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HMRC internal manual

Employment Income Manual

PAYE: special types of payment: awards of shares

Part 7 ITEPA 2003

An employee who acquires shares in connection with his or her employment either free, or in return for a payment that is less than the value of the shares at the time of acquisition, may be chargeable to tax under Part 2 or Part 7 ITEPA 2003.

For details of the amounts that count as employment income in respect of share awards see the Share Schemes Manual (SSM) and especially:

  • Chapter 2 - Approved Share Schemes (Part 7 Chapters 6 to 8 ITEPA 2003)
  • Chapter 3 - Share options (Part 7 Chapter 5 ITEPA 2003)
  • Chapter 4 - Share acquisitions, including long term incentive plans, conditional shares and convertible shares (Part 7 Chapters 2 and 3 ITEPA 2003).

If a tax charge arises on an award of shares, or when shares are acquired on exercise of an option over shares, Part 11 Chapter 4 ITEPA 2003 requires the employer to operate PAYE if the shares are readily convertible assets (see EIM11803).

The legislation at Part 7 ITEPA 2003 was fundamentally amended by Schedule 22 FA 2003. The various changes take effect from different dates. The Share Schemes Manual will be amended in due course to describe the effect of the new legislation.

Shares as readily convertible assets – Section 702 ITEPA 2003

For share awards the definitions of readily convertible asset most likely to apply are:

  • shares listed on a recognised investment exchange (see EIM11901)
  • shares listed on the New York Stock Exchange (see EIM11903)
  • shares awarded subject to trading arrangements (see EIM11908)
  • shares awarded subject to likely trading arrangements in future (see EIM11908).

The definition of readily convertible asset at section 702 ITEPA 2003 was extended by Schedule 22 FA 2003 with effect from 10 July 2003. From 10 July 2003 most shares will be readily convertible assets whether or not caught under one of the definitions above (see EIM12400).