Share incentive plans: anti-avoidance
The Budget introduces two pieces of anti-avoidance legislation in relation to HMRC-approved share incentive plans (SIP).
- Corporation tax deductions for contributions to a SIP trust used to buy
shares from a non-corporate shareholder
Where companies make a contribution to the trustees of an HMRC-approved SIP and the trustees use those funds to acquire shares from a non-corporate shareholder, the company can claim a corporate tax deduction upfront for the contribution to the trust. If a sufficient number of shares are not appropriated to employees within specified time limits, the corporation tax deduction may be withdrawn.
Legislation will be introduced to ensure that the company will no longer be able to obtain the upfront corporation tax deduction if, at the time the contribution is made, it is not genuinely intended that the shares would be passed to employees (ie it is part of a tax avoidance scheme).
- Withdrawing approval of an HMRC-approved SIP
Where alterations are made to a company's share capital or the rights attached to shares, and the alterations materially affect the value of the SIP shares, HMRC can already withdraw the HMRC approved status of the plan.
A minor change will be made to the current legislation to ensure that approval of a SIP may be withdrawn even if, at the time of the alteration, there are no participants in the SIP or no shares have been awarded.
Who will be affected?
Companies operating an HMRC-approved SIP.
The legislation will apply for contributions made to the SIP trust and for alterations to the share capital/share rights made on or after 24 March 2010.
We would not expect many companies to be affected by these anti-avoidance provisions. They may, however, be regarded as prudent housekeeping by HMRC to prevent future avoidance.