Income Tax (Earnings and Pensions) Act 2003 section 312B

Qualifying bonus payments

Section 312B defines the conditions that must be met for a bonus payment made by an employer to qualify for income tax exemption under the employee ownership trust rules.

• A qualifying bonus payment must not be regular salary or wages; it must be awarded under a scheme meeting participation and equality requirements, by an employer that is a trading company indirectly owned by its employees through a trust
• The employer must meet the trading requirement and the indirect employee-ownership requirement throughout the qualifying period, which is normally the 12 months ending on the day the payment is made
• The employer must meet an office-holder requirement at the time of payment and on at least the requisite number of days in the qualifying period, and must not be a service company; former employees must receive the payment within 12 months of leaving
• If the employee-ownership structure was established partway through the 12-month period, the qualifying period is shortened accordingly, and the 90-day grace period for the office-holder requirement is reduced proportionately