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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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PAYE: special type of income: background

Part 11 Chapter 4 ITEPA 2003

Payments of PAYE income made in a monetary form, such as cash, cheque or credit to a bank account or director’s loan account, are capable of being made subject to the deduction of the correct amount of tax. But some payments of PAYE income have a non-monetary form. Such payments present the person responsible for deducting and accounting for tax with a problem.

Part 11 Chapter 4 ITEPA 2003, together with Section 710 ITEPA 2003, says who is responsible and how that person should act in order to comply with the obligation to deduct and account for the tax due in respect of payments of the following special types of income:

  • cash vouchers (see EIM11840)
  • non-cash vouchers (see EIM11845)
  • credit-tokens (see EIM11850)
  • readily convertible assets (see EIM11855)
  • a payment that enhances the value of an asset (see EIM11860)
  • shares ceasing to be only conditional or being disposed of (see EIM11865)
  • conversion of shares (see EIM11870)
  • gains from share options (see EIM11875).

Part 11 Chapter 4 ITEPA 2003 as amended by Schedule 22 FA 2003

For PAYE, the legislation at Part 11 Chapter 4 ITEPA 2003 has been amended by Schedule 22 FA 2003 as follows:

  • Section 698 (PAYE: shares ceasing to be only conditional or being disposed of) and Section 699 (PAYE: conversion of shares) have been replaced by a new Section 698 (PAYE: special charges on employment-related securities) with effect from 1 September 2003 (see EIM12220 to EIM12280)
  • Section 700 (PAYE: gains from share options) has been replaced by a new Section 700 (PAYE: gains from securities options) with effect from 1 September 2003 (see EIM12300)
  • Section 701 (Meaning of “asset”) has been amended with effect from 9 April 2003 to require the employer to operate PAYE in the event of the exercise of a right to acquire shares under an approved company share option plan scheme in certain circumstances (see EIM12210)
  • Section 702 (Meaning of “readily convertible asset”) has been amended with effect from 10 July 2003 to include all securities unless the security is a share that is not otherwise a readily convertible asset and shares of that class are corporation tax deductible (see EIM12400).