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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: the amount on which to operate PAYE

Section 696(2) ITEPA 2003

Where PAYE income of an employee is provided in the form of a readily convertible asset and the employer is required to operate PAYE by virtue of Section 696(1) ITEPA 2003, Section 696(2) says that the amount is the income likely to be PAYE income (see EIM11891).

The employer may be unable to calculate the exact amount. If so, PAYE must be operated on the best estimate the employer can reasonably make (see EIM11892).

The amount on which to operate PAYE: specific events

The same principles apply for calculating the amount on which PAYE must be operated where PAYE income of an employee is provided in the form of:

  • the enhancement by the employer of an asset that the employee already owns (see EIM11860), or
  • an event occurring before 1 September 2003 or in respect of conditional shares acquired before 16 April 2003 giving rise to a charge under Section 427 ITEPA 2003 (conditional shares, see EIM11865)
  • an event occurring on or after 1 September 2003 giving rise to a charge under Part 7 Chapter 2 ITEPA 2003 (restricted securities, see EIM12220)
  • an event occurring before 1 September 2003 giving rise to a charge under Section 438 ITEPA 2003 (convertible shares, see EIM11870)
  • an event occurring on or after 1 September 2003 giving rise to a charge under Part 7 Chapter 3 ITEPA 2003 (convertible securities, see EIM12230)
  • an event occurring before 1 September 2003 giving rise to a charge under Section 477 ITEPA 2003 (share options, see EIM11875)
  • an event occurring on or after 1 September 2003 in respect of securities options that are share options giving rise to a charge to tax under Part 7 Chapter 5 ITEPA 2003 (securities options, see EIM12290)
  • an event occurring on or after 16 April 2003 in respect of securities options that are not share options giving rise to a charge to tax under Part 7 Chapter 5 ITEPA 2003 (securities options, see EIM12295).

The amount is the value or best estimate that can reasonably be made of the amount chargeable to tax as employment income.