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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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PAYE: meaning of readily convertible assets: examples: an asset likely to provide cash without action by the owner

Section 702(1)(b)(iii) 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 arranges to purchase a trust created in the Isle of Man into which a third party has settled £100,000. The company is assigned the beneficial interest in the trust on payment of £101,500 (£100,000 plus 1.5% commission to the supplier). The trust deed stipulates that the trust will cease 9 days after it was created (i.e. on 9 July 2003).

On 1 July 2003, the company awards the bonus to the director in the form of the reversionary interest in the offshore trust (RIOT). On 9 July the trust ceases and the director receives £100,000.
### Is the employer obliged to operate PAYE on the RIOT?The director has received an asset worth £100,000 and was not required to make any contribution to the cost. The money’s worth of the RIOT 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)(iii) ITEPA 2003 anything that is likely (without anything being done by the employee) to give rise to a right enabling a person to obtain an amount or total amount of money that is likely to be similar to the expense incurred in the provision of the asset is a readily convertible asset (see EIM11907). Consequently the employer is required to operate PAYE on £100,000 at the time of the award on 1 July 2003.