RSU Tax

sho_me_da_money

Hi All,

Quick one.

Say I'm earning £40K gross per year and I get 5 RSUs vesting on X date. The total tax and Ni, I pay on this is 32% right? (20% tax and 12% NI).

Reason I ask is because I end up having to pay 50.28% and wondered if I was overpaying.

It's a US company.

Thanks

sho_me_da_money

Actually when I think about it. Say the stock is worth £1500 per stock unit, then I guess the total annual income for that goes to £40K plus £4500 = £44500.

That's still within the 20% tax threshold therefore I should see 32% deducted no?

londoninvestor

You will end up paying the right tax at the end of the year, but you may temporarily overpay for two reasons:

1) The PAYE system (as opposed to your overall income tax liability) operates based on months.

So (assuming you've earned the same salary every month in the tax year so far), each month you get £11,850 / 12 = £987.50 of personal allowance, and £34,500 / 12 = £2,875 of basic rate band.

Your normal salary is £3,333, so each month you use up your personal allowance and about £2,345 of your basic rate band. (£430 of your basic rate band remains unused)

Now, when you get your £4,500 of RSUs, all in the same month, your total for that month is £7,833, so you use up all that month's personal allowance, all the basic rate band, and you go £3,970 into your higher rate band. Offsetting that, you have £430 of unused basic rate band from each previous month of the tax year. But if your RSUs arrive earlier than month 10, that means you'll pay some higher rate tax for that month.

But income tax is calculated on a yearly basis, so you'll end up being getting that higher rate tax back. Probably partly from paying less tax on your subsequent payslips in that tax year, partly from HMRC (either by completing a Self Assessment or waiting for them to refund you through the P800 process).

2) Some employers (as reported by other posters on here) seem to err on the side of conservatism when deducting tax. Again you end up getting this back eventually. If you're paying as much as 50.28%, sounds like this must have happened too.

The good news is that National Insurance is calculated per month, not per year. Once you hit £3,863 of income in a month, the marginal NI rate is 2%. So you'll pay 12% NI on the first £530 of RSUs, 2% on the rest.

Cook_County

Are you also paying the employer's NIC as well?

sho_me_da_money

Thank you sir! I did ask a similar question on Reddit where another fellow was being taxed 50.28% and asked how they calculated that figure. Here was his response

"You paid 13.8% Employer's NI on the award, but HMRC allow you to deduct that amount from your taxable pay for income tax purposes. You thus only pay 40% on 86.2% of your RSU, plus, on 100% of the RSU, the Employer's NI at 13.8% and the 2% additional Employees' NI.

So 13.8 + 2 + (86.2% of 40) = 50.28% effective rate."

Still trying to make sense of it a little but that is the formula they use. I am not sure why I pay 40% on the 86.2% of the RSU. Im guessing this is because the award when combined with the salary in the month they shares vest take me from above the basic band threshold to the higher band of tax?

Does that mean I can claim anything back at the end of the year?

00ec25

indeed, you have missed employers NI

read this earlier thread:
https://forums.moneysavingexpert.com/discussion/5767913/rsu-uk-losing-72-to-tax-and-ni