RSU experts? UK employee with USA RSU question post sale

lampard

I am looking for some advice on what 'could' be happening in this scenario or a reason for the delay. My gut feeling is there is some sort of clock running down I am not aware of.

Also as I know a lot of people on this forum are a fan of looking at old threads raised by the OP, I should point out my last thread on Shares from a company was related to a different company. This thread relates to an old company I worked for and is unreleated.


I was given shares in a US company, RSUs which were sold years ago.

Now how it should have worked (now I am more experienced) was that the employer would withhold the proceeds of sale and via PAYE take the tax & NI owed (over half the proceeds I forget exact percentage but something like 54.9%).

My employer did not do this.

What actually happened was the broker paid me directly the entire proceeds via wire and I heard nothing more about it for over two years.


At this point I want to point out I had NO IDEA how any of this worked at all it was my first ever experience with getting shares. I was told repeatedly the employer would do all this for me and all i needed to do was sign the forms where they told me too which I did.
So when I got the money I figured it was mine. Naive yes.


About two years after the sale and my departure from the company I got a letter asking to pay the company a sum of money back for this in relation to tax. I literally just got a number no explanation of how they arrived at it.

I began to pay it back but after a while I felt their number I owed was wrong and after some education and investigation into it I challenged this and asked to see their numbers / working out.

Six months later I still have not been given any numbers or working out. When I email to ask for an update I get palmed off with they are looking into it.

What could be going on here? Is there some sort of advantage to the company or some sort of time limit legally before they will actually tell me whats going on?

I honestly cannot understand why after being paid almost 3/4 of the sum they asked for they would not just show me their working out and get the final quarter paid to them.

It feels like they are deliberately stalling.

The other concern I have is that they will not tell me where the money i've already paid is going, wether its into their coffers or direct to HMRC. You would have thought that would be an easy one to answer but they dodged that question several times also.

EdSwippet

I've been on the receiving end of something similar. A sizeable repayment for employer NI payments, due on stock gains but which were not withheld correctly by my employer. It took them about three months to get around to asking, after which I had left the company.

The goof was obvious to me, and I emailed them immediately to ask about it, but no reply. So I waited until the inevitable, when they contacted me. I had to use the 'leverage' of not paying to get an explanation of how they got the numbers they did. Ultimately it seemed right. I paid it back over three months. Getting confirmation that this 'debt' was finally cleared took a further six months of badgering. It is fair to say that this left me decidedly unimpressed with the company's payroll processes.

As for your own case, chasing NI seems reasonable since employers are directly responsible for this part. Perhaps they made the right NI payments and are only now noticing that they 'forgot' to debit you for them. Or perhaps they did underpay and now have to make good on that.

Chasing tax, though, seems potentially problematic to me. The 54.9% or whatever withholds on RSUs is only even an over-estimate of the NI and tax due. The actual NI and tax due normally gets reconciled through payroll (to factor in your tax code, etc) the following month.

If this reconciliation didn't occur, then if you declared the full payment on your tax return for the year -- on your P45 or P60? -- you may have overpaid tax (employer's NI in particular is a deduction). And no matter what happened on your tax return, it doesn't seem entirely reasonable for an employer to try to go back in time and rework tax withholding long after they have issued a P45, P60, or whatever.

Presumably your tax return for the year in question is dead and buried by now. Exhuming and reworking it may be a horrible mess, so anything you can do to minimise or avoid that seems handy. At the extreme you might consider billing your ex-employer for the cost of an accountant to redo your tax return, if that becomes necessary.

Do you know of anyone else in this company who might have the same issue? Maybe they can shed some light.

Look closely at your broker statements. Brokers here often withhold the 54.9% (or whatever) directly from proceeds. If yours did not then you indeed received everything gross, but you'll want to check. It is usual in such arrangements for the broker and the employer to work together to implement this over-withholding.

Finally, of course you're owed a full explanation (and apology, if not already received). Definitely stop any repayment until you get it, since once you've sent what they asked for you don't have any remaining leverage over them. Send your requests further up the management chain and/ or through HR, politely(!) pointing out the deficiencies of the underlings who created this mess. As you no longer work there you can afford to be somewhat less reasonable than current employees if it gets you faster results. :-)

I should add that while I did eventually get an explanation of what happened for my case, I could never extract any detail on why it happened. The wall of silence on that part of things was noticeable. I am perhaps fortunate that I only had to tangle with NI payments, and nothing about this had any bearing on tax return numbers.

