Media » Taxation » Article

Proposed guidance on recognition of losses on shares held in EBTs

The Institute of Chartered Accountants in England and Wales and the Institute of Chartered Accountants of Scotland (the Institutes) have published draft additional guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006 (TECH 03/09) for the purposes of EBTs. TECH 03/09 includes proposed amendments to the sections of the Institutes' main current guidance on this topic (TECH 01/09) that deal with accounting for realised losses on shares held in employee benefit trusts which are run in conjunction with employee share schemes and employee share plans, unapproved options,  EMI options and long term incentive plans LTIPs.

 These amendments include:

  • A proposal that, where EBT shares purchased in the market are either subject to underwater options, or not subject to any share plan awards, a realised loss should be recognised where there is a fall in those shares' market value, to the extent that this is not expected to be reversed (ie, there is a permanent diminution in value).
  • Clarification of whether realised losses in this context should be assessed using "extended entity" or "narrow entity" accounting.
  • Withdrawal of references to an obsolete standard (UITF Abstract 13).

These proposals may be of interest to companies and advisers who need to understand the accounting treatment of shares acquired or held by EBTs, in respect of which TECH 01/09 is an important source of guidance. Comments on the proposals in TECH 03/09 are requested by 19 March 2010.

This paper is designed to provide a summary of the issues addressed. Therefore, it is not intended as a detailed commentary on the relevant law and any comments made should not be acted upon without first taking specific legal advice.

compromise agreements unfair dismissal loss of earnings litigation share valuation selling a business shareholder agreements