SE11863 - PAYE on share transactions: example 4 - shares subject to risk of forfeiture

Sections 140A and 203FB ICTA1988

A UK employer company is a subsidiary of a US parent company listed on NASDAQ, a recognised investment exchange (see SE11804)
on I May 1999 the UK employer gives an employee 1,000 shares in the US parent subject to risk of forfeiture
the risk of forfeiture will be lifted on 1 May 2002 assuming various conditions are met
on 1 May 2002 the risk of forfeiture is lifted and the employee is free to keep or sell the shares – the employee chooses to keep them
the open market value of the shares is £10,000.

Section 140A ICTA1988 charges to income tax the value of the shares when the risk of forfeiture is lifted less the amount paid for the shares – in this case nil. So the taxable amount in 2002/03 is £10,000. There is no charge to tax when the shares are awarded unless the period of forfeiture exceeds 5 years.
If the shares are readily convertible assets the employer is required to operate PAYE on £10,000 under Section 203F(2)(a) ICTA1988. The employee has not realised any amount because the shares have been retained but this is of no relevance because the shares are listed on NASDAQ, a recognised investment exchange and are therefore readily convertible assets subject to PAYE at the time of award.