What income tax conditions must be met for an employer to claim a corporation tax deduction for shares given to an employee under CTA 2009 section 1009?

For non-restricted shares, the employee must be subject to an income tax charge under ITEPA 2003 on acquisition and the anti-avoidance rule in section 446UA must not apply. For restricted shares, the employee must have relevant taxable earnings or be potentially liable to a charge under section 426 of ITEPA 2003.

Can a UK employer claim a corporation tax deduction under section 1009 for shares awarded to a non-UK resident employee?

Yes. If the income tax conditions are not met because the employee is not UK resident or does not perform duties in the United Kingdom, but would have been met had the employee been UK resident and performed all duties in the UK, section 1009 treats the employee as a UK employee, allowing the employer to claim the deduction.

What is the effect of section 446UA of ITEPA 2003 on the corporation tax deduction under section 1009?

Section 446UA is an anti-avoidance provision targeting pre-acquisition avoidance arrangements. If section 446UA applies to the non-restricted shares acquired by the employee, the income tax condition for those shares is not satisfied and the employer company is denied the corporation tax deduction under section 1009.

What counts as relevant taxable earnings for restricted shares under CTA 2009 section 1009?

Relevant taxable earnings include standard employment earnings within Chapter 1 of Part 3 of ITEPA 2003 and any amounts treated as earnings under section 226A of ITEPA 2003 in connection with employee shareholder shares. These earnings must arise from the acquisition and be charged to income tax under Part 2 of ITEPA 2003.

Corporation Tax Act 2009 section 1009

Conditions relating to employee's income tax position

Section 1009 sets out the income tax conditions that must be satisfied in relation to the employee before the employer company can claim a corporation tax deduction for shares acquired by or for the benefit of the employee.

Where shares acquired are not restricted, the employee must be subject to an income tax charge on the acquisition under ITEPA 2003, and the anti-avoidance rule in section 446UA of ITEPA 2003 must not apply to those shares.
Where shares acquired are restricted, the employee must either have relevant taxable earnings from the employment as a result of the acquisition, or be potentially liable to a charge under section 426 of ITEPA 2003 if a chargeable event subsequently occurs in relation to those shares.
Relevant earnings for these purposes means earnings within Chapter 1 of Part 3 of ITEPA 2003, together with any amount treated as earnings under section 226A of that Act in relation to employee shareholder shares.
If the income tax conditions are not met but would have been met had the employee been UK resident and performing duties in the United Kingdom at all material times, the rules apply as though the employee were a UK employee.

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