SE11901 - PAYE avoidance: the amount on which to operate PAYE

Section 203F(3) ICTA 1988

The amount chargeable under Schedule E

Where an employee is provided with, or otherwise receives, a readily convertible asset the income likely to be chargeable to tax will be the amount the employee can obtain for the asset by selling it or otherwise turning it to cash, less any contribution the employee makes towards the cost of the asset. This is the amount on which PAYE should be operated.

For example, where an employee exercises an option to acquire shares and those shares are readily convertible assets, the employer must take account of any amount paid by the employee for the option and/or shares, before deciding the amount on which to operate PAYE.

For most assets provided in non-cash remuneration schemes it is not difficult for the employer to operate PAYE on the precise amount obtained by the employee, because the asset (e.g. platinum sponge) is usually sold within days of transfer to the employee and before the time when employer is obliged to operate PAYE.

For shares listed on a recognised investment exchange (see SE11804) or a market specified in PAYE regulations (see SE11805), PAYE should be operated on the market value on the date of award. This value should be available from published sources.

When an employee is awarded unquoted or restricted shares it may be more difficult for the employer to operate PAYE on a definite figure and in this instance it may be necessary to adopt a reasonable best estimate (see SE11902).