517 Payments to trustees of approved profit sharing scheme

Summary

A payment by a company to the trustees of an approved scheme may be deducted in computing the company’s profits for corporation tax purposes if one of two conditions is satisfied. The conditions are either —

• that the payment is applied by the trustees in the acquisition of shares for allocation to participants within 9 months after the end of the period of account in which it is charge as an expense of the company incurring the expenditure or such longer period as the Revenue Commissioners may allow, or
• that the payment is required to meet reasonable expenses of the trustees in running the scheme.

A deduction is not allowed under the section to the extent that the deduction or the aggregate of such deductions exceeds the trading income of a company carrying on a trade after certain deductions and additions such as losses, capital allowances and balancing charges are taken into account.

Details

(1) Any sum expended by a company which has established an approved profit sharing scheme, or a company participating in a group scheme, in making payments to the trustees of such a scheme is allowed, in the accounting period in which the payment is made, as a deduction in computing the profits or gains for that accounting period of a trade carried on by that company, or in the case of an investment company or an assurance company any sums paid to the trustees of an approved scheme may be added to its expenses of management for the purpose of providing relief to such a company in respect of the sums in question.

(2) This deduction is subject to two conditions either one of which must be complied with if any sum paid to trustees is to qualify for relief in the hands of the company.

The first condition is that before the end of the “relevant period” (being the period of 9 months from the end of the period of account in which a sum paid to the trustees is charged as an expense of the company or such longer period as the Revenue Commissioners may allow) the sum in question must be applied by the trustees in the acquisition of shares for allocation to individuals who are eligible to participate in the scheme by virtue of their being, or having been, employees or directors of the company making the payment.

(3)(a) The second condition is that the sum must be one which is necessary to cover the reasonable expenses of the trustees in administering the scheme.

“trading income” is the income from the trade computed in accordance with Case I of Schedule D before any deduction under this Chapter and after any deduction for ordinary trading losses (section 396), terminal losses (section 397), capital allowances and after any addition for balancing charges (sections 307 & 308) and stock relief (section 666).

(3)(b) No deduction is allowed in respect of sums expended in making payments to trustees, if, in the accounting period they exceed the company’s trading income or in the case of an investment company, if after taking into account deductions allowable for management expenses, other than deductions allowable under this section, they exceed the management company’s income for the accounting period.

(4) No deduction is allowed in respect of the sum expended in making payments to trustee, if the amount expended exceeds an amount, which, in the opinion of the Revenue Commissioners is reasonable, having regard to the number of employees or directors of the company making the payment who have agreed to participate in the scheme, the services rendered by them to that company, the levels of their remuneration, the length of their services or other similar factors.

(5) Payments to trustees are identified on a first-in-first-out basis for the purposes of the section.

Relevant Date: Finance Act 2021