Office of Public Sector Information
PART 11 continued CHAPTER 4 continued
(1) This section applies if—
(a) either of the following events occurs—
(i) shares cease, without the employee ceasing to have a beneficial interest in them, to be shares in which the employee’s interest is only conditional;
(ii) in a case where shares have not so ceased, the employee sells or otherwise disposes of the employee’s interest or any other beneficial interest in the shares; and
(b) as a result, an amount is chargeable on any person (“the relevant person”) by virtue of section 427(1).
(2) This section also applies if—
(a) an event occurs which is treated for the purposes of section 427 (charge on interest in shares ceasing to be only conditional or on disposal) as an event falling within subsection (1)(b) of that section by virtue of section 431 (disposal where employee dies); and
(b) as a result, an amount is chargeable on any person (“the relevant person”) by virtue of section 427(1).
(3) If this section applies, sections 684 to 691 and 696 have effect as if—
(a) in addition to the provision to the relevant person of the employee’s interest in the shares, a further interest in those shares were provided to the relevant person at the time of the event in question; and
(b) the further interest were not subject to any terms by virtue of which it would fall for the purposes of Chapter 2 of Part 7 (conditional interests in shares) to be treated as only conditional.
(4) Section 696 as applied by subsection (3) has effect as if the reference in subsection (2) of that section to the amount of income likely to be PAYE income in respect of the provision of the asset were a reference to the amount on which tax is likely to be chargeable by virtue of Chapter 2 of Part 7 in respect of the event in question.
(5) Expressions used in this section and any provisions of Chapter 2 of Part 7 have the same meanings in this section as in those provisions.
(1) This section applies if—
(a) at a time when the employee has a beneficial interest in them, shares are converted into shares of a different class as a result of an entitlement to convert them which has been conferred on the holder, and
(b) as a result, an amount is chargeable on any person (“the relevant person”) by virtue of section 438(1).
(2) This section also applies if—
(a) an event occurs which is treated for the purposes of section 438 (charge on conversion of shares) as an event falling within subsection (1) of that section by virtue of section 444 (conversion in consequence of death); and
(b) as a result, an amount is chargeable on any person (“the relevant person”) by virtue of section 438(1).
(3) If this section applies, sections 684 to 691 and 696 have effect as if, in addition to the original provision to the relevant person of the convertible shares, the shares into which they were converted were also provided to the relevant person at the time of the event in question.
(4) Subsection (3) applies in a case where the convertible shares were themselves acquired—
(a) by means of a taxable conversion (as defined in section 439(6)), or
(b) by means of a series of such conversions,
as if the reference to the original provision of the convertible shares were a reference to the provision of the shares which were converted by the earlier or earliest conversion.
(5) Section 696 as applied by subsection (3) has effect as if the reference in subsection (2) of that section to the amount of income likely to be PAYE income in respect of the provision of the asset were a reference to the amount on which tax is likely to be chargeable by virtue of Chapter 3 of Part 7 (convertible shares) in respect of the event in question.
(6) Expressions used in this section and any provisions of Chapter 3 of Part 7 have the same meanings in this section as in those provisions.
(1) This section applies if—
(a) a gain is realised by the exercise, assignment or release of a right to acquire shares, and
(b) as a result, an amount is chargeable on any person (“the relevant person”) by virtue of section 476 or 477 (charge on exercise etc. of share option).
(2) In the case of the exercise of a right to acquire shares, section 696 has effect as if the relevant person were being provided with PAYE income in the form of the shares—
(a) at the time the relevant person acquires the shares in the exercise of the right, and
(b) in respect of the employment because of which the relevant person was granted the right.
(3) In the case of the assignment or release of a right to acquire shares, sections 684 to 691 and 696 have effect—
(a) in so far as the consideration for the assignment or release takes the form of a payment, as if so much of that payment as does not exceed—
(i) the relevant proportion of the amount chargeable by virtue of section 476 or 477 in respect of the assignment or release of the right, less
(ii) the amount of any relief likely to be available under section 481 (deductible amount in respect of secondary Class 1 contributions met by employee),
were a payment of PAYE income of the relevant person; and
(b) in so far as that consideration consists in the provision of an asset, as if the provision of the asset were the provision of PAYE income in the form of the asset—
(i) to the relevant person, and
(ii) in respect of the employment because of which the relevant person was granted the right.
