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HMRC internal manual

Employment Income Manual

PAYE: meaning of readily convertible assets: no trading arrangements

Section 702 ITEPA 2003

EIM11908 explains that an asset will be a readily convertible asset if:
* either trading arrangements were in place when the asset was awarded, or * trading arrangements are likely to exist in future.It is important to remember that if, at the time the asset was awarded, there were no trading arrangements in place, nor an understanding or arrangement likely to lead to trading arrangements in future, the employer is not obliged to operate PAYE. That remains the case even if trading arrangements subsequently come into existence. Whether an asset is a readily convertible asset can only be considered on the basis of the facts at the time the asset is provided.

For example, suppose a company awards shares in itself to employees by way of a bonus and those shares are not quoted shares and are not otherwise capable of being sold. Furthermore, the shares were not transferred in satisfaction of entitlement to a monetary amount (see EIM12002). However, unexpectedly, a short time later another company makes an approach to acquire the business of the employer and completes the acquisition by purchasing the entire issued share capital of the employer including the shares awarded to the employees.

The employer is not obliged to operate PAYE just because the employees were able, by selling their shares at a later date, to obtain an amount of money similar to the cost to their employer of providing the shares. On the facts at the time of the award, there were neither trading arrangements in place for a future sale, nor any understanding likely to lead to future trading arrangements. Therefore the shares were not readily convertible assets.