It's an ugly situation, then, for sure. I hope you can get a good resolution to it.

lampard

EdSwippet wrote: »

I've been on the receiving end of something similar. A sizeable repayment for employer NI payments, due on stock gains but which were not withheld correctly by my employer. It took them about three months to get around to asking, after which I had left the company.

The goof was obvious to me, and I emailed them immediately to ask about it, but no reply. So I waited until the inevitable, when they contacted me. I had to use the 'leverage' of not paying to get an explanation of how they got the numbers they did. Ultimately it seemed right. I paid it back over three months. Getting confirmation that this 'debt' was finally cleared took a further six months of badgering. It is fair to say that this left me decidedly unimpressed with the company's payroll processes.

As for your own case, chasing NI seems reasonable since employers are directly responsible for this part. Perhaps they made the right NI payments and are only now noticing that they 'forgot' to debit you for them. Or perhaps they did underpay and now have to make good on that.

Chasing tax, though, seems potentially problematic to me. The 54.9% or whatever withholds on RSUs is only even an over-estimate of the NI and tax due. The actual NI and tax due normally gets reconciled through payroll (to factor in your tax code, etc) the following month.

If this reconciliation didn't occur, then if you declared the full payment on your tax return for the year -- on your P45 or P60? -- you may have overpaid tax (employer's NI in particular is a deduction). And no matter what happened on your tax return, it doesn't seem entirely reasonable for an employer to try to go back in time and rework tax withholding long after they have issued a P45, P60, or whatever.

Presumably your tax return for the year in question is dead and buried by now. Exhuming and reworking it may be a horrible mess, so anything you can do to minimise or avoid that seems handy. At the extreme you might consider billing your ex-employer for the cost of an accountant to redo your tax return, if that becomes necessary.

Do you know of anyone else in this company who might have the same issue? Maybe they can shed some light.

Look closely at your broker statements. Brokers here often withhold the 54.9% (or whatever) directly from proceeds. If yours did not then you indeed received everything gross, but you'll want to check. It is usual in such arrangements for the broker and the employer to work together to implement this over-withholding.

Finally, of course you're owed a full explanation (and apology, if not already received). Definitely stop any repayment until you get it, since once you've sent what they asked for you don't have any remaining leverage over them. Send your requests further up the management chain and/ or through HR, politely(!) pointing out the deficiencies of the underlings who created this mess. As you no longer work there you can afford to be somewhat less reasonable than current employees if it gets you faster results. :-)

I should add that while I did eventually get an explanation of what happened for my case, I could never extract any detail on why it happened. The wall of silence on that part of things was noticeable. I am perhaps fortunate that I only had to tangle with NI payments, and nothing about this had any bearing on tax return numbers.

It's an ugly situation, then, for sure. I hope you can get a good resolution to it.

Thanks for the response.

The broker sold the RSUs in 4 lots, and one of those lots on the sales statement shows tax was taken by the broker there. I assumed that withholding was part of the tax I was to pay on the sale. The other three have 0 withholding.

Total I got was just over 7K, and the letter they set me was asking for just over 4k back to them for tax.

I make the tax/NI owed around 3.7k. Ive paid about 2.5k back already before I put the brakes on and thought hang on I need to confirm this amount is right and I need it in writing whats going on.

It's this delay on their side that unnerves me. It is me chasing them, surely it would be the other way around if owed money.

Very bizarre all round, I'm tempted to just forget about it until they contact me one day, and thats why I worry then that they are stalling on purpose or running down some legal clock.

EdSwippet

lampard wrote: »

Total I got was just over 7K, and the letter they set me was asking for just over 4k back to them for tax. ... I make the tax/NI owed around 3.7k.

4k withholding on 7k would be around 57%, which is very much the sort of number that a broker might be asked to withhold for a UK employee to ensure that it exceeds both NI and a pretty high rate of income tax. The excess would then be repaid by PAYE a month or two later, after and as part of a regular payroll run.

