SCHEDULES
F1F1SCHEDULE 8
Part XII Corporation tax deductions
Introduction
105
References in this Part of this Schedule to deductions are to deductions by a company in calculating for the purposes of corporation tax the profits of a trade carried on by it.
This is subject to paragraph 114 (application of provisions to expenses of management of investment companies etc.).
Cases in which no deduction is allowed
108
1
No deduction is allowed under paragraph 106 or 107 in the following cases.
2
No deduction is allowed in respect of shares awarded to an individual who is not a Schedule E taxpayer at the date the shares are awarded to him under the plan.
A “Schedule E taxpayer” means an individual who—
a
is chargeable to tax under Schedule E in respect of emoluments from the employment by reference to which he is eligible to participate in the award, or
b
would be so chargeable if any such emoluments were remitted to the United Kingdom.
3
No deduction is allowed in respect of shares that are liable to depreciate substantially in value for reasons that do not apply generally to shares in the company.
4
No deduction is allowed if a deduction has been made—
a
by the company, or
b
by an associated company of the company,
in respect of the provision of the same shares for this or another trust.
This applies whatever the nature or purpose of the other trust and whatever the basis on which the deduction was made.
5
For the purposes of determining whether the same shares have been provided to more than one trust, if shares have been acquired by the trustees of the plan trust on different days it shall be assumed that those acquired on an earlier day are awarded under the plan before those acquired by the trustees on a later day.
Deduction for costs of setting up the plan
111
1
A deduction is allowed under this paragraph for expenses incurred by a company in establishing an employee share ownership plan which is approved by the Inland Revenue.
2
No deduction may be made under this paragraph if—
a
any employee acquires rights under the plan, or
b
the trustees acquire any shares for the purposes of the plan,
before the Inland Revenue approve the plan.
3
If Inland Revenue approval of the plan is given more than nine months after the end of that period of account in which the expenses are incurred, the expenses are treated for the purposes of this paragraph as incurred in the period in which the approval is given.
4
No other deduction is allowed in respect of expenses for which a deduction is allowed under this paragraph.
Deductions for contributions to running expenses of plan
112
1
Nothing in this Part of this Schedule affects any deduction for expenses incurred by a company in contributing to the expenses of the trustees in operating an approved employee share ownership plan.
2
For this purpose the expenses of the trustees in operating the plan—
a
do not include expenses in acquiring shares for the purposes of the trust, other than incidental acquisition costs, but
b
do include the payment of interest on money borrowed by them for that purpose.
3
In sub-paragraph (2)(a) “incidental acquisition costs” means any fees, commission, stamp duty and similar incidental costs attributable to the acquisition of the shares.
112AF2Deduction for contribution to plan trust
1
A deduction is allowed to a company under this paragraph where—
a
on or after the day on which this paragraph comes into force the company makes a payment to the trustees of an approved employee share ownership plan in order to enable them to acquire shares in the company or a company which controls it,
b
the payment is applied by the trustees to acquire such shares,
c
the shares are not acquired from a company, and
d
the condition in sub-paragraph (2) is met in relation to the company in which the shares are acquired.
2
The condition in this sub-paragraph is that, at the end of the period of twelve months beginning with the date of the acquisition, the trustees hold shares in the company for the plan trust that—
a
constitute not less than 10 per cent of the ordinary share capital of the company; and
b
carry rights to not less than 10 per cent of—
i
any profits available for distribution to shareholders of the company;
ii
any assets of that company available for distribution to its shareholders in the event of a winding-up.
3
For the purposes of sub-paragraph (2), shares that have been appropriated to, and acquired on behalf of, an individual under the plan shall continue to be treated as held by the trustees of the plan trust for the beneficiaries of that trust until such time as they cease to be subject to the plan (within the meaning of this Schedule).
4
A deduction allowed under this paragraph—
a
is of an amount equal to the amount of the payment referred to in sub-paragraph (1), and
b
must be made for the period of account in which the condition in sub-paragraph (2) is met.
5
No other deduction is allowed for any amount in respect of which a deduction has been made under this paragraph (except as specified in paragraph 112B(3)).
112BF3Withdrawal of deduction under paragraph 112A
1
The Inland Revenue may by notice direct that the benefit of a deduction made under paragraph 112A is withdrawn where—
a
30 per cent of the shares acquired by virtue of the payment in respect of which the deduction is made have not been awarded under the plan before the end of the period of five years beginning with the date of acquisition, or
b
all the shares acquired by virtue of that payment have not been so awarded before the end of the period of ten years beginning with that date.
2
The effect of a direction under sub-paragraph (1)(a) or (b) is that the amount of the deduction is treated as a trading receipt of the company for the period of account in which the direction is given.
3
However, where—
a
the Inland Revenue give a direction under sub-paragraph (1)(a) or (b) in respect of any deduction, and
b
at any time after the giving of the direction, all the shares acquired by virtue of the payment in respect of which the deduction was made are awarded under the plan,
a further deduction is allowed under this sub-paragraph to the company which made the payment.
4
A deduction under sub-paragraph (3)—
a
is of an amount equal to the amount of the payment referred to in that sub-paragraph, and
b
must be made for the period of account in which sub-paragraph (3)(b) is first satisfied.
5
No other deduction is allowed in respect of any amount for which a deduction has been made under sub-paragraph (3).
6
Where—
a
a deduction is made under paragraph 112A or sub-paragraph (3) in respect of a payment for the acquisition of shares, but
b
shares are awarded under the plan to an individual who at the time is not a Schedule E taxpayer (as defined by paragraph 108(2)),
an amount equal to the appropriate proportion of the deduction is treated as a trading receipt of the company for the period of account in which the shares are so awarded.
7
For the purposes of sub-paragraph (6), the appropriate proportion of the deduction is the proportion which the number of shares awarded to the individual bears to the total number of shares acquired by virtue of the payment.
8
For the purposes of this paragraph, where shares are acquired by the trustees on different days, it shall be assumed that those acquired on an earlier day are awarded to employees under the plan before those acquired by the trustees on a later day.
Withdrawal of deductions on withdrawal of approval
113
1
If approval of an employee share ownership plan is withdrawn the Inland Revenue may by notice to a company direct that the benefit of any deductions under paragraph 106 (deduction for providing free or matching shares) or 107 (deduction for contributing to additional expenses in providing partnership shares) in relation to the plan is also withdrawn.
2
The effect of the direction is that the aggregate amount of the deductions is treated as a trading receipt of that company for the period of account in which the Inland Revenue give notice of the withdrawal of approval.
Application of provisions to expenses of management of investment companies etc.
114
1
The provisions of this Part apply in relation to—
a
investment companies, and
b
companies to which section 75 of the Taxes Act 1988 (management expenses) applies by virtue of section 76 of that Act (insurance companies),
in accordance with the following provisions.
2
The provisions of this Part which allow a deduction in calculating the profits of a trade apply to treat amounts as disbursed as expenses of management.
3
Paragraph 113(2) (effect of direction as to withdrawal of deductions) applies as if the reference to a trading receipt for the period of account in which the Inland Revenue give notice of the withdrawal of approval were a reference to profits or gains chargeable to tax under Case VI of Schedule D arising when the Inland Revenue give notice of the withdrawal.
Sch. 8 repealed (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 8 Pt. 1 (with Sch. 7)