Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 11 — Relief for particular employee share acquisition schemes
Chapter 2 — SAYE option schemes, company share option schemes and employee share options trusts
470

997
No deduction for expenses in providing dividend shares
(1)
No deduction is allowed to a company for expenses in providing shares that
are acquired on behalf of employees under an approved share incentive plan
as dividend shares.
(2)
This is subject to section 988.
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Withdrawal of approval for a plan
998
Withdrawal of deductions if approval for share incentive plan withdrawn
(1)
This section applies if—
(a)
a deduction is made by a company under section 989, 991, 994 or 995 in
relation to an approved share incentive plan, and
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(b)
the approval for the plan is withdrawn.
(2)
An officer of Revenue and Customs may by notice direct that the deduction is
withdrawn.
(3)
If a direction is made, the company is treated as receiving an amount equal to
the deduction.
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(4)
The amount is treated as received when the direction is made.
Chapter 2
SAYE option schemes, company share option schemes and employee share
options trusts
999
Deduction for costs of setting up SAYE option scheme or CSOP scheme
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(1)
This section applies if—
(a)
a company incurs expenses in setting up a scheme within subsection (2)
that is approved by an officer of Revenue and Customs, and
(b)
no employee or director acquires rights under the scheme before it is
approved.
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(2)
The schemes within this subsection are—
(a)
SAYE option schemes within the meaning of the SAYE code (see
section 516(4) of ITEPA 2003), and
(b)
CSOP schemes within the meaning of the CSOP code (see section 521(4)
of ITEPA 2003).
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The references in subsection (1) to a scheme being approved are to it being
approved under Schedule 3 or 4 to ITEPA 2003 (as the case may be).
(3)
A deduction for the expenses is to be made in calculating for corporation tax
purposes the profits of a trade or property business carried on by the company.

This is subject to subsections (4) and (5).
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(4)
If the company is a company with investment business (as defined in section
1218), the expenses are treated as expenses of management of the company.

But this subsection does not apply if the company’s business is a property
business (in which case subsection (3) applies instead).

Corporation Tax Bill
Part 11 — Relief for particular employee share acquisition schemes
Chapter 2 — SAYE option schemes, company share option schemes and employee share options trusts
471

(5)
If the company is a company in relation to which section 76 of ICTA (expenses
of insurance companies) applies, the expenses are treated as expenses payable
falling to be brought into account at Step 1 in subsection (7) of that section.
(6)
If the approval is given more than 9 months after the end of the period of
account in which the expenses are incurred—
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(a)
for the purposes of subsection (3) the deduction is to be made for the
period of account in which the approval is given, or
(b)
for the purposes of subsection (4) or (5) the expenses are treated as
referable to the accounting period in which the approval is given.
(7)
So far as this section provides for a deduction to be allowed, it has effect despite
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section 53 (no deduction for items of a capital nature in calculating trading
profits), including that section as applied by section 210 to the calculation of
profits of a property business.
1000
Deduction for costs of setting up employee share ownership trust
(1)
This section applies if a company incurs expenses in setting up a qualifying
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employee share ownership trust (within the meaning of Schedule 5 to FA
1989).
(2)
A deduction for the expenses is to be made in calculating for corporation tax
purposes the profits of a trade or property business carried on by the company.

This is subject to subsections (3) and (4).
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(3)
If the company is a company with investment business (as defined in section
1218), the expenses are treated as expenses of management of the company.

But this subsection does not apply if the company’s business is a property
business (in which case subsection (2) applies instead).
(4)
If the company is a company in relation to which section 76 of ICTA (expenses
25
of insurance companies) applies, the expenses are treated as expenses payable
falling to be brought into account at Step 1 in subsection (7) of that section.
(5)
If the trust is established more than 9 months after the end of the period of
account in which the expenses are incurred—
(a)
for the purposes of subsection (2) the deduction is to be made for the
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period of account in which the trust is established, or
(b)
for the purposes of subsection (3) or (4) the expenses are treated as
referable to the accounting period in which the trust is established.
(6)
For the purposes of subsection (5) a trust is established when the deed under
which it is established is executed.
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(7)
So far as this section provides for a deduction to be allowed, it has effect despite
section 53 (no deduction for items of a capital nature in calculating trading
profits), including that section as applied by section 210 to the calculation of
profits of a property business.

