Corporation Tax Act 2009 section 998

Withdrawal of deductions if share incentive plan ceases to be a Schedule 2 share incentive plan

Section 998 deals with the clawback of corporation tax deductions previously claimed in connection with a share incentive plan (SIP) when that plan loses its Schedule 2 status.

• If a company has claimed corporation tax deductions for costs of setting up a SIP, contributions to the plan trust, or the expense of providing free, matching or partnership shares, those deductions can be withdrawn if the plan loses its Schedule 2 approval.
• An officer of HMRC may issue a formal notice directing that the deduction is withdrawn — this is a separate step from the notice removing the plan's Schedule 2 status.
• When such a direction is made, the company is treated as having received taxable income equal to the amount of the original deduction, effectively reversing the tax relief previously obtained.
• The taxable amount is treated as received at the date the HMRC direction is made, which determines the accounting period in which the clawback falls.