Help handle a group-wide PAYE audit

A UK client is a sub-group of a US group. The parent company is quoted on the New York Stock Exchange and the global group operates a number of share option schemes, some of which extend to the UK employees.

In particular, the UK employees are allowed to buy shares under a discounted stock purchase plan – a US-style savings-related scheme that is classed as an unapproved option scheme in the UK.
 
We helped the UK group handle a group-wide PAYE audit, which included all the usual checks and negotiations on mileage, travel expenses, benefits, etc. But the most expensive claim from HMRC was for £1.5m in respect of the penal notional benefit when an employer does not recover the PAYE on unapproved share option exercises within the time limit set by section 222 of the Earnings & Pensions Act.
 
When a UK employee exercises an option, the appointed US broker deals with the transaction. The broker informs the New York office, which passes information to the European administration centre, which in turn passes it on to the UK employer, which then has to operate the PAYE – all within the deadline. It had proved to be impossible to comply with the limit.
 
However, after careful analysis of the legislation, we convinced the UK authorities that, as a result of a technical detail that they had overlooked, the penal section could not apply to the UK employees.
 
The UK sub-group paid none of the claimed £1.5m.