PAYE: Pitfalls On The Exercise Of Employee Share Options

The recent case of Chilcott, Griffiths and Evolution Group Services v Revenue & Customs has highlighted a pitfall for employers and employees where PAYE is not properly operated on the exercise of employee share options or other share-related income.

Typically, PAYE is operated by the employer deducting the tax due from the proceeds of the sale of the shares. The problem is that where the right amount is not or cannot be deducted and the employee subsequently fails within the relevant timeframe to put the employer in funds to cover the PAYE due, further tax (and not just interest and penalties) automatically becomes chargeable on the amount still due from the employee.

Until 2003, there was a 30-day deadline for the employee to put the employer in funds, but this has since been extended to 90 days. However, what is surprising and causes this tax to be seen as particularly unfair is that this additional charge will still arise even if the employee reimburses the