EIM12002 - PAYE avoidance: pre-existing entitlement to a monetary amount
Before the introduction of Section 203F to L ICTA 1988 on 25 May
1994 (now Part 11 Chapter 4 ITEPA 2003), PAYE was due on an award
of assets only where an employee was legally entitled to
remuneration of a monetary amount.
For directors, legal entitlement is usually established by
reference to the company's memorandum and articles of association
(particularly Article 82 Table A of the 1985 Companies
Regulations), together with the minutes recording the resolution
adopted at the company meeting at which the remuneration was
awarded.
In the case of employees who are not directors, entitlement
must be established from a contract of employment (see
EIM42300).
Monetary amount
Once it is established that an employee was legally entitled to
the remuneration, PAYE is due if the entitlement is to a monetary
amount but not if the entitlement is only to assets. This will
depend on the wording used in the resolution awarding the bonus and
reflected in the minutes of the meeting at which the remuneration
was voted.
For example, a resolution stating that a director was
entitled to "10 gold bars" establishes entitlement to assets, but
not to any monetary equivalent, and PAYE is not due. Similarly, a
resolution entitling an employee to "£100,000 in the form of
10 gold bars", whilst specifying the value of the gold bars, only
establishes entitlement to 10 gold bars. If the employer fails to
make payment by the assignment of the gold bars, the director may
take action against the employer. But any judgment would only
either compel the employer to provide the gold bars or require
payment of damages to compensate for the failure. Alternatively, if
a resolution states that a director is entitled to a bonus of
£100,000 but subsequently the employer agrees with the
director to make payment by way of the assignment of 10 gold bars
to the value of £100,000, then the entitlement is to the
monetary amount. The satisfaction of that monetary entitlement by
transfer of assets (the gold bars) does not alter the underlying
entitlement to money, which represents a payment of assessable
income under Section 203(1) ICTA 1988 (now Section 684 ITEPA 2003).
An appeal on this subject has been heard by the Special
Commissioners (see Paul Dunstall Organisation Ltd v Hedges,
EIM12003).
