RSU UK, losing 72% to tax and NI

run4thehills

Hi,
I cant believe that this is correct and need some advice from someone in the know...

I work for a US company and have RSU vesting but I am very disappointed in what I am left with at the end.

The way this works with my employer, the stock vests and a portion of the stock is withheld to pay for tax, employer NI and employees NI. This deduction happens at vesting due to an agreement with HMRC and my employer UK company.

Doing some simple math from my payslip I am losing in excess of 72% to these deductions, is that correct?

Things to note:
with the vesting of the stock it puts me into and additional rate tax payer at 45%
I also need to pay employer NI at %13.8%
plus my NI at upper earning rate of %2

add that up and I get 60.8%

Any idea why I am losing the additional 11%?

Thanks

running4theHills

EdSwippet

run4thehills wrote: »

I cant believe that this is correct and need some advice from someone in the know...

Your employer should be able to explain things to you (although in my experience, not always; or at least, not clearly!). However, several things could be happening here, so I'll try to lay out a few possibilities.

Firstly, your tax estimate may be a bit off. The Employer NI is a tax deduction, so you "only" pay tax on 100% - 13.8% = 86.2% of the value of the RSUs on vesting date. 45% of that is 38.79%. Add in 13.8% and a further 2% NI gives a mere 54.59% total loss to tax+NI. Still awful, but not as awful as 60.8%.

Now, when withholding RSUs for tax, your employer sets some guesswork rate that should cover them for the worst case. Mine used around 57%, if I recall correctly. However, they have to sell/withhold a whole number of RSUs for tax, and if only a few vest then the rounding up to a whole number usually means overwithholding. At times I had two RSUs vest, and on those occasions saw 100% of them withheld for tax and NI. This might be where your 70+% comes from.

Normally, a month or two after vesting the company's payroll gets round to rationalising all of this, and you usually get a bit of extra salary at that point to get your tax right by making up for the overwithholding from both rounding up to an integral number of RSUs and the company's worst-case assumption of tax and NI rates.

If after all of that you still wind up overwithheld (or underwithheld) for tax then everything should come out in the wash when you complete self-assessment, so in that sense the company's tax withholding isn't too critical. Their NI withholding is critical though, since there is no way for you to recover any excess or fix other errors here yourself.

So perhaps not 70% or more, but the combined tax and NI rates here are nevertheless pretty hideous. Over 50% is the 'normal' case, and if this all fell into in the 60% allowance phase-out band you could be paying over 2/3 of RSU income in tax and NI. There really isn't any encouragement to work at these rates.

Finally, one last thing to look for is to make sure that the broker operating the RSU scheme is not also withholding any US taxes. They should not, but getting them not to might involve filing a W-8BEN with them, and if you haven't done that then a 30% withholding there is a possibility.

All very far from simple, isn't it?

shundeez

Hi,

@edswippet, thanks so much for explaining this, I was pondering as where the 54.59% came from when they deducted my RSU's at source.

And thanks for posting run4thehills, I have a very similar issue, s excuse me hijacking.

So on my payslip I have RSU's which vested, initial amount was 27,852, USA witheld 15,204 which is the tax and equates to exactly 54.59%.

What is perplexing me is that a further 3,843 is also deducted from my payslip, and is Titled Er NIC paid by EE.

Have I then in effect been taxed twice for the Er part of NIC. As in your calc this is already included in the 54.59% figure?

thx a mill for assistance on this one

run4thehills

Really do appreciate the feedback.. tax return time! I will let you know how this ends up.

Thanks again

Darijauskas

Hello like-minded people!
Any further advice on this?
Dealing with exactly same issue

run4thehills said:

Really do appreciate the feedback.. tax return time! I will let you know how this ends up.

Thanks again

Run4thehills - any luck?

LucyMa

Darijauskas said:

Hello like-minded people!
Any further advice on this?
Dealing with exactly same issue

run4thehills said:

Really do appreciate the feedback.. tax return time! I will let you know how this ends up.

Thanks again

Run4thehills - any luck?

I am also dealing with this issue - from some quick research I think there may be a possibility of claiming tax relief as the US & UK have a double tax agreement. 
If anyone has any advice in this area, it's great appreciated! It looks like I've actually ended up paying about what the stock is actually worth in tax and NI. So really no point in getting it in the first place! 
My stock vested this month (i'm rounding up figures for ease and converting to GBP) - about £10k worth. I elected to have tax paid upon vesting (about £5.3k). My payslip this month displays that tax but it also now looks like i've paid an additional £3k in tax (if I consider the difference in the amount of tax I would normally pay in a given month) and another £1.2k in "ER NIC paid by EE". Working this out - doesn't look like i've made any money AT ALL! 

greaze

I am in a similar situation - shocked to see more than 54% eaten up by tax. Is there anyway we can save on this? What if we 'gift' the RSU to someone in the US?

sausage_time

I'm slightly baffled about what is happening here.  I also work in the UK for a US company, and have RSUs vesting yearly.  My employer does not support withholding to pay tax on the basis that it is impossible to second guess what tax rate should be applied.  The month following vesting, my payslip shows the UKP equivalent of the market value of the shares on vesting, and UK tax and employee National Insurance is deducted.  This usually results in a negative payslip, and I need to pay the tax owed to my employer during the following month.  This leaves plenty time to sell some shares and move the funds back.

It's been this way for years, and all makes sense and balances up when I do my tax return (since it is effectively collected by PAYE and I'm taxed at whatever rate I happen to be in).  There's no US tax implication (unless your RSUs are different).   My employer pays the employer NIC (as I'd expect - the above implies otherwise?).

I do hold onto some shares, and earn dividend on those - but with a W8-BEN the federal tax withheld is15%.

EdSwippet

sausage_time said:

I'm slightly baffled about what is happening here.  I also work in the UK for a US company, and have RSUs vesting yearly.  My employer does not support withholding to pay tax on the basis that it is impossible to second guess what tax rate should be applied.  The month following vesting, my payslip shows the UKP equivalent of the market value of the shares on vesting, and UK tax and employee National Insurance is deducted.  This usually results in a negative payslip, and I need to pay the tax owed to my employer during the following month.  This leaves plenty time to sell some shares and move the funds back.

This seems relatively sensible. Unfortunately, most companies appear not to operate like this. Perhaps they don't trust their employees to not run off to South America with the proceeds ...

sausage_time said:

It's been this way for years, and all makes sense and balances up when I do my tax return (since it is effectively collected by PAYE and I'm taxed at whatever rate I happen to be in).  There's no US tax implication (unless your RSUs are different).   My employer pays the employer NIC (as I'd expect - the above implies otherwise?).

I do hold onto some shares, and earn dividend on those - but with a W8-BEN the federal tax withheld is15%.

An employer may cover the employer NIC liability for stock options and RSUs, but they do not have to -- they can elect to transfer this liability to employees(*). Mine did that, so I paid employer NIC first, and then tax plus employee NI on the remainder, giving the composite rates shown upthread.

(*) Since it's a "joint" election, employees can refuse. But if they do, generally the company just won't grant them the options or RSUs, leaving employees with little choice but to agree.