SE11808 - PAYE avoidance: readily convertible assets

Section 203F(2)(e) ICTA 1988

Readily convertible asset – employee obtains cash for an asset without any action

From 6 April 1998, where an employer provides an employee with an asset that is likely to give rise to a right enabling the employee to obtain money, without the employee necessarily taking any action, the asset is a readily convertible asset under Section 203F(2)(e) ICTA1988 and the employer must operate PAYE.

The most common scheme of this type concerns a Reversionary Interest in an Offshore Trust (RIOT). The trusts used in these schemes typically have a life expectancy – stated in the trust deed – lasting only a week or so. When the trust ceases the owner of the interest in the trust inevitably receives a payment of the capital held in that trust. See example SE11825.

RIOT awards before 6 April 1998

Since 1994 employers providing these assets should have operated PAYE. The asset was a tradeable asset (see SE12011) under Section 203F(2)(c) – before the Finance Act 1998 amendments - because there were trading arrangements in place to allow the employee to obtain cash for the RIOT. Some employers contested this - see DTE Financial Services Ltd v Wilson (see SE11809).

From 6 April 1998, the reference in Section 203F(2)(e) to these assets as readily convertible assets, puts the issue beyond doubt.