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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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Public Offers

Shares acquired in connection with a public offer

Employees of a company often acquire shares in connection with an offer to the public, for instance when the company is floated on the Stock Exchange or when an industry is privatised. If the employees pay the same price for their shares as members of the public and are not offered any priority in the allocation of shares there is no question of employment benefit. They acquire their shares as ordinary members of the public. However, sometimes employees are offered shares on special terms when a company makes an offer of shares to the public, and there are special rules which apply to this situation.

Priority allocations of shares

Employees are often given priority allocations of shares in a public offer. They pay the same price as members of the public but, if an offer is over subscribed so that some applications from members of the public are either not met at all or are scaled down, the employees’ priority rights may ensure that they get more shares than individual members ofthe public. The price that would have been payable by members of the public for these extra shares at the time of acquisition may well have been greater than the offer price which the employee paid. However, no charge to tax as employment income arises in respect of them provided the conditions in ERSM200020 are met.

Shares offered at a discount

Employees may be offered shares at a discount to the public offer price. There will be a charge to Income Tax on an amount equal to the discount – the money’s worth charge under ITEPA03/S62 (see ERSM20500). This is the difference between the amount paid by members of the public (the public offer price) and the amount paid by the employees. See ERSM200030 for further details on computation of the discount.

If the employees have a priority allocation of the shares they get at a discount (i.e. they get more shares at the employee price than members of the public get at the public offer price) no charge to tax in respect of the right to this extra allocation will arise, except for the liability on the discount, provided the conditions in ERSM200020 are met.

Shares sold by tender

Shares are sometimes offered to the public by way of a tender offer. Employees may be offered an opportunity to acquire shares at less than the minimum tender price, if one is stated, or at less than the lowest price at which bids tendered from members of the public are in fact accepted. In these cases liability to Income Tax on employment income will arise on the difference between the price paid by the employee and the lowest price successfully tendered by the public under ITEPA03/S62 (see ERSM20500). No liability will arise in respect of any priority allocation to employees, provided the conditions in ERSM200020 are met.

Shares offered free to employees

Employees are sometimes offered free shares. This amount will be chargeable to IncomeTax under ITEPA03/S62 (see ERSM20500). The amount chargeable is the price paid by members of the public (the public offer price) or the lowest price successfully tendered in a tender offer. No liability arises in respect of priority allocation provided the conditions in ERSM200020 are met.