Corporation tax deduction on option exercises impacted by method of settling employment tax
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Corporation tax deduction on option exercises impacted by method of settling employment tax
Corporation tax deduction on option exercises impacted by method of settling employment tax
Wed 06 Feb 2019
We have become aware of a developing issue regarding the CT deduction on share option exercises, which could mean that some companies have over-claimed this relief. This note only relates to CT and does not impact the income tax treatment for employees.
The method of settling tax on share option exercises can impact the CTA 2009 part 12 chapter 3 corporation tax deduction for such an event. In a ‘net settled’ arrangement the employee is only given shares to the value that he retains, with the company not issuing the remaining shares but settling the employee’s PAYE liability from its own cash resources. If a CTA 2009 part 12 deduction is taken for the gross award, this could give rise to an over-deduction depending on how the accounting charge varied from the market value of the option at exercise. The issue may also impact several years’ tax filings.
The correct presentation of the award in the corporation tax computation is important to bear in mind when implementing share option schemes and when undertaking corporation compliance for businesses with share option schemes.
For a further discussion of the corporation tax implications of employee rewards, please get in touch with a member of the Mazars international tax team.
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