Share Scheme Manual - SSM7.32

Valuations for PAYE purposes

Where there is an award of shares, or an exercise of an option to acquire shares, and there is a charge to tax under Schedule E, there will be an obligation on an employer to operate PAYE if the shares are readily convertible assets under ICTA88/S203F.

Shares are readily convertible assets if they are;

• listed on a recognised investment exchange, such as the London Stock Exchange or NASDAQ (North American Securities and Derivatives market), or

• listed on the New York Stock Exchange - this applies since 4 August 1998 only.

Unlisted shares are readily convertible assets if at the time of award there is:

• an arrangement to allow the shares to be sold, or

• an understanding likely to lead to an arrangement tosell the shares in future.

If PAYE is due employers must operate PAYE on a best reasonable estimate of the amount chargeable to tax under Schedule E. This reflects any amounts obtained, or capable of being obtained by the employee for the shares and any contribution made by the employee to the cost of the share and/or share option.

In the case of listed shares published sources should provide information on share valuation. For unlisted and/or restricted shares the employer may need to estimate the value of the shares - Shares Valuation Division (PAYE valuations)will advise employers if full details are provided in writing to :

Shares Valuation Division (PAYE valuations)

Fitzroy House Castle Meadow Road Nottingham NG2 1BD Employers should provide full details of the transaction and make it clear they require a valuation for the purpose of operating PAYE. It will not normally be possible to provide a formal valuation in the timescale within which employers must operate PAYE but employers may appreciate the opportunity to seek SVD's advice.

See also SSM9.21 to SSM9.25.