(4) Section 696 as applied by subsection (2) or (3) has effect as if the reference in subsection (2) of that section to the amount of income likely to be PAYE income in respect of the provision of the asset were a reference to—
(a) the relevant proportion of the amount chargeable by virtue of section 476 or 477 in respect of the exercise, assignment or release of the right, less
(b) the amount of any relief likely to be available under section 481.
(5) PAYE regulations may make provision for excluding payments from the scope of subsection (3)(a) in such circumstances as may be specified in the regulations.
(6) In this section—
“asset” includes anything to which subsection (7) applies;
“the relevant proportion” means the proportion that so much of the consideration as takes the form of a payment, or (as the case may be) consists in the provision of an asset, bears to the whole consideration;
and anything to which subsection (7) applies is treated as a readily convertible asset for the purposes of section 696 as applied by subsection (3)(b) or (4).
(7) This subsection applies to—
(a) any cash voucher;
(b) any non-cash voucher —
(i) which is capable of being exchanged for anything which, if provided to the employee at the time when the voucher is received, would fall to be regarded as a readily convertible asset, or
(ii) which (but for section 701(2)(b)) would fall itself to be regarded as a readily convertible asset; and
(c) any credit-token which is capable of being used to obtain—
(i) money, or
(ii) anything which, if provided to the employee at the time when the token is used, would fall to be regarded as a readily convertible asset.
(8) Expressions used in this section and section 476 or 477 have the same meanings in this section as in that section.
(1) In this Chapter “asset” includes any property and in particular any investment of a kind specified in Part 3 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544).
This is subject to subsection (2).
(2) In this Chapter “asset” does not include—
(a) any payment actually made of, or on account of, PAYE income;
(b) subject to section 700(6), any cash voucher, non-cash voucher or credit-token;
(c) the following—
(i) any shares acquired by the employee (whether or not as a result of the exercise of a right to acquire shares) under a scheme approved under Schedule 3 (approved SAYE option schemes) or 4 (approved CSOP schemes), or Schedule 9 to ICTA (approved profit sharing schemes),
(ii) any right over or interest in shares obtained or acquired by the employee under such a scheme, or
(iii) any shares acquired by the employee as the result of the exercise of a right over shares obtained before 27th November 1996,
if the shares in question form part of the ordinary share capital of a company falling within subsection (3); or
(d) any description of property for the time being excluded from the scope of this section by PAYE regulations.
(3) A company falls within this subsection if it—
(a) is the employer (“the employer company”);
(b) has control of the employer company; or
(c) either is, or has control of, a company which is a member of a consortium owning either the employer company or a company having control of the employer company.
(4) In this section “share” includes stock.
(5) For the purposes of this section a company is a member of a consortium owning another company if it is one of a number of companies which between them beneficially own not less than 75% of the other company’s ordinary share capital and each of which beneficially owns not less than 5% of that capital.
(1) In this Chapter “readily convertible asset” means—
(a) an asset capable of being sold or otherwise realised on—
(i) a recognised investment exchange (within the meaning of the Financial Services and Markets Act 2000 (c. 8)),
(ii) the London Bullion Market,
(iii) the New York Stock Exchange, or
(iv) a market for the time being specified in PAYE regulations;
(b) an asset consisting in—
(i) the rights of an assignee, or any other rights, in respect of a money debt that is or may become due to the employer or any other person,
(ii) property that is subject to a warehousing regime, or any right in respect of property so subject, or
(iii) anything that is likely (without anything being done by the employee) to give rise to, or to become, a right enabling a person to obtain an amount or total amount of money which is likely to be similar to the expense incurred in the provision of the asset; or
(c) an asset for which trading arrangements are in existence, or are likely to come into existence in accordance with—
(i) any arrangements of another description existing when the asset is provided, or
(ii) any understanding existing at that time.
