PAYE & NICs
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 a flow chart to help decide whether PAYE is exigible.
Further details are given in this manual under the following topics
Readily convertible assets
Acquisition of securities
Special charges on employment-related securities
Conditional shares acquired pre-16 April 2003
Gains from securities options
National Insurance Contribution
NICs elections & agreements