SE11806 - PAYE avoidance: readily convertible assets

Section 203F(2)(c) ICTA 1988

Readily convertible asset - money debt

From 6 April 1998, when an employer assigns rights over a money debt to an employee the employer provides a readily convertible asset and must operate PAYE.

A money debt includes an obligation which may be settled by payment of money – it covers all trade debts, as well as other money debts, such as debentures.

Trade debt schemes before 2 July 1997

Between 25 May 1994 and 2 July 1997 some employers used a scheme to pay employees by assigning trade debts to the employee. The customer was often not aware of the assignment and when the customer paid the debt the employer transferred the money to the employee without operating PAYE. See example SE11823.

In all these cases the employer should have operated PAYE. The trade debts were tradeable assets because of the existence of trading arrangements under Section 203F (see SE12011). Some employers and agents contested this view.

Special rules from 2 July 1997 to 5 April 1998

Special rules took effect from 2 July 1997, to put beyond doubt that where an employer assigned debts to an employee the employer was obliged to operate PAYE.

From 6 April 1998 these rules were replaced by the readily convertible asset rules.