We can only speculate on what your ex-employer has done, but at least one possibility is that they acted as if this broker withholding happened, but it (mostly?) did not. That is, they provided a P45/P60 that credits you with tax that they should have paid over to HMRC, but did not (and somewhat similar for NI). Or did pay over, but failed to withhold from you.

To check this, you could see if you can get your broker statements to agree with the theory. The USD/GBP forex rate is going to be the large unknown, but taking a spot rate for the day should let you get close. Looking at how much the broker sent you in GBP (assuming that's how you received this) is also a clue. Best is if you can get this ex-employer to tell you directly what rate they used for this trade.

From there, look at your payslips and see what happened in that month and the next one or two. Any additional items there may represent this RSU income. Finally, scour your P45/P60 for that year to see how closely it agrees with your payslips, perhaps paying close attention to the year-to-date numbers on the final one. Putting these together should give you some picture of where the outage occurred. Fully paid out by the broker but appears as if tax and NI withheld on payslips or P45/P60? Payslips and P45/P60 disagree? Not in evidence at all on any of these?

The cleanest to clear up would be if your employer remitted to HMRC -- or did not, but that's their problem and not yours! -- but then reported everything as if they had withheld all of this correctly but just did not. Here you simply pay back what they requested (once they clearly explain it, of course), and you're done. If, on the other hand, they've messed up the PAYE reporting in some way, that's going to be a lot more work.

Remember that knowing your own tax liability on this is only part of the picture. Your tax due liability and the employer's tax withholding liability are unlikely to agree.

On NI, note that an employer may make the employee responsible for paying employer NI on stock options and RSUs. Some do, some don't. When trying to piece the jigsaw together you'll want to know which way round this was for you. If due, employer NI is subtracted before tax is calculated.

Finally, having the trade broken into four with only one having broker withholding applied complicates things a bit further. The 4k out of 7k your employer wants you to repay is 57%, but if the withholding already paid via the broker is significant, that 57% rises to infeasible figures (in other words, if you've already had the broker withhold 3k and now your employer wants a 4k refund that's 100% of the sale proceeds, and not believable!). You don't say how much of the 7k proceeds you've already had withheld this way.

It is annoying to have to play forensic accountant to unravel an employer's errors, though, isn't it? I'm not aware of any clock they might be trying to outrun, but I wouldn't be -- like you, I'm only a fellow sufferer, not an insider.

jamesd

It happens that I just exercised such share options and it hadn't occurred to me that there is a tax deduction available to me for the employer NI taken from the money due to me. Is that something that HMRC have confirmed? If not, I'll ask since it's a thousand or so pounds for me.

I'm puzzled by you saying that employer NI is deducted before tax is calculated. If it's say a hundred pounds of normal income the income tax, employer NI and employer NI are calculated on the whole £100. Are you suggesting that employee and employer NI are calculated on the whole £100 but the income tax is calculated on the £100 minus the £13.80 employer NI deduction? Or maybe that because the employee has to reimburse the employer for their NI cost, if they do, employer and employee NI should be calculated on some other basis? Like NI and income tax deducted on the basis of (£100-£13.80) taxable pay then the employer NI taken from net pay as a charge?

Lampard, as EdSwippet wrote it wouldn't be unusual for a broker to withhold 40% + 2% + 13.8% to cover higher rate income tax, higher rate range employee NI and employer NI, mine just did. In theory the employer should refund the excess in the following pay cheque that includes the calculations for the amounts kept. Asking the employer to explain the numbers is sensible because the amount of income tax and NI that they should take depend on the tax code they had for you and for NI on your total pay in that pay period. NI is calculated just one pay period at a time, not annually.

EdSwippet

jamesd wrote: »

It happens that I just exercised such share options and it hadn't occurred to me that there is a tax deduction available to me for the employer NI taken from the money due to me. Is that something that HMRC have confirmed?

Spelled out in this government helpsheet.

In practice, my employer made this happen automatically by reporting taxable income as proceeds less employer NI on payslips and subsequent P60/P45.

jamesd

Thanks! Clear and unambiguous instructions from HMRC. Hopefully my employer will also just take care of it as well.