Income Tax (Earnings and Pensions) Act 2003 section 545

Discount not covered by exemption in section 544

Section 545 ensures that where a director or employee receives priority shares at a discount beyond the permitted registrant discount, the excess discount is not exempt from tax and remains taxable as employment income.

• Where the total of the price paid by the employee for shares plus any registrant discount does not match the "appropriate notional price" as closely as reasonably practicable, the exemption in section 544 does not cover the excess benefit.
• The "notional price" is the hypothetical fixed price the shares would have been offered at if each company's shares had been offered separately to the public at the time of the actual public offer.
• Where the combined shares are subject to a public offer and a difference exists between the aggregated notional prices and the actual fixed or lowest tendered price, a formula adjusts the appropriate notional price accordingly.
• The adjustment formula is NP × (AFP / CP), where NP is the notional price, AFP is the actual fixed or lowest tendered price for the combination, and CP is the aggregate of the notional prices for each share in the combination.

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