Readily convertible assets

Produced by Tolley

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

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

Readily convertible assets

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.

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

Definition of a readily convertible asset

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

  1. a recognised investment exchange (within the meaning of the Financial Services and Markets Act 2000)

  2. the London Bullion Market

  3. the New York Stock Exchange, or

  4. 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 the legislation is then extended.

A 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.

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

  1. any arrangements of another description existing when the asset is provided, or

  2. any understanding existing at that tim

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