(2) For the purposes of this section trading arrangements for any asset provided to any person exist whenever there exist any arrangements the effect of which in relation to that asset is to enable—
(a) that person, or
(b) a member of that person’s family or household,
to obtain an amount or total amount of money that is, or is likely to be, similar to the expense incurred in the provision of that asset.
(3) PAYE regulations may exclude any description of arrangements from being trading arrangements for the purposes of this section.
(4) References in this section to enabling a person to obtain an amount of money are to be read—
(a) as references to enabling an amount to be obtained by that person by any means at all, including in particular—
(i) by using any asset or other property as security for a loan or advance, or
(ii) by using any rights comprised in or attached to any asset or other property to obtain any asset for which trading arrangements exist; and
(b) as including references to cases where a person is enabled to obtain an amount as a member of a class or description of persons, as well as where the person is so enabled in the person’s own right.
(5) For the purposes of this section an amount is similar to the expense incurred in the provision of any asset if it is, or is an amount of money equivalent to—
(a) the amount of the expense so incurred, or
(b) a greater amount, or
(c) an amount that is less than that amount but not substantially so.
(6) In this section—
“money” includes money expressed in a currency other than sterling;
“money debt” means any obligation which falls to be, or may be, settled—
by the payment of money, or
by the transfer of a right to settlement under an obligation which is itself a money debt;
“warehousing regime” means—
a warehousing or fiscal warehousing regime (within the meaning of sections 18 to 18F of the Value Added Tax Act 1994 (c. 23)); or
any corresponding arrangements in a State other than the United Kingdom which is a Contracting Party to the Agreement on the European Economic Area signed at Oporto on 2nd May 1992 as adjusted by the Protocol signed at Brussels on 17th March 1993.
This Chapter provides—
(a) for employers to make agreements with the Inland Revenue (“PAYE settlement agreements”) under which they agree to be accountable to the Board for sums in respect of income tax on general earnings of their employees; and
(b) for such earnings to be treated for certain purposes of the Income Tax Acts as excluded from the employees' income.
(1) PAYE regulations may provide—
(a) for a person to make a PAYE settlement agreement with the Inland Revenue; and
(b) to such extent as may be prescribed, for that person’s accountability, and the sums to be accounted for, in respect of income tax on general earnings of that person’s employees to be determined—
(i) in accordance with the agreement, and
(ii) not in accordance with PAYE regulations which would apply apart from this Chapter.
(2) Without prejudice to the generality of section 684(2), any power of the Board to make PAYE regulations with respect to sums falling to be accounted for under such regulations includes power to make the corresponding provision with respect to sums falling to be accounted for in accordance with a PAYE settlement agreement.
PAYE regulations may provide for a PAYE settlement agreement to allow sums which an employer is to account for—
(a) to be computed, if two or more persons hold employments to which the agreement relates, by reference to a number of those persons all taken together;
(b) to include sums representing income tax on an estimated amount taken to be the aggregate of the amounts of PAYE income consisting of—
(i) taxable benefits provided or made available by reason of the employments to which the agreement relates, and
(ii) expenses paid to the persons holding those employments; and
(c) to be computed in a manner under which they do not necessarily represent an amount of income tax which would be payable (apart from the agreement) by persons holding employments to which the agreement relates.
PAYE regulations may provide—
(a) that sums accountable for by an employer under a PAYE settlement agreement, or any other sums, are not to be treated for any prescribed purpose as tax deducted from general earnings;
(b) that an employee is to have no right to be treated as having paid tax in respect of sums accountable for by the employer under such an agreement;
(c) that an employee is to be treated, except—
(i) for the purposes of the obligations imposed on the employer by such an agreement, and
(ii) to such further extent as may be prescribed,
as relieved from any prescribed obligations of the employee under the Income Tax Acts in respect of general earnings from an employment to which the agreement relates; and
(d) that such earnings are to be treated as excluded from the employee’s income for such further purposes of the Income Tax Acts, and to such extent, as may be prescribed.
