The income tax charges associated with employment-related securities and securities options typically arise upon acquisition of securities, or because an amount of employment income is deemed to arise upon a subsequent chargeable event, rather than as a result of a cash payment. Therefore often the employer cannot deduct pay as you earn (PAYE) in the normal way. There are special rules requiring an employer to account for PAYE in relation to such notional payments. An additional, penal, income tax charge is imposed upon the employee (or director), and (employer and employee) Class 1 NICs arise, to the extent such PAYE amount is not made good to the employer.

Under section 222 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), where an employer:

1. •

   makes a notional payment to an employee or director

2. •

   in respect of which the employer is required to account to HMRC for an amount of income tax by way of PAYE, and

3. •

   which amount the employer is unable to deduct from any payments actually made to that employee