NCL Investments – UK Supreme Court recognizes that employee stock option expenses were as a general matter sustained on income account

The taxpayers, which were required by the UK Corporation Tax Act 2009 to calculate the “profits of [their] trade … in accordance with generally accepted accounting practice”, were found by the Court to be thereby authorized to deduct the expenses (“Debits”) recognized under IFRS when they granted stock options to employees through an employee benefit trust. In finding that this deduction was not precluded by s. 53 of the same Act, which provided that “[i]n calculating the profits of a trade, no deduction is allowed for items of a capital nature,” Lord Hamblen and Lady Rose accepted the findings below that the taxpayers’ “employees operate in a professional services business whose success depends on the availability of skilled and motivated professionals and the grant of share options to those employees is part of their remuneration package” and that the “Debits were … recurring costs that had a connection with the Appellants’ earning of income … .”

Neal Armstrong. Summary of Revenue and Customs v NCL Investments Ltd & Anor [2022] UKSC 9 under s. 18(1)(b) – Capital expenditure v. expense - contract modification or grant.