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.


  • In accounting periods ended 30 April 2010, 30 April 2011 and 30 April 2012, the appellants granted share options to their employees, who were provided to other members of the group.
  • Staff were recharged on a “cost plus” basis.
  • An EBT was used to hold shares in the company that would be used to satisfy the options.
  • IFRS2 required that entries be made in the appellants’ accounts in respect of the share schemes, even though the costs were recharged to other group companies.

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.

UPDATE: At the Upper Tribunal the FTT's decision was upheld. The Court of Appeal also allowed the deduction, agreeing with the lower courts. HMRC were granted leave to appeal to the Supreme Court who also dismissed their case.

Useful guides on this topic

GAAP & FRS: changes tracker
UK Generally Accepted Accounting Practice (GAAP) changed for accounting periods, beginning on or after 1 January 2015, with the introduction of FRS101 and FRS102.  

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