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HMRC internal manual

Employment Related Securities Manual

PAYE & NICs

These steps will help you to decide if PAYE is due or not on employment income from employment-related securities and shares.

Step 1 - Is the security a readily convertible asset (RCA) in accordance with ITEPA03/S702(1) – (5)? For example, the securities are quoted or subject to current or future trading arrangement. If YES, then PAYE is due. If NO, then go to step 2.

Step 2 - Is the security a ‘Corporation Tax (CT) deductible share’ in accordance with ITEPA03/S702(5A) – (5D) and Corporation Tax Act 2009, Part 12? If NO, then PAYE is due. If YES, then go to step 3.

Step 3 - Has there been a charge under ITEPA03:

  • Section 427(3)(c) (disposal of restricted securities)
  • Section 439(3)(b) (disposal of convertible securities)
  • Section 439(3)(c) (release of entitlement to convert)
  • Section 439(3)(d) (receipt of benefit connected to entitlement to convert)
  • Section 446(y) (stop loss)
  • Section 447 (post-acquisition benefit)
  • Section 477(3)(b) (assignment or release of option), or
  • Section 477(3)(c) (benefit in connection with option)?

If NO, then PAYE is NOT due. If YES, then go to step 4.

Step 4 - Was the consideration or benefit a cash payment? If YES, then PAYE is due. If NO, then go to step 5.

Step 5 - Was the consideration or benefit in the form of an asset which is itself a RCA? If YES, then PAYE is due. If NO, then PAYE is not due.

ESSU cannot advise you on the process of putting the correct amounts of employment income from employment-related securities through your payroll.