SE11822 - Readily convertible assets: Example 2 - Asset listed on a market specified in PAYE regulations

Section 203F(2)(b) ICTA1988

Example 2

• In September 1998 a UK company which is a subsidiary of a US parent company, awards shares in the US parent to one of its UK employees
• the parent company shares are listed on the New York Stock Exchange (NYSE)
• the employee is given 1000 shares, each worth £10.

Is the employer obliged to operate PAYE on the shares ?

The employee made no contribution to the cost of the shares and consequently a Schedule E charge arises under Section 19 ICTA 1988 on the £10,000 money’s worth the employee has acquired (see Share Schemes Manual 4.5).

The US company shares are listed on the NYSE which is not a recognised investment exchange under Section 203F(2)(a) but, under PAYE regulations which came into force on 4 August 1998, the NYSE is a specified market under Section 203F(2)(b). Therefore the shares are readily convertible assets and the employer must operate PAYE on £10,000 at the date of award (see SE11805).

Was PAYE due on a similar award before 4 August 1998?

Yes, but for different reasons. Before 4 August the NYSE was not a specified market and so Section 203F(2)(b) did not apply to the US company shares but the existence of a market for the shares, such as the NYSE, meets the requirement under Section 203F(2)(f) for trading arrangements in existence at the time the shares were provided.

This applies whether the shares were awarded before 6 April 1998, in which case the shares were tradeable assets, or between 6 April and 3 August 1998 when the shares were readily convertible assets.