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HMRC internal manual

Employment Income Manual

PAYE: meaning of readily convertible assets: examples: property subject to a warehousing regime

Section 702(1)(b)(ii) 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 28 June 2003, the company arranges to purchase 8 oriental carpets from a supplier costing £101,500 (£100,000 plus 1.5% commission to the supplier).

On 1 July the employer awards the carpets to the director. The carpets are held in storage and the director has 3 options:
* the carpets may be retained in storage (for a small fee) * the supplier may arrange delivery to the director * the supplier may be willing to repurchase the carpets from the director.On 2 July the director decides to sell the carpets back to the supplier and on 4 July the director receives £100,000.

Is the employer obliged to operate PAYE on the oriental carpets?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 carpets 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)(ii) ITEPA 2003 any property that is subject to a warehousing regime is a readily convertible asset (see EIM11906). Consequently the employer is required to operate PAYE on £100,000 at the time of the award on 1 July 2003.