SE11801 – PAYE avoidance: non-cash remuneration
Sections 203F- L ICTA 1988
Background to PAYE avoidance
Before 1994 a number of ways of providing remuneration in
non-cash form were outside the scope of PAYE (see
SE12001). Instead of a cash payment to an
employee, employers using these schemes provided assets such as
gold bars, fine wines and government securities. These assets could
easily be turned into cash.
Finance Act 1994 introduced Sections 203F–L ICTA 1988
which took effect from 25 May 1994, to counteract the payment of
remuneration in non-cash form. These payments sought to:
- avoid National Insurance Contributions (NIC) and/or
- defer the payment of income tax by avoiding PAYE.
The 1994 rules (see
SE12010) called these and similar assets
'tradeable assets' and treated the provision of these assets, and
certain vouchers and credit cards received or used by employees, as
payments for the purposes of PAYE. Some employers contested these
rules.
To strengthen and clarify Sections 203F–L, Finance Act
1998 introduced changes (see
SE11802) which took effect, with one
exception, from 6 April 1998. The exception relates to schemes
involving the assignment of trade debts (see
SE11806). The 1994 rules continue to
apply for years up to, and including, 1997/98.
From 6 April 1998 the term tradeable asset was replaced by a
new term 'readily convertible asset' and PAYE explicitly applies
for the first time where:
- an employee is paid in the form of money debts
- the value of an asset owned by the employee is enhanced by the employer
- Schedule E income arises on exercise/surrender of certain share options
- Schedule E income arises on certain shares subject to risk of forfeiture.
Ordinary benefits
The treatment of ordinary benefits-in-kind, such as cars, private health insurance, beneficial loans, etc., is not affected by this legislation. These remain outside the scope of PAYE.
National Insurance Contributions (NIC)
On 6 April 1995 NIC rules broadly similar to the PAYE rules on 'tradeable assets' came into effect and on 1 October 1998 similar NIC rules took effect on 'readily convertible assets' (see SE12102).
