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HMRC internal manual

Employment Income Manual

PAYE: special type of income: the amount on which to operate PAYE: the amount chargeable to tax as employment income

Section 696(2) ITEPA 2003Where an employee is provided with, or otherwise receives, a readily convertible asset, the income likely to be PAYE income will be the money’s worth of the asset. That is, the amount the employee can obtain for the asset by selling it or otherwise turning it to cash, less any contribution the employee makes towards the cost of the asset.

For example, where an employee is awarded shares, which are readily convertible assets, at below market value, the employer must take account of any amount paid by the employee for the shares, before deciding the amount on which to operate PAYE.

For assets provided under non-cash remuneration arrangements, the employer may operate PAYE on the precise amount obtained by the employee, because the asset (for example, platinum sponge) is usually sold at market value shortly after transfer to the employee and before the time when employer is obliged to operate PAYE. If, exceptionally, the asset is not quickly sold, then the employer will have to estimate the amount based on a market value for the asset on the day it was provided.

For shares listed on a recognised investment exchange (see EIM11901) or the New York Stock Exchange (see EIM11903), PAYE should be operated on the market value on the date of award. This value should be available from published sources.

When an employee is awarded unquoted or restricted shares it may be more difficult for the employer to operate PAYE on a definite figure and in this instance it may be necessary to adopt a reasonable best estimate (see EIM11892).