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HMRC internal manual

Employment Income Manual

PAYE: meaning of readily convertible assets: examples: trade debts

Section 702(1)(b)(i) ITEPA 2003A UK company decides to award a bonus to its managing director in recognition of services provided during the year ended 30 April 2003. On 30 June 2003, the company awards the bonus by assigning trade debts consisting of 15 selected debts varying from £1,500 to £15,000 having a total value of £100,000. The individual debtors are unaware of the debt assignment and return their payment to the employer. As each payment is received, the equivalent money amount is placed in a separate account by the employer. In August, once the debts are all paid, the employer pays £100,000 to the director.

Is the employer obliged to operate PAYE on the debt assignment?The employee has received an asset worth £100,000 and was not required to make any contribution to the cost. The money’s worth of the debts is chargeable to tax as employment income under Part 2 ITEPA 2003 and is therefore PAYE income for Part 11 ITEPA 2003.

Under Section 702(2)(b)(i) ITEPA 2003 any money debt, including a trade debt, is a readily convertible asset (see EIM11905). Consequently the employer is required to operate PAYE on £100,000 at the time of the award in June 2003.