Corporation Tax Bill
Part 12 — Other relief for employee share acquisitions
Chapter 1 — Introduction
472

Part 12
Other relief for employee share acquisitions
Chapter 1
Introduction
Introductory
5
1001
Overview of Part
(1)
This Part provides for corporation tax relief in relation to employee share
acquisitions.
(2)
Sections 1002 to 1005 relate to the interpretation of this Part.
(3)
Chapter 2 provides for relief if shares are acquired by an employee or another
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person because of the employee’s employment by a company.
(4)
Chapter 3 provides for relief if—
(a)
an employee or another person obtains an option to acquire shares
because of the employee’s employment by a company, and
(b)
shares are acquired pursuant to the option.
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(5)
Chapter 4 provides for additional relief in cases involving restricted shares.
(6)
Chapter 5 provides for additional relief in cases involving convertible shares or
convertible securities that are not shares.
(7)
Chapter 6 deals with the relationship between the reliefs under this Part and
other reliefs.
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Interpretation
1002
“Employment”
(1)
This section explains how references in this Part to employment (and related
expressions) are to be read.
(2)
“Employment” includes a former or prospective employment.
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(3)
References to employment by a company include references to holding an
office with that company.
(4)
Members of a company whose affairs are managed by its members are treated
as holding an office with the company.
1003
“Shares” etc
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(1)
In this Part “shares” includes—
(a)
an interest in shares, and
(b)
stock or an interest in stock.

Corporation Tax Bill
Part 12 — Other relief for employee share acquisitions
Chapter 1 — Introduction
473

(2)
For the purposes of this Part shares are acquired by a person when the person
acquires a beneficial interest in them (and not, if different, when they are
conveyed or transferred).
1004
Groups, consortiums and commercial associations of companies
(1)
This section applies for the purposes of this Part.
5
(2)
Two companies are members of the same group if one is a 51% subsidiary of
the other or both are 51% subsidiaries of a third company.
(3)
“Group transfer” means a transfer of a business, or a part of a business, from
one company that is a member of a group to another company that is, or two
or more companies that are, members of the group.
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(4)
A company is a parent company of another company if that other company is
its 51% subsidiary.
(5)
A company (“the consortium company”) is owned by a consortium if—
(a)
five or fewer companies (“the shareholding companies”) between them
beneficially own at least 75% of the consortium company’s ordinary
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share capital, and
(b)
each of the shareholding companies beneficially owns at least 10% of
that capital.
(6)
Each shareholding company is a member of the consortium.
(7)
For the purposes of subsection (5) the shareholdings of members of a group of
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companies are to be treated as held by a single company.
(8)
And, in such a case, a member of the group of companies is a member of the
consortium if the member beneficially owns some of the consortium
company’s ordinary share capital.
(9)
“Commercial association of companies” means a company together with such
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of its associated companies (as defined in section 416 of ICTA) 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.
1005
Other definitions
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In this Part—
“convertible securities” has the same meaning as in Chapter 3 of Part 7 of
ITEPA 2003 (see section 436 of that Act),
“convertible shares” means shares that are—
(a)
convertible securities, or
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(b)
an interest in convertible securities,
“the employee” has the meaning given by section 1007(1)(a) or 1015(1)(a)
(as the case may be),
“the employing company” has the meaning given by section 1007(1) or
1015(1) (as the case may be),
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“listed company” means a company—
(a)
whose shares are listed on a recognised stock exchange, and
(b)
which is neither a close company nor a company that would be
a close company if it were UK resident,

Corporation Tax Bill
Part 12 — Other relief for employee share acquisitions
Chapter 2 — Relief if shares acquired by employee or other person
474

“market value” has the same meaning as in TCGA 1992 (see sections 272
and 273 of that Act),
“option” includes any right to acquire shares,
“ordinary shares” means shares forming part of a company’s ordinary
share capital,
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“the qualifying business” has the meaning given by section 1007(1)(b) or
1015(1)(b) (as the case may be),
“the recipient” has the meaning given by section 1007(1) or 1015(1) (as the
case may be),
“the relevant employment” has the meaning given by section 1007(1)(b) or
10
1015(1)(b) (as the case may be), and
“restricted shares” means shares that are—
(a)
restricted securities, or
(b)
a restricted interest in securities,
for the purposes of Chapter 2 of Part 7 of ITEPA 2003 (see sections 423
15
and 424 of that Act).
Chapter 2
Relief if shares acquired by employee or other person
Introductory
1006
Overview of Chapter
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(1)
This Chapter provides for relief if shares are acquired by an employee or
another person because of the employee’s employment by a company.
(2)
Sections 1007 to 1009 set out the requirements that must be met for relief to be
available.
(3)
Sections 1010 to 1012 set out how the amount of relief is calculated.
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(4)
Section 1013 sets out how the relief is given.
Requirements to be met for relief to be available
1007
Basic requirements for relief under Chapter 2
(1)
Relief under this Chapter is available to a company (“the employing
company”) if—
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(a)
a person (“the employee”) has employment with the employing
company,
(b)
that employment (“the relevant employment”) is in relation to a
business within subsection (2) (“the qualifying business”),
(c)
the employee or another person acquires shares because of the relevant
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employment,
(d)
the conditions set out in sections 1008 and 1009 are met as mentioned
in those sections, and
(e)
relief under Chapter 3 is not available to the employing company in
relation to the acquisition of the shares.
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The person who acquires the shares is, in that capacity, called “the recipient”.

