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HMRC internal manual

Employment Related Securities Manual

PAYE and NICs: PAYE - up to 5 April 2015: remittance basis

ITEPA03/S696 requires that where PAYE income is provided in the form of a readily convertible asset, the amount on which the employer must operate PAYE is the employer’s best estimate that can reasonably be made of what is likely to be PAYE income.

ITEPA03/S698 stipulates how PAYE should be applied to charges in respect of employment-related securities. In general, where an amount is treated as employment income by virtue of one of the charging provisions of Part 7 of ITEPA 2003, then the reference in ITEPA03/S696 to the amount likely to be PAYE income is a reference to what is likely to count as employment income by virtue of the Part 7 charge. ITEPA03/S700 applies PAYE to gains from securities options in a broadly similar way to the way section 698 does for charges on employment-related securities

ITEPA03/S700A provides that, where section 698 or 700 applies and part or all of the amount that counts as employment income is (or is likely to be) foreign securities income then the amount of the payment that is treated as being made for PAYE purposes under section 696 is the full amount of the employment income arising under Part 7, less the amount that is likely to be foreign securities income by virtue of ITEPA03/S41C to 41E.

This means that, if the employer has sufficient information to calculate the amount of employment income which is foreign securities income (that is; the amount that is taxable on the remittance basis), then it is the net amount of employment income after deduction of the foreign securities income on which PAYE should be operated. Where the employer does not have sufficient information to calculate, using the best estimate that can reasonably be made, the amount of foreign securities income, then PAYE should be operated on the full amount of the employment income, subject to any apportionment the employer has sufficient information to make in respect of treaty exemption. (See ERSM161300)

An example where an employer could make a reasonable estimate of an employee’s foreign securities income would be where the employer knows that the employee is resident and not ordinarily resident for the year and has evidence, such as an assurance from the employee, that a claim to the remittance basis will be made. (From 6 April 2013, the employer knows that the employee is not domiciled in the UK and meets the requirements of section 26A - see ERSM160615. For transitional arrangements, see ERSM160200.) If the employee’s overseas duties are fairly regular from year to year, and/or the expected balance of his or her UK and overseas duties for the current year is known, then the employer could reasonably estimate the FSI on the basis of its expectation for the current year.