SE12004 – PAYE on non - cash remuneration before 25 May 1994 : Example 1

No entitlement to a monetary amount

Example 1

  • The employer company has adopted Article 82 Table A of the Companies Regulations 1985, entitling a director to an annual bonus
  • on 6 March 1993 the employer purchases 95,832 units in the Whittingdale Gilt Fund for £80,000 (plus commission)
  • on 8 March at a specially convened company meeting attended by all shareholders, the employer resolves to award the director a bonus
  • the minute of the resolution adopted at the company meeting states the bonus will be provided “in the form of 95,832 Whittingdale units and in no other form”
  • on 9 March ownership of the units is transferred to the director
  • on the same day the director sells the units for £80,000.

Was the employer obliged to operate PAYE on this award?

In order for the employer to be required to operate PAYE the award of units must be a payment of assessable income under Section 203(1) ICTA1988 (see SE12001).

The company has adopted Article 82 establishing a pre-existing entitlement for the director to receive an annual bonus (see SE42300), but what is the nature of the entitlement?

The resolution entitles the director to 95,832 units and nothing else. The employer knows the monetary value of these units because they were purchased for £80,000 (plus costs) two days before the award. The director almost certainly knows the monetary value of the units he receives on 8 March as well.

However, the resolution does not refer to any money amount and consequently the entitlement is only to the units and not to money. On this basis there is no “payment” by virtue of Section 203(1) and the employer is not obliged to operate PAYE.

The award represents the provision of a benefit assessable on the director under Schedule E but not subject to PAYE.

For a comparison with a similar asset award before 25 May 1994, where there was an entitlement to money see example SE12005.