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HMRC internal manual

Employment Related Securities Manual

PAYE and NICs - up to 5 April 2015: securities and securities options acquired between 6 April 2008 and Royal Assent

Up until Royal Assent the law as it stood previously was in full force. After Royal Assent, the wider application of the Part 7 rules has retrospective effect from 6 April 2008.

No PAYE or NIC responsibilities (other than reporting requirements on Form 42) apply to chargeable events that occur in the period between 6 April 2008 and Royal Assent if the law as it stood prior to Royal Assent does not impose them. After Royal Assent, the employer is not required to revisit events prior to that date, even though the new law has retrospective effect from 6 April 2008.

In some circumstances employers may have operated PAYE and NICs in respect of awards of securities or securities options that occurred between 6 April 2008 and Royal Assent that, following Royal Assent, should not have given rise to such charges. So, for example, where R/NOR employees acquired securities options or securities that were forfeitable within 5 years, since Chapters 5 and 2 of Part 7 of ITEPA did not apply, the exemptions in those Chapters from a money’s worth general earnings charge similarly did not apply. It might therefore be the case that an employer faced PAYE and NICs obligations on the award of an option or securities which, following Royal Assent, were removed, as the awards were exempt from an income tax charge by virtue of the rules of Part 7.

So, an employer might deduct PAYE tax on the award of, say forfeitable securities, in accordance with the old rules up to Royal Assent and, following the retrospective application of the new rules back to 6 April 2008, find that the income tax and NIC liability attached to that award has now been removed. In these circumstances the employer should make careful amendment of the pay record to remove the ‘non taxable’ payment. In the next tax period(s) the tax will then be repaid to the individual by an increase in their Net Pay per the tax tables and their tax code. A note should be made for auditing purposes.

If the employee has left the employment then the employer should not seek to re-issue a P45, but may want to make the ex-employee aware that tax was deducted on a non taxable figure. The employer should not repay the tax to the ex-employee. The ex-employee should then make a claim at a later point upon presentation of P45 to HMRC.