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If you make non-cash payments to an employee, you will have to calculate and deduct PAYE tax and National Insurance contributions (NICs) if your payment takes the form of what is known as a readily convertible asset (RCA). This guide outlines the kinds of asset that HMRC classes as RCAs, and it provides an overview of how to go about valuing RCAs and deducting PAYE tax and NICs from any RCA payments that you make.
The rules in this area are complex. This guide provides an overview rather than covering all the details or all the assets that might be RCAs. For more information see pages 106 to 108 of HMRC's publication CWG2, 'Employer Further Guide to PAYE and NICs' - you'll find a link to it at the end of this guide.
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In general, as the name suggests, a readily convertible asset is one that can be easily exchanged for cash. Shares, other financial instruments and commodities (such as precious metals) that can be sold on investment exchanges are a good example.
Other examples of RCAs include:
This list isn't exhaustive. For more detail, see page 106 of the CWG2 publication mentioned above.
Any payments you make in the form of RCAs must be included in gross pay for calculations of PAYE tax and NICs. To do this, you'll need to arrive at a best estimate of the value of the RCA.
In most cases, your estimate should take account of the following factors:
However, in the case of non-cash payments covered by the special legislation dealing with employment-related securities (such as share options, which are liable to PAYE tax and NICs when employees exercise them), the values you use will be the amounts given by that legislation.
If you need help with working out the value of an RCA, contact HMRC's Employer Helpline.
Find contact details for HMRC's Employer Helpline
Once you've arrived at a valuation for an RCA paid to your employee, you can calculate the PAYE tax and NICs that are owed.
Of course, you won't be able to make PAYE tax and NICs deductions direct from the non-cash payment. Instead, you must recover the PAYE tax and NICs due on the non-cash payment from any payments in cash (wages, salary, commission, fees, etc) that you make to the employee.
The procedures differ slightly between recovering PAYE tax and recovering NICs.
Your first step should be to recover money from cash payments made at the same time as the non-cash payment - even if this reduces the cash received by the employee to zero.
If necessary, continue to recover money from any subsequent cash payments made in the same income tax month until the full amount of tax due has been recovered. Whether or not you have been able to recover it all from the employee, you must pay HMRC the full amount owed at the end of the income tax month.
You should then make your own arrangements with the employee to recover any outstanding amounts that you haven't been able to recover. If the employee doesn't give you the full amount owed within 90 days of the date of the non-cash payment, you must record the unrecovered amount as a benefit received by the employee. This is done using forms P9D and P11D.
Providing employee expenses and benefits: an overview (Opens new window)
The NICs due on the non-cash payment should also be deducted from your cash payments to the employee. You have a longer period to recover the amount owed from the employee than for PAYE tax deductions, but you must account for the full NICs due in the income tax month in which the non-cash payment is made.
In general, NICs can be recovered from any cash payments made in the same tax year as the non-cash payment. However, this period is extended to the end of the following tax year if any of the following three conditions applies:
Note that you may have additional NICs to pay if you make a payment to an employee by way of shares or other securities and then pay the tax due on the employee's behalf. The NICs rules in this instance can be summarised in the following three steps:
Download CWG2, ‘Employer Further Guide to PAYE and NICs’ (PDF 1.3MB)
