Corporation Tax Deductions for Share Schemes

Taylor Keeble
Sep 14
3 min read

Companies often reward employees with shares in the business, either by granting them directly or by offering options that allow employees to buy shares at a future date. These shares may be offered through formal share schemes, some of which attract special tax treatment, or more informally without a structured plan.

From a company’s perspective, providing shares can give rise to valuable corporation tax deductions. The availability, timing, and size of any deduction depends on how and when the shares are made available to employees.

Statutory Deductions (Part 12 CTA 2009)

In many cases, companies can claim a corporation tax deduction when employees acquire shares. The deduction is broadly based on the difference between the market value of the shares and any amount paid by the employee.

Crucially, the deduction is only available when the employee actually acquires the shares. It does not follow the accounting treatment under standard reporting rules, which may spread the cost over the life of the scheme. The policy is designed to align the company’s tax relief with the employee’s income tax position.

To qualify, the shares themselves must meet certain conditions, such as being part of the company’s ordinary share capital, being fully paid up, and not redeemable. In addition, the shares must generally be in the employing company, its parent company, or a suitable group company.

Deductions for Share Incentive Plans (Part 11 CTA 2009)

Special rules apply where shares are provided under a Share Incentive Plan (SIP). In these cases, companies can claim deductions for the cost of providing free or matching shares, based on their market value. Additional deductions may also be available where employees buy partnership shares at below market value.

Companies can also claim relief for the costs of setting up a SIP and, in certain circumstances, for the ongoing running costs of the plan. However, the purchase price of the shares themselves (other than incidental acquisition costs such as fees or stamp duty) will not usually qualify as a running expense.

Other Deductions

Where shares do not fall within a statutory scheme, deductions may still be available for certain incidental costs under the usual tax rules. However, the cost of establishing a share scheme is generally treated as capital expenditure and will not normally qualify for relief unless the scheme is of a recognised type, such as a Save As You Earn (SAYE) plan or a Company Share Option Plan (CSOP).

Employee Benefit Contributions (s.1290 CTA 2009)

If a share award does not qualify for relief under the statutory rules, companies may still obtain a deduction where shares are provided through an employee benefit arrangement, such as an employee benefit trust. Relief is generally available where the arrangement results in the employee being taxed on the shares received, and National Insurance contributions are also due.

The deduction is usually based on the amount spent on the shares, provided they are transferred to the employee within nine months of the company’s yearend. If the transfer takes longer, the deduction is instead given in the year when the employee actually receives the shares.