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HMRC internal manual

Employment Income Manual

PAYE avoidance: non-cash remuneration before 25 May 1994: meaning of payment

Before 25 May 1994, when Sections 203F to L ICTA 1988 (now Part 11 Chapter 4 ITEPA 2003) took effect, there was no specific legislation to combat schemes involving awards of non-cash remuneration to employees to avoid PAYE and NIC.

The requirement for an employer to operate PAYE on making a payment relied on Section 203 ICTA 1988 (now Section 684 ITEPA 2003). There was no doubt that an employer providing cash to an employee had made a payment, but where an employee received assets the position was less clear. Broadly, the position turned on whether the provision of the asset represented a distinct award or whether the asset was provided in satisfaction of an existing entitlement to a monetary amount.

If there was no entitlement to an equivalent monetary amount, the employer usually was not required to operate PAYE. However, where an employee was legally entitled to remuneration of a monetary amount, and the entitlement was satisfied by the transfer of an asset or assets, this was a payment under Section 203(1) and the employer was required to operate PAYE (see EIM12002).

Part 11 ITEPA 2003

Part 11 Chapter 2 ITEPA 2003 has replaced Section 203 ICTA 1988.

In some circumstances, the arguments that applied to PAYE avoidance in non-cash remuneration schemes before 25 May 1994 continue to apply, even though specific legislation to combat PAYE avoidance now exists.

For example, if an employer transfers a property to an employee in circumstances where there are no trading arrangements for the property (see EIM11927), Section 696 ITEPA 2003 will not apply. However, it may be possible to adopt a Paul Dunstall argument (see EIM12003) instead to require the employer to operate PAYE on the transfer.