Income Tax (Earnings and Pensions) Act 2003 section 542

Exemption: offer made to public and employees

Section 542 provides an income tax exemption for directors and employees who receive priority allocations of shares when a company makes a genuine public share offer, provided certain conditions about the scale and fairness of the priority allocation are met.

• When a company makes a genuine public share offer and directors or employees are entitled to a priority allocation, no income tax on earnings arises from that entitlement, provided three conditions are satisfied.
• The total priority shares must not exceed 10% of the shares on offer, or where the offer is part of wider arrangements involving other public offers of the same class, the priority shares must not exceed 40% of the shares in the specific offer and 10% of all shares of that class across all the offers in the arrangements.
• All persons entitled to a priority allocation must receive it on similar terms, and eligibility must not be restricted wholly or mainly to directors or to those whose pay exceeds a particular level.
• The exemption does not cover any discount element on the shares — that is dealt with separately under section 543 — and the exemption applies only to earnings tax, not to tax on benefits connected with termination or change of employment.