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HMRC internal manual

Employment Related Securities Manual

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PAYE and NICs - up to 5 April 2015: example 2

Martina is employed by a UK plc and is UK-resident but not ordinarily resident here in 2009/10 when, on 1 September 2009, she receives an award of restricted securities which are subject to a 3-year sale restriction and forfeiture if she leaves the employment within the same period, after which there are no remaining restrictions on the securities. On the lifting of the restrictions, £10,000 counts as employment income by virtue of ITEPA03/S426.

Martina’s job involves wholly UK duties except for one month every year which she spends working at the offices of the German subsidiary in Frankfurt. In 2010/11 she is still not ordinarily resident in the UK but for 2011/12 and 2012/13 she is ordinarily resident. She claims the remittance basis for 2009/10 and 2010/11.

In accordance with ITEPA03/S41B(2), the relevant period for Chapter 5A is from 01/09/09 to 31/08/12. ITEPA03/S41C(5)(b) will apply to treat as foreign one twelfth of the gain that is treated as accruing over that part of the relevant period during which Martina is NOR (see Example 6 at ERSM160871).

When the chargeable event under ITEPA03/S427 occurs (see ERSM30390), in accordance with ITEPA03/S700A, the employer may use its best estimate to operate PAYE only on the amount of employment income that is not foreign securities income.

As the securities are shares in a UK plc, they are UK assets and the related foreign securities income is treated as remitted to the UK in the year of the chargeable event and, while not subject to PAYE, is therefore taxable specific income for that year, to be included in Martina’s Self Assessment for the year. See ERSM161100.

Class 1 NIC is due by virtue of Regulation 22(7) SS(C)R 2001 at the same point at which tax arises, on £10,000, the amount that counts as employment income by virtue of ITEPA03/S426. The acquisition is disregarded and the later charge is deemed earnings. No reduction is due in respect of apportionment under Chapter 5A of Part 2 of ITEPA 2003 (See ERSM161040)

For the application of this and the other examples to periods from 6 April 2013, see ERSM160873.