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HMRC internal manual

Employment Related Securities Manual


Introduction to PAYE & NICs on or after 1 September 2003

As a general rule, where an amount is chargeable to income tax as employment income inrelation to employment-related securities or options, the amount will be subject to Pay AsYou Earn (PAYE) and National Insurance Contributions (NICs). However, there are a few exceptions.

PAYE is operated & NICs due where the amount chargeable is provided in the form of cash or a readily convertible asset. Where PAYE is operated on a chargeable amount, NICs will be due, unless there is a specific personal exemption from NICs, such as in the case of a worker from overseas.

PAYE due on notional payments

ITEPA03/S696 states that if the employer provides the employee with a readily convertible asset (RCA), the employer:

  • is treated as making a notional payment, and
  • must make the best estimate that can reasonably be made of the amount on which the employee will be chargeable to income tax, and operate PAYE accordingly.

The legislation on PAYE is to be found in Chapter 4 Part 11 ITEPA 2003. ERSM170020 sets out the steps to help you decide whether PAYE is exigible.

Further details are given in this manual under the following topics

Readily convertible assets

See ERSM170020.

Acquisition of securities

See ERSM170050.

See ERSM170100.

Conditional shares acquired pre-16 April 2003

See ERSM170200.

Gains from securities options

See ERSM170300.

National Insurance Contribution

See ERSM170700.

NICs elections & agreements

See ERSM170750.