Share options and readily convertible assets
Produced in partnership with Renu Birla
Share options and readily convertible assets

The following Share Incentives practice note produced in partnership with Renu Birla provides comprehensive and up to date legal information covering:

  • Share options and readily convertible assets
  • Readily convertible assets and PAYE
  • When does PAYE not apply?
  • Readily convertible assets and National Insurance Contributions
  • Issues associated with readily convertible assets—ITEPA 2003, s 222 charges
  • What is a readily convertible asset?
  • An asset capable of being sold or otherwise realised on a recognised investment exchange, the New York Stock Exchange or the London Bullion Market
  • An asset capable of being sold or otherwise realised on a market for the time being specified in PAYE regulations
  • Trading arrangements
  • Securities which are not shares that are corporation tax deductible

Share options and readily convertible assets

Readily convertible assets and PAYE

Where an employee is granted a right to acquire shares (an option) under an option plan that is not tax favoured, there will be a potential tax charge under sections 471–484 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) when the option is exercised, assigned or released.

If shares are not readily convertible assets (RCAs) then any income tax due from the employee is collected under the UK self-assessment system.

Pay as you earn (PAYE) is the mechanism by which income tax must be withheld and accounted for to HMRC by employers (and other payers) in relation to certain payments of:

  1. employment income

  2. pension income, and

  3. social security income

Non-cash payments are generally excluded from the operation of PAYE. A key exception to this is payments in the form of (or deemed to be in the form of) RCAs, which are subject to PAYE. In other words, RCAs are treated in the same way as salary paid in cash under the UK tax system.

For more detailed information on PAYE, see Practice Note: PAYE implications of securities options.

When does PAYE not apply?

The obligation to operate PAYE does not apply to income tax charged on the acquisition of shares if the shares are not RCAs.

For these purposes, the following shares will not fall within the definition of

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