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HMRC internal manual

Employment Income Manual

From
HM Revenue & Customs
Updated
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PAYE: employment-related securities: securities acquired for less than market value

Part 7 Chapter 3C ITEPA 2003

Part 7 Chapter 3C ITEPA 2003 was introduced with effect from 16 April 2003 by Schedule 22 FA 2003. It provides for a charge to income tax in certain cases if:

  • no payment is made for employment-related securities at or before the time of acquisition, or
  • the payment made for employment-related securities at or before that time is less than their market value.

The Share Schemes Manual will be amended to provide detailed guidance in due course.

Broadly, two charges to tax may arise by virtue of Part 7 Chapter 3C. However the requirement for an employer to operate PAYE only applies to one.

Section 446S ITEPA 2003 applies to treat the amount of the difference between the market value of the employment-related securities at the time of acquisition by the employee and any payment made as a notional loan. Under Section 446U ITEPA 2003 that notional loan is treated as discharged in the event of either:

  • the employment-related securities being disposed of, or
  • the employee’s liability to pay the amount of the notional loan is released, transferred or adjusted

and the amount treated as discharged counts as employment income of the employee.

PAYE

Section 698 ITEPA 2003 was fundamentally amended by Schedule 22 FA 2003 with effect from 1 September 2003. Where an amount counts as employment income of an employee by reason of Section 446U ITEPA 2003, then by virtue of Section 698 the employer is required to operate PAYE if the relevant employment-related securities are readily convertible assets (see EIM12400).

The employer is not required to operate PAYE on an amount that counts as employment income of an employee by reason of Part 7 Chapter 3C if the relevant event occurs on a day before 1 September 2003.