Paying Employees in Shares or Non-Cash Pay

Introduction

If you pay your employees in shares, cryptocurrency, precious metals, or other non-cash forms, you still need to calculate and deduct PAYE tax and National Insurance contributions. These payments count as "readily convertible assets" and must be processed through your payroll in the same way as wages, though the mechanics of recovering the tax and NI from employees work differently when there's no cash changing hands.

What counts as non-cash pay

Non-cash payments that require PAYE tax and National Insurance treatment include:

• Stocks and shares
• Commodities such as precious metals
• Financial instruments
• Cryptoassets
• Payments in kind that can be cashed in (such as cheques, Savings Certificates, or Premium Bonds)
• Long service awards (depending on their value and the circumstances)

These are all examples of "readily convertible assets" — assets that can be easily exchanged for cash.

Valuing the non-cash payment

Before you can process payroll, you need to work out the value of what you've given the employee. Consider:

• What the asset cost you
• The value of the asset when you gave it to the employee
• If the employee has already sold the asset, how much they received for it
• Any contribution the employee made towards the cost (deduct this from the estimated value)

Reporting and paying PAYE tax and NICs

Once you've established the value of the readily convertible asset:

1. Add the total value to your employee's earnings

2. Calculate PAYE tax and Class 1 NICs on this amount

3. Record the figures for 'taxable pay for this period' and 'pay subject to Class 1 NICs' on the employee's payroll record

4. Report these amounts to HMRC in a Full Payment Submission (FPS)

You must send the FPS on or before the date of the payment itself. If you cannot do this, report the payment as soon as reasonably practicable — whichever comes earliest:

• The time you deduct PAYE tax and NICs in respect of the payment
• 14 days after the end of the tax month the payment is made in

If you make the payment on a day that isn't the employee's usual payday, your payroll software will probably process the extra payment automatically. Check with your software provider if you're unsure.

Recovering PAYE tax and NICs from the employee

Because you cannot deduct tax and National Insurance directly from a non-cash payment, you must recover these amounts from any cash payments you make to the employee — such as wages, salary, commission, or fees.

Recovering PAYE tax

Try to recover the tax from payments made at the same time as the non-cash payment, even if this reduces the cash the employee receives to zero. If necessary, you can continue recovering the amount from later cash payments made in the same tax month until you've recovered the full amount.

Even if you haven't been able to recover it all from the employee, you must still pay HMRC the full amount owed at the end of the tax month.

Any PAYE tax you do not recover from the employee must be made good by the employee within 90 days of the end of the tax year in which they received the non-cash payment. You must record any unrecovered amount of tax as a benefit received by the employee using forms P9D or P11D.

Recovering National Insurance

Recover the NICs due by deducting them from your cash payments to the employee. Record the full amount of employee's NICs due on their payroll record and report this to HMRC in an FPS.

You must pay all NICs due to HMRC by the deadline for the tax month in which the non-cash payment is made — even if the employee doesn't have enough cash earnings that month for you to recover the full amount from them.

You can recover NICs from any cash payments made in the same tax year as the non-cash payment. For certain types of payments, you can carry on recovering until the end of the following tax year if the payment was:

• Made by an intermediary acting on your behalf
• A payment by way of shares
• In the form of securities or an interest in securities

When adjusting amounts for the following tax year in your FPS:

• Do not include the amount in the employee's NICs field
• Deduct the amount from the net pay figure
• Do not include the amount in 'deductions from net pay'

If you pay the PAYE tax on the employee's behalf

If you choose to pay the PAYE tax due on behalf of your employee, you may have additional NICs to pay.

You should recover the full tax amount from the employee within 90 days of the end of the tax year in which they received the payment. Any unrecovered amount must be added to the employee's earnings for the earnings period in which the 90th day falls. You then calculate NICs on this combined total.

Long service awards

Special rules apply if you give an award that's a readily convertible asset and the recipient has had at least 20 years' service with no previous award in the last 10 years.

In this case, only add any value above £50 per year of service to your employee's earnings, then deduct and pay Class 1 NICs and PAYE tax through your payroll.

For all other employees receiving long service awards, add the total value to the employee's earnings and deduct and pay Class 1 NICs and PAYE tax through payroll.

Share Incentive Plans

Separate rules may apply for shares you give under a Share Incentive Plan (SIP). These are tax-advantaged share schemes with their own specific treatment that differs from the general rules for paying employees in shares.

Sources

• Paying employees in shares, commodities or other non-cash pay
• Remuneration in non-cash form (480: Chapter 26)
• Tax and Employee Share Schemes
• CWG2: Further guide to PAYE and National Insurance contributions
• PAYE: end of year expenses and benefits online form

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.