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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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PAYE: meaning of readily convertible assets: asset capable of being sold on a recognised investment exchange

Section 702(1)(a)(i) ITEPA 2003

If an employer provides an employee with an asset that can be sold, or otherwise realised, on a recognised investment exchange, that asset is a readily convertible asset and the employer is obliged to operate PAYE.

Currently there are less than a dozen recognised investment exchanges worldwide. The best known are the London Stock Exchange and NASDAQ (North American Securities and Derivatives exchange).

Consequently an award of shares in any company listed on the London Stock Exchange, or on NASDAQ, represents payment of PAYE income in the form of readily convertible assets.

Restrictions on the sale of shares

In some circumstances shares may be subject to restrictions on their sale at the time of the award. For example, some stock purchase plans operated by companies in the United States of America prohibit employees from selling shares acquired under the plan for one year from the date of acquisition.

Where shares that are listed on a recognised investment exchange (for example, NASDAQ) are issued subject to a restriction on sale, the shares will be readily convertible assets at the time of acquisition because the shares are capable of being realised on a recognised investment exchange. However the value of the shares for the purposes of determining both the amount chargeable to tax as employment income and the amount on which the employer must operate PAYE will reflect the restriction on sale.