Corporation Tax Bill
Part 12 — Other relief for employee share acquisitions
Chapter 2 — Relief if shares acquired by employee or other person
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(2)
A business is within this subsection so far as—
(a)
the business is carried on by the employing company, and
(b)
the employing company is within the charge to corporation tax in
relation to the profits of the business.
1008
Conditions relating to shares acquired
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(1)
Each of the following conditions must be met in relation to the shares acquired.
Condition 1

The shares are ordinary shares that are fully paid-up and not redeemable.
Condition 2

The shares are—
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(a)
shares of a class listed on a recognised stock exchange,
(b)
shares in a company that is not under the control of another company,
or
(c)
shares in a company that is under the control of a listed company.
Condition 3
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The shares are shares in—
(a)
the employing company,
(b)
a company that, when the shares are acquired, is a parent company of
the employing company,
(c)
a company that, when the shares are acquired, is a member of a
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consortium that owns the employing company,
(d)
a company that, when the shares are acquired, is a member of a
consortium that owns a parent company of the employing company, or
(e)
a company within subsection (2).
(2)
A company (“company A”) is within this subsection if when the shares are
25
acquired—
(a)
the employing company or a parent company of the employing
company is a member of a consortium that owns another company
(“company B”), and
(b)
company A is—
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(i)
a member of that consortium or a parent company of a member
of that consortium, and
(ii)
a member of the same commercial association of companies as
company B.
1009
Conditions relating to employee’s income tax position
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(1)
If the shares acquired are not restricted shares, the following conditions must
be met in relation to the income tax position of the employee.
Condition 1

The employee is subject to a charge under ITEPA 2003 in relation to the
acquisition of the shares.
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Condition 2

Section 446UA of ITEPA 2003 does not apply in relation to the shares.

Corporation Tax Bill
Part 12 — Other relief for employee share acquisitions
Chapter 2 — Relief if shares acquired by employee or other person
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(2)
If the shares acquired are restricted shares, the following condition must be
met in relation to the income tax position of the employee.
The Condition

The employee—
(a)
has, as a result of the acquisition of the shares, earnings within Chapter
5
1 of Part 3 of ITEPA 2003 from the relevant employment that are subject
to the charge under Part 2 of that Act, or
(b)
is not within paragraph (a) but will be subject to a charge under ITEPA
2003 as a result of section 426 of that Act if an event occurs in relation
to the shares that is a chargeable event for the purposes of that section.
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(3)
Subsection (4) applies if—
(a)
the conditions are, or the condition is, not met, but
(b)
the conditions or the condition would be met if at all material times the
employee had been a UK employee.
(4)
This Chapter applies as if the employee had been a UK employee as mentioned
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in subsection (3)(b).
(5)
The employee is a UK employee if—
(a)
the employee is UK resident and ordinarily UK resident, and
(b)
the duties of the relevant employment are performed in the United
Kingdom.
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Calculation of amount of relief
1010
Calculation of relief if shares are neither restricted nor convertible
(1)
If the shares acquired are neither restricted shares nor convertible shares, the
amount of relief to be given is an amount equal to—
(a)
the market value of the shares when they are acquired, less
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(b)
the total amount or value of any consideration given by any person in
relation to the acquisition of the shares.

This is subject to section 1012.
(2)
The consideration mentioned in subsection (1)(b) does not include the
performance of any duties of, or in connection with, the relevant employment.
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(3)
A just and reasonable apportionment is to be made of any consideration given
partly in relation to the acquisition of the shares and partly in relation to other
matters.
1011
Calculation of relief if shares are restricted or convertible
(1)
If the shares acquired are restricted shares or convertible shares (or both), the
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amount of relief to be given is calculated as follows.

This is subject to section 1012.
(2)
If the shares are restricted shares, the amount of relief is equal to the amount
that, as a result of the acquisition of the shares, is earnings of the employee
within Chapter 1 of Part 3 of ITEPA 2003 from the relevant employment.
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