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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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PAYE: special types of payment: awards of shares: shares excluded from being assets

Section 701 ITEPA 2003

Some shares are excluded from being assets for the purposes of Part 11 Chapter 4 ITEPA 2003. Shares that are excluded from being assets cannot then be readily convertible assets. Therefore if an employer makes a share award that is chargeable to tax as employment income but the award consists of shares excluded from being assets, there is no requirement to operate PAYE.

The following shares are excluded from being assets for the purposes of Part 11 Chapter 4 ITEPA 2003:

  • any shares acquired by the employee (whether or not as a result of the exercise of a right to acquire shares) under a scheme approved under Schedule 3 ITEPA 2003 (approved SAYE option schemes, see SSM2.30)
  • any shares acquired by the employee (whether or not as a result of the exercise of a right to acquire shares) under a scheme approved under Schedule 4 ITEPA 2003 (approved CSOP schemes, see SSM2.10) except shares acquired by exercise of a right to acquire shares on or after 9 April 2003 where the exercise preceded the third anniversary of the date on which the right was granted or fell after the tenth anniversary of that date (see EIM12210)
  • any shares acquired by the employee (whether or not as a result of the exercise of a right to acquire shares) under a scheme approved under Schedule 9 ICTA 1988 (approved profit sharing schemes, see SSM2.50)
  • any right over, or interest in, shares obtained or acquired by the employee under such a scheme, or
  • any shares acquired by the employee as a result of the exercise of a right over shares where the right was obtained before 27 November 1996

if the shares in question are own company shares.

Own company shares

Own company shares are shares that form part of the ordinary share capital of a company where that company:

  • is the employer (the employer company)
  • has control of the employer company, or
  • either is, or has control of, a company that is a member of a consortium owning either the employer company or a company having control of the employer company.

A company is a member of a consortium owning another company if it is one of a number of companies that between them own at least 75% and individually own at least 5% of the other company’s issued share capital.

Meaning of share

For the purpose of Section 701 ITEPA 2003, share includes stock.