In this Chapter—
“employment” means any employment the general earnings from which are (or, apart from any regulations made by virtue of this section, would be) PAYE income and related expressions are to be construed accordingly;
“prescribed” means prescribed by PAYE regulations;
“taxable benefit”, in relation to an employee, means any benefit provided or made available, otherwise than in the form of a payment of money, to the employee, or to a person who is a member of the employee’s family or household.
(1) PAYE regulations may provide that no repayment of income tax may be made under such regulations to a person—
(a) during a period for which the person has claimed jobseeker’s allowance, or
(b) at a time when the person is prevented by the trade disputes provisions from being entitled to a jobseeker’s allowance, or would be so prevented if the person otherwise met the conditions for entitlement.
(2) Different provision may be made with respect to—
(a) persons within subsection (1)(a), and
(b) persons within subsection (1)(b).
(3) “The trade disputes provisions” means—
(a) section 14 of JSA 1995, or
(b) Article 16 of JS(NI)O 1995.
(1) This section applies if—
(a) an assessment to income tax is made as respects relevant income (with or without other income), and
(b) the assessment is made after the end of the period of 12 months following the tax year for which it is made.
(2) In so far as it relates to relevant income, the assessment is to be made in accordance with the practice generally prevailing at the end of that period.
(3) “Relevant income” means income which—
(a) has been taken into account in the making of deductions or repayments of tax under PAYE regulations, and
(b) was received not less than 12 months before the beginning of the tax year in which the assessment is made.
(1) If an employer makes a notional payment of PAYE income of an employee, the employer must deduct income tax at the relevant time from any payment or payments the employer actually makes of, or on account of, PAYE income of the employee.
(2) For the purposes of this section—
(a) a notional payment is a payment treated as made by virtue of any of sections 687, 689 and 693 to 700, other than a payment whose amount is given by section 687(3)(a) or 689(3)(a), and
(b) any reference to an employer includes a reference to a person who is treated as making a payment by virtue of section 689(2).
(3) Subsection (4) applies if, because the payments actually made are insufficient for the purpose, the employer is unable to deduct the full amount of the income tax as required by subsection (1).
(4) The employer must account to the Board of Inland Revenue at the relevant time for an amount of income tax equal to the amount of income tax the employer is required, but is unable, to deduct.
(5) PAYE regulations may make provision—
(a) with respect to the time when any notional payment (or description of notional payment) is made;
(b) applying (with or without modifications) any specified provisions of the regulations for the time being in force in relation to deductions from actual payments to amounts accounted for in respect of any notional payments;
(c) with respect to the collection and recovery of amounts accounted for in respect of notional payments.
(6) Any amount—
(a) which an employer deducts as mentioned in subsection (1), or
(b) for which an employer accounts as mentioned in subsection (4),
is to be treated as an amount which, at the time when the notional payment is made, is paid by the employee in respect of the employee’s liability to income tax.
(7) “The relevant time” means—
(a) in subsection (1), any occasion—
(i) on or after the time when the notional payment is made, and
(ii) falling within the same income tax period,
on which the employer actually makes a payment of, or on account of, PAYE income of the employee;
(b) in subsection (4), any time within 14 days of the end of the income tax period in which the notional payment was made.
(8) In subsection (7) “income tax period” has the same meaning as in the Income Tax (Employments) Regulations 1993 (S.I. 1993/744), or any subsequent regulations making corresponding provision.
(1) A person who has PAYE income for a tax year in respect of which deductions or repayments are made under PAYE regulations may by notice require the Inland Revenue to give that person a notice under section 8 of TMA 1970 (personal return) for the tax year.
(2) A notice to the Inland Revenue under subsection (1) must be given no later than 5 years after the 31st October next following the tax year.
(1) In this Part—
“employee” means a person who holds or has held employment with another person;
“employer” means—
in relation to an employee, a person with whom the employee holds or has held an employment, and
in relation to any PAYE income of an employee, the person who is the employer of the employee in relation to the employment in respect of which the income is or was provided or, as the case may be, by reference to which it falls to be regarded as PAYE income.
The above definitions are subject to sections 688 and 710(2)(b).
(2) Sections 4 and 5 apply for the purposes of this Part as they apply for the purposes of the employment income Parts.
Income Tax (Earnings and Pensions) Act 2003