
employment is exercised after the death of the recipient, paragraph 1(1)(b)
and Part 3 of this Schedule, and sub-paragraph (1) above, apply as if the
recipient were still alive and the option were exercised by him.
Meaning of “group company” and “parent company”
28 For the purposes of this Schedule—
(a) a company is a “group company”, in relation to another company, if
they are members of the same group,
(b) two companies are members of the same group if, and only if, one is
a 51% subsidiary of the other or both are 51% subsidiaries of a third
(c) a company is a “parent company” in relation to another company if
that other is its 51% subsidiary.
Meaning of “consortium” and “commercial association of companies”
29 (1) For the purposes of this Schedule a company is a member of a consortium
owning another company if it is one of five or fewer companies—
(a) that between them beneficially own not less than 75% of the other
company’s ordinary share capital, and
(b) each of which beneficially owns not less than 10% of that capital.
For this purpose the shareholdings of members of a group of companies
shall be treated as held by a single company.
(2) In this Schedule a “commercial association of companies” means a company
together with such of its associated companies as carry on businesses that
are of such a nature that the businesses of the company and the associated
companies, taken together, may be reasonably considered to make up a
single composite undertaking.
“Associated company” here has the meaning given by section 416 of the
Taxes Act 1988.
30 In this Schedule—
“the Contributions and Benefits Act” means—
(a) the Social Security Contributions and Benefits Act 1992 (c. 4),
(b) the Social Security Contributions and Benefits (Northern
Ireland) Act 1992 (c. 7);
“control” has the meaning given by section 840 of the Taxes Act 1988;
“insurance company” and “life assurance business” have the meanings
given by section 431(2) of that Act;
“investment company” has the meaning given by section 130 of that
“market value” has the same meaning as in the Taxation of Chargeable
Gains Act 1992 (c. 12) (see sections 272 and 273 of that Act);
“option” includes any right to acquire shares;
“ordinary shares”, in relation to a company, means shares forming part
of the company’s ordinary share capital;
(a) an interest in shares, and
33 (1) Relief is not available under this Schedule in respect of shares to the extent
that a deduction is available or has been made in respect of relevant
expenses in computing the chargeable profits of the employing company or
any other company for the purposes of corporation tax for an accounting
period beginning before 1st January 2003.
(2) In sub-paragraph (1) “relevant expenses” means any expenses referable,
directly or indirectly, to the provision of the shares in question.
(3) In relation to any time before the coming into force of the Income Tax
(Earnings and Pensions) Act 2003 (c. 1) (“ITEPA”), this Schedule has effect as
(a) the references to a charge to income tax under ITEPA were to a
charge to income tax under section 19 of the Taxes Act 1988;
(b) the reference in paragraph 14(1)(a)(ii) to section 476 or 477 of ITEPA
were to section 135 of the Taxes Act 1988;
(c) the reference in paragraph 14(2)(a) to section 519, 520, 524 or 525 of
ITEPA were to section 185(3)(a) of the Taxes Act 1988;
(d) the reference in paragraph 14(2)(b) to section 530 of ITEPA were to
paragraph 44 of Schedule 14 to the Finance Act 2000 (c. 17);
(e) the reference in paragraph 20(2)(a) to section 427 of ITEPA were to
section 140A of the Taxes Act 1988;
(f) the references in paragraph 24(1) to paragraphs 2, 3, 9 and 10(3) of
Schedule 4AA to the Taxes Act 1988 were to paragraphs 106, 107,
112A and 112B(3) respectively of Schedule 8 to the Finance Act 2000.
Restriction of deductions for employee benefit contributions
Restriction of deductions
1 (1) This Schedule applies where—
(a) a calculation is required to be made for tax purposes of a person’s
profits for any period, and
(b) a deduction would (but for this Schedule) be allowed for that period
in respect of employee benefit contributions made, or to be made, by
that person (“the employer”).
But it does not apply to a deduction of a kind mentioned in paragraph 8.
(2) For the purposes of this Schedule an employer makes an “employee benefit
(a) he pays money or transfers an asset to another person (“the third
(b) the third party is entitled or required, under the terms of an
employee benefit scheme, to hold or use the money or asset for or in
connection with the provision of benefits to employees of the
(3) The deduction in respect of employee benefit contributions mentioned in
sub-paragraph (1) is allowed only to the extent that—
(a) during the period in question or within nine months from the end of
(i) qualifying benefits are provided out of the contributions, or
(ii) qualifying expenses are paid out of the contributions,
(b) where the making of the contributions is itself the provision of
qualifying benefits, the contributions are made during that period or
within those nine months.
