TPP Your Q answered

As the individual is a self-employed contractor rather than an employee or office holder, the options would not constitute employment-related securities for the purposes of Part 7 ITEPA 2003.

If there is any doubt over her employment status, I would first recommend confirming whether she was genuinely self-employed, as the employment-related securities provisions could apply if she was in fact an employee or office holder.

Assuming not employed, then the tax treatment falls to be determined under the general trading income rules.

Where the option or shares are received as consideration for the provision of self-employed services, the trade receipts are based on the amount of money or money's worth received (ITTOIA 2005, s.28A), consistent with the principles in Abbott v Philbin [1961] AC 352, this would generally be the market value of the option (or other valuable right) when granted, less any amount paid by the consultant.

For example, if the market value of the shares was £3,030 when given to her then this is the amount that would be reported as trading income (less any amount she paid for them).

Once that amount has been brought into account as trading income, the shares become chargeable assets. Their subsequent disposal is subject to the CGT provisions, with the base cost including:

• any amount paid to acquire the shares; and
• any amount previously charged to Income Tax as trading income

Therefore, based on the facts provided, my view would be that the receipt should not be taxed again as self-employment income in 2026/27. Instead:

• any taxable trading receipt would arise in the tax year in which the option (or other valuable right) was received; and
• the sale of 15,152 shares in June 2026 would be reported as a Capital Gains Tax disposal in 2026/27.

Note this is based on the limited facts provided and assumes there were no restrictions on the options or shares, no further conditions attaching to the award, and that the individual was genuinely self-employed rather than an employee or office holder.

 

The general position is that legal and professional fees are deductible for corporation tax purposes where they are revenue in nature and incurred wholly and exclusively for the purposes of the company’s trade/business activities. However, costs which are capital in nature are generally not deductible.

 

HMRC guidance at BIM46435 and related manuals broadly distinguishes between:

• revenue legal costs connected with the ongoing trade (generally allowable); and
• costs connected with creating, acquiring or altering a capital asset or structure (generally non-allowable).

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46435

Based on the facts provided, our view would be that both the incorporation fees and legal fees relating to the creation/establishment of the French entity would be regarded as capital, not revenue costs and therefore not deductible, on the basis that the expenditure appears to relate to the establishment of a new corporate structure overseas rather than the ongoing trading activities of the UK company itself/ sole trader. 

 

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