SE12020 - PAYE avoidance: amount on which to operate PAYE before 6 April 1998

Section 203F(3) ICTA 1988

The amount on which to operate PAYE

Before 6 April 1998 when an employer provided a tradeable asset to an employee, there were two alternative calculations of the amount on which the employer was required to operate PAYE, depending on which definition of tradeable asset applied.

Asset traded on a recognised investment exchange

Where a tradeable asset was capable of sale on a recognised investment exchange, the employer was required to operate PAYE on the amount the asset could have realised on the exchange, if it had been sold on the same day as it was awarded to the employee. It was not necessary for a sale to have occurred, it was sufficient that a sale of the asset (or other means of realising cash) was possible.

In the majority of cases an asset listed on a recognised investment exchange, for instance a share in a company listed on the London Stock Exchange, can be sold at any time. Consequently PAYE was inevitably due on most awards of assets listed on such an exchange, regardless of whether the asset had been sold.

Asset awarded subject to trading arrangements

Alternately where a tradeable asset was provided to an employee subject to trading arrangements, the employer was required to operate PAYE only if the employee had obtained an amount for the asset under those arrangements. If the asset was not sold, the employee had not obtained anything, and the employer was not obliged to operate PAYE.

In the majority of PAYE avoidance schemes the asset (e.g. platinum sponge), is converted into cash very soon after award to the employee and PAYE was due accordingly. In some cases, particularly awards of shares where employees were not able to sell for a given period, the situation was sometimes more confused.

The amount on which to operate PAYE from 6 April 1998

From 6 April 1998 the rules for deciding the amount on which an employer should operate PAYE on an award of non-cash remuneration were simplified to one common basis (see SE11900), regardless of which definition of readily convertible asset applies.