(4) An amount disallowed under sub-paragraph (3) is allowed as a deduction
for a subsequent period to the extent that—
(a) qualifying benefits are provided out of the employee benefit
contributions in question before the end of that subsequent period,
(b) where the making of the contributions is itself the provision of
qualifying benefits, the contributions are made before the end of that
“Provision of qualifying benefits”
2 (1) For the purposes of this Schedule qualifying benefits are provided where
there is a payment of money or transfer of assets, otherwise than by way of
(a) gives rise both to an employment income tax charge and to an NIC
charge, or would do if the conditions in sub-paragraph (3) were met,
(b) is made in connection with the termination of the recipient’s
employment with the employer.
(2) In sub-paragraph (1)(a)—
“employment income tax charge” means a charge to tax under the
Income Tax (Earnings and Pensions) Act 2003 (c. 1) (whether on the
recipient or on someone else);
“NIC charge” means a liability to pay national insurance contributions
under section 6 (Class 1 contributions), 10 (Class 1A contributions)
or 10A (Class 1B contributions) of the Contributions and Benefits
(3) The conditions mentioned in sub-paragraph (1)(a) are—
(a) that the duties of the employment in respect of which the payment
or transfer was made were performed in the United Kingdom, and
(b) that the person in respect of whose employment the payment or
transfer was made fulfilled at all relevant times the conditions as to
residence or presence in Great Britain or Northern Ireland prescribed
under section 1(6)(a) of the Contributions and Benefits Act.
(4) In this paragraph “the Contributions and Benefits Act” means—
(a) the Social Security Contributions and Benefits Act 1992 (c. 4), or
(b) the Social Security Contributions and Benefits (Northern Ireland)
Act 1992 (c. 7).
(5) Where the provision of a qualifying benefit takes the form of the payment of
money, the benefit is treated for the purposes of this Schedule as provided
at the time when the money is treated as received for the purposes of
Chapter 4 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003,
applying the rules in section 18 of that Act (receipt of money earnings).
3 In this Schedule “qualifying expenses”—
(a) does not include expenses that, if incurred by the employer, would
not be deductible in calculating for tax purposes the employer’s
profits for any period, but
(b) subject to that, includes any expenses of the third party (other than
the provision of benefits to employees of the employer) in operating
the employee benefit scheme in question.
Payment “out of” employee benefit contributions
4 (1) For the purposes of paragraph 1(3)(a) any qualifying benefits provided or
qualifying expenses paid by the third party after the receipt by him of
employee benefit contributions are regarded as being provided or paid out
of those contributions, up to the total amount of the contributions as reduced
by the amount of any benefits or expenses previously provided or paid as
mentioned in paragraph 1(3)(a).
(2) For the purposes of paragraph 1(4)(a) any qualifying benefits provided by
the third party after the receipt by him of employee benefit contributions are
regarded as being provided out of those contributions, up to the total
amount of the contributions as reduced by the amount of any benefits or
expenses previously provided or paid as mentioned in paragraph 1(3)(a) or
(3) In applying sub-paragraphs (1) and (2) above no account shall be taken of
any other amount received or paid by the third party.
Transfer of asset to employee
5 (1) This paragraph applies where the provision of a qualifying benefit takes the
form of the transfer of an asset.
(2) The amount provided shall be taken for the purposes of this Schedule to be
the total of—
(a) the amount (if any) expended on the asset by the third party, and
(b) in a case where the asset was transferred to the third party by the
employer, the amount of the deduction that would be allowed as
mentioned in paragraph 1(1) in respect of the transfer.
(3) But where the amount given by sub-paragraph (2) above is more than the
amount that is charged to tax under the Income Tax (Earnings and Pensions)
Act 2003 (c. 1) in respect of the transfer, or would be so charged if the
condition in paragraph 2(3)(a) were met, the deduction allowable under
paragraph 1(3) or (4) is limited to that lower amount.
Provisional calculation of profits
6 Where the calculation referred to in paragraph 1(1) is made before the end
of the nine-month period mentioned in paragraph 1(3)—