SMCO act for many corporate clients and individuals who have RSUs schemes and assist in the review of the following areas.
- Income tax and capital gains tax on the award of RSUs
- Claiming income tax relief for international mobile employees (IME)
- Advise on the payroll reporting on the share awards
- Complete sell to cover tax calculations for RSU awards
- Complete the income tax calculation for the grant to vest period, or grant to exercise under the relevant double tax treaties.
- Consider the impact of periods of absence from the UK
- Review the National insurance position of those coming to the UK; and much more.
Restricted Stock Units (RSUs) are a popular form of remuneration used to incentivise employees, and these have been a popular choice for multinational technology companies headquarter in the US.
An RSU is a type of share award that may be restricted for a particular reason. This can include restrictions on voting rights when granted, or be contingent on certain targets being met before the shares actually vest (company or personal performance targets).
There are various instances where RSUs may attract taxes in the UK and the reporting must also be handled by the employer on these awards.
Acquisition of RSUs
- Grant: RSUs are not taxable when at granted.
- Vest: At the point of vest, the RSUs are exposed to UK income tax and National Insurance (NIC). Employers are also required to report this under PAYE.
To settle the income tax and National Insurance (NIC) on the gain arising at vest, most potfolio managers of the scheme operates a sell to cover policy. This is where part of the shares you were granted are sold to immediately at vest to cover the taxes that are due. Otherwise, you would have to settle the tax liability directly with you cash earning (salary).
Therefore, employers will automatically report the gain via the payroll and there is no further action required from you, the individual at vest.
Under the scheme there may be a joint election in place with your employer whereby you will also pay the employer’s NIC as well as the employee’s NIC. In this instance you will receive a income tax deduction for the amount of the employer’s NIC you paid.
Be Careful International Mobile Employees
Where you are an International Mobile Employee (IME) so you either arrived to the UK or departed the UK, and you were granted RSUs before coming to or leaving the UK, your UK tax position will be more complicated.
You may be entitled to apportion part of your total gain, and only be subject o UK income tax and National Insurance on the UK portion of the gain at vest.
Disposal of RSUs
Once you have acquired the shares, these will be part of your share portfolio. The shares increase or decrease in value will be based on the financial marker, and your personal financial decision to when you dispose of the shares.
Only when you come to sell / dispose of the shares will you again need to consider the UK capital gains that may be due on the disposal of the shares.
The gain is not simply the proceeds of sale less the original deemed cost for RSUs and go under the complex share pooling rules.
Under the share pooling rules as these would have been acquired at different times you would need to keep records of all your share grants, vesting and income taxes paid on the shares which will help you calculate the chargeable gain for capital gains tax.
Only then if your capital gains exceeds your annual exemption (currently £12,300) then there will be capital gains tax to pay on the gain. Be careful if the shares were in a non-sterling currency, even in the unlikely case of each tranche of share acquired and sold having an identical values, there will be exchange rates to consider.
Your employer will not have any obligations to support you with the disposal or reporting of the gain to HMRC via your self assessment tax return.
The rules are complex and HMRC will not calculate the gain on your behalf. It is important that when declaring the disposal of RSUs and any subsequent gains you have a clear of all your transactions so the correct UK tax treatment can be applied.
How we can help
We can review the tax position on your share awards on the grant, exercise and disposal of the shares. We can also support employers on the payroll reporting requirements of the RSU awards. We at SMCO UK Chartered Tax Advisors would be happy to have a chat about your position. Please contact us if you would like further advice.
