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PAYE on employment-related securities: Timing of real-time PAYE returns

HMRC has issued further guidance, in Employment-Related Shares & Securities Bulletin no. 4 (November 2012), described the circumstances in which employers will be allowed extra time to send real time information on payments made subject to PAYE. HMRC now accept that in certain cases reporting information in real time will be difficult or impossible, and extra time should be allowed. Notional payments (which include transfers of shares or interests in shares), can already be reported at the earlier of when the next time the regular payroll is run, or 14 days after the end of the tax month in which the payment is made. 

In the case of “employment income paid to any employee in respect of employment-related securities (e.g. on the exercise of share options)”, if the employer is operating reasonable and currently accepted payroll/administration practices and it is not possible to operate PAYE and/or calculate NICs to be deducted by the PAYE deadline, HMRC will apply a “common sense approach” in-year if there is a reasonable excuse for not reporting the information by the end of the pay period or 19th of the following month.  This approach will also apply to situations in which either earnings or notional payments are delivered by “expatriate employers” to employees for duties performed on assignment in the UK or overseas.  In assessing whether HMRC agrees that employers have a reasonable excuse, HMRC is not expecting employers to materially change the operation of their current UK or overseas payrolls for making payments to employees where these practices are reasonable and widely accepted, nor is HMRC expecting employers to depart from currently accepted practice in relation to arrangements sometimes referred to as ‘sell to cover’, ‘sell all’, ‘self fund’ or ‘hold all’.  

HMRC would expect that the late reporting would normally be no later than the next regular payroll date and that the relevant payment would normally be made to HMRC within the normal PAYE deadlines for that month.  In addition, employment income must be subject to tax in accordance with the relevant legislation for the year of receipt or entitlement, and must be subject to NICs by reference to the correct pay period.  Payments identified after 19 April following the end of the tax year in which they are made must be reported on an earlier year update.  HMRC will query any arrangement where there is evidence of avoidance or manipulation.  This approach to ‘reasonable excuse’ (further described in the guidance mentioned below) will not affect the application of section 222 ITEPA in cases where this applies.  

For these purposes, “expatriate employers” are UK employers who are required to operate PAYE and NICs in relation to : 

a. employees sent to the UK on assignment, where those employees remain employed by, and are fully or partially remunerated by, the overseas employer, including one which is a branch or parent of the UK company; and

b. their employees sent overseas on assignment, where those employees remain employed by the UK employer, but are fully or partially remunerated by an overseas employer, including one which is a branch or parent of the UK company.