Readily convertible assets

By Tolley
Corporation_tax_img5

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Readily convertible assets
  • Definition of an RCA
  • Payroll mechanics
  • Avoiding an extra income tax and NIC charge

Where a share (or other qualifying asset) acquired by the employee is a readily convertible asset (RCA), both income tax and Class 1 National Insurance contributions (NIC) are due on the money’s worth of the shares and these amounts must be collected by the employer via the payroll.

ITEPA 2003, s 696; SI 2001/1004, Sch 2, para 5 (subscription sensitive)

The concept of RCAs also extends to various other liabilities under the employment-related securities legislation. See the Employment-related securities guidance note.

Definition of an RCA

RCA is an asset capable of being sold or otherwise realised on:

  • a recognised investment exchange (within the meaning of the Financial Services and Markets Act 2000 (subscription sensitive))
  • the London Bullion Market
  • the New York Stock Exchange
  • a market for the time being specified in PAYE regulations

ITEPA 2003, s 702(1)(a); EIM11901

The definition of an exchange is not critical because of the way this legislation is then extended.

An RCA is also “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”. This was introduced to stop schemes which were marketed in the mid-1990s.

ITEPA 2003, s 702(1)(b); EIM11907

Even if this can be circumvented in connection with unquoted shares, an asset is an RCA if ‘trading arrangements’ are in existence, or are likely to come into existence in accordance with:

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