In NCL Investments Limited, Smith & Williamson Corporate Services Limited  v HMRC [2017] TC05949 the First Tier Tribunal (FTT) held that a corporation tax deduction was available in respect of accounting entries arising under IFRS2 from various employee share schemes.


HMRC raised four objections

  1. Was the debit “incurred” wholly and exclusively for the purposes of the appellants’ trade?

The FTT held that a) this should be treated as an expense incurred and b) it was wholly and exclusively for the appellants’ trades of providing staff

  1. Is the debit under IFRS2 capital?

The FTT held that the starting point was the purpose of the transaction, not the fact the debt was a “contra” to the capital contribution. Remuneration of employees is revenue in nature.

  1. Does CTA 2009 s1038 block a deduction?

S1038 blocks deductions for costs directly relating to the provision of shares. As the debit relates to the grant of options, that may never be exercised, no shares are actually acquired. Hence, s1038 does not bite. (s1038A had not been enacted for the periods in question)

  1. Does CTA 2009 s1290 block a deduction?

S1290 only permits a deduction for an “employee benefit arrangement” once the benefits are actually provided to (specific) employees.  The FTT held that the options were not held “under” an employee benefit scheme – they were, themselves, benefits provided to the employee.

In addition, the shares acquired by the EBT did not have a sufficient causal link to any particular option arrangement to conclude that the EBT acquired shares “as a result” of the grant.


The fundamental point made by the FTT is that the IFRS2 debit was intended to measure the consumption of the employees’ services, and all the other conclusions followed from that.

Interestingly, HMRC tried to argue that the introduction of CTA 2009 s1038A indicated that Parliament intended s1038 to be read in line with the additional provision. The FTT took it as an indication that s1038 did not [previously] apply to situations covered by s1038A.

NCL Investments Limited & Anor v HMRC [2017] UKFTT 0495 (TC) 

UK GAAP & FRS: changes from 2015