SE11920 - PAYE avoidance: former employers

Section 203L(1) ICTA 1988

Award of non-cash remuneration to a former employee

Where a Schedule E liability arises in respect of an award of non-cash remuneration made to an ex-employee, the former employer is obliged to operate PAYE.

The most common situation where an employer provides assessable income to a former employee occurs when an employee is granted an option whilst in employment but leaves that employment before exercising the option. With the exception of “long options” (see SE11853) the income tax liability arises at the time of exercise not at the date of award of the option.

If the employee exercises the option after leaving the employment, and acquires shares which are readily convertible assets, the employer is required to operate PAYE.

Regulation 24 of the PAYE regulations (Statutory instrument 1993/744) obliges employers to operate code BR when deducting and accounting for PAYE from a former employee.