Corporation Tax Act 2010 section 1038A

Exclusion of deductions for share options: shares not acquired

Section 1038A prevents companies from claiming corporation tax deductions in respect of share options and related costs where the shares are never actually acquired pursuant to the option, while preserving deductions for certain administrative, scheme-running and employee-taxable amounts.

• Where a person obtains a share option that meets the conditions in section 1015(1)(a) to (c), or obtains an option connected with such a qualifying option, no corporation tax deduction is allowed for the option or any matter connected with it unless the shares are actually acquired under the option.
• The restriction on deductions applies regardless of the accounting period in question — it can fall wholly before or after the time the option is obtained — and specifically catches amounts paid by the employing company for the employee's participation in an employee share scheme.
• Certain costs remain deductible despite the restriction: expenses of setting up or administering the scheme, borrowing costs for the scheme, and incidental acquisition costs such as fees, commission, stamp duty and stamp duty reserve tax.
• Deductions are also preserved for amounts on which the employee is (or would have been, had they been a UK employee at all material times, or had they still been alive) subject to an income tax charge under ITEPA 2003.