SE11840 - PAYE avoidance: enhancing the value of an existing asset

Section 203FA ICTA 1988

Enhancing the value of an existing asset

In some PAYE avoidance schemes, instead of transferring an asset to an employee, the employer enhances the value of an existing asset already owned by the employee. For example, where an employee owns a life assurance policy and the employer pays an additional premium into that policy to increase its value.

Before 6 April 1998, this scheme was subject to PAYE if

• either the premium was paid to satisfy a legal entitlement to money (see SE12002) ; or
• the premium purchased additional units in the policy, and the units were tradeable assets under Section 203F ICTA1988 (see SE12011).

From 6 April 1998 Section 203FA puts it beyond doubt that where an employer enhances the value of an asset owned by an employee, the employer must operate PAYE if the asset, in its enhanced state, is a readily convertible asset (see example SE11841).

The value of the enhancement is subject to PAYE . If the employee incurred costs when originally purchasing the asset these are not included in the amount subject to PAYE.