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Section 702(1)(c) ITEPA 2003

»Ê¹ÚÌåÓýapp definition of readily convertible assets based on trading arrangements (see EIM11908) should make it difficult for employers to say that an award of remuneration in a non-monetary form is outside PAYE. However, some awards of assets are not readily convertible assets.

A UK employer decides to award a bonus to its managing director in recognition of services provided during the year ended 30 April 2003. »Ê¹ÚÌåÓýapp company owns a house valued at £350,000. On 30 June 2003 the company awards the property to the director as a bonus. »Ê¹ÚÌåÓýapp bonus resolution makes no reference to the monetary value of the property (see EIM12002). A few days later the director moves into the house as a private residence but in November 2003 decides to place the property on the market. »Ê¹ÚÌåÓýapp sale is completed in February 2004 and the director receives the sale price of £360,000.
### Is the employer obliged to operate PAYE?

This depends on a close examination of the facts. »Ê¹ÚÌåÓýappre are two alternative reasons why PAYE could be due:
- if there were trading arrangements in place at the date of the award, or an understanding likely to lead to trading arrangements in future, or - if the transfer of the property satisfied a pre-existing entitlement to monetary amount, the Dunstall scenario (see EIM12003).

If on 30 June 2003 the director had already entered into an arrangement to re-sell the property, the property would be a readily convertible asset by virtue of Section 702(1)(c) ITEPA 2003. Alternately, if no arrangement existed on that date but there was an understanding with another person relating to the sale and purchase of the property at a later date, then the property would be a readily convertible asset by virtue of Section 702(1)(c).

In this case neither applies. »Ê¹ÚÌåÓýapp director moved into the property in July 2003 with the intention of living there. »Ê¹ÚÌåÓýappre were no arrangements to sell, nor any understanding likely to lead to future arrangements. In November, when she decided to sell, this was as a result of circumstances unknown on 30 June.

Nor does the evidence support an argument that the property was transferred in settlement of a pre-existing entitlement to an amount of £350,000.

Consequently the employer is not obliged to operate PAYE on the property transfer.

For the income tax treatment of assets transferred to a director see EIM21640 onwards.