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BIM44325 | Specific deductions: employee share schemes: providing shares to employees: qualifying shares: valuation issues

From HM Revenue & Customs · Business Income Manual

When considering valuations used by companies in computing deductions for the provision to employees of qualifying shares, the approach to take will differ depending on whether:

  • Shares and Assets Valuation has already undertaken a Post Transaction Valuation Check;

  • Income Tax (through PAYE or otherwise) is payable in respect of the acquisition of the shares by the employees;

  • Income Tax is not payable by the employees (for example shares acquired through a tax-advantaged HMRC-approved scheme, see BIM44010).

Post Transaction Valuation Checks

Shares and Assets Valuation’s general approach to requests from taxpayers for Post Transaction Valuation Checks is explained at SVM105060.

Shares and Assets Valuation is prepared to undertake a Post Transaction Valuation Check for the purposes of computing a company’s deductions for providing employees with qualifying shares. An application should be submitted via the company’s Corporation Tax office. The information to be provided is set out in the guidance notes on form CG34. See SVM105090. Shares and Assets Valuation may deal with the matter on a provisional basis in order to link the valuation with that required for the employees’ Income Tax purposes.

Where Income Tax is payable by employees

If the valuation used by the company in determining the amount of its deduction is the same as the final valuation used by the employees in computing their liability to Income Tax in respect of the share acquisitions, there will usually be no need to make any further enquiries.

For acquisitions of shares which qualify for a Corporation Tax deduction, Income Tax is only deductible under PAYE if trading arrangements exist for the shares, see EIM11900.

Where Income Tax is not payable by employees

Employees’ acquisitions of shares through HMRC approved schemes or Enterprise Management Incentive (EMI) share options (see BIM44010) may be exempt from Income Tax. In these circumstances advice from Shares and Assets Valuation is likely to be needed before you can consider whether the valuation used by the employing company in computing a deduction is acceptable.