Corporation Tax Act 2009 section 989

Deduction for contribution to plan trust

Section 989 allows a company a corporation tax deduction when it makes a payment to the trustees of a Schedule 2 Share Incentive Plan (SIP) to buy shares for later award to employees, provided certain conditions are met.

• A company can deduct the amount it pays to SIP trustees to acquire shares in itself or its parent company, provided the payment is not made under tax avoidance arrangements and the trustees buy the shares from someone other than a company.
• Within 12 months of the trustees acquiring the shares, the trust must hold at least 10% of the ordinary share capital of the relevant company, carrying rights to at least 10% of distributable profits and assets on winding up.
• The deduction is given in the accounting period in which the 12-month interim period ends, and the amount of the deduction equals the payment made to the trustees.
• Once this deduction is claimed, no other deduction is available for the same payment, except where a further deduction may arise under section 991 when all acquired shares have been awarded to employees.