US RSUs and Tax - Self Assessment

gshare

Hi

Hope you are well. I work for an American company and have done since March 2016, I was awarded Restricted Stock Units at the time and also filled in an W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) and a number of them vested in 2018-2019. I did not sell any of the shares - they simply vested. Part of the vesting meant at least half of those shares were sold off to cover US taxes and NI contributions (2%) and Employer NI (13.8%) . My P60 for the year reflects my base salary as well as the vested shares as one single amount for the year.

Filling in my self-assessment I expected an area where I can "Declare" the RSU value versus the base salary value and therefore started to fill in the "Foreign Income" section of the HMRC assessment. I have been advised by the HMRC that this is not required as the figures are already covered under payroll (P60) and therefore should be entered as per the P60 into the "Employment Details" section.

I cannot help but thinking that I am being "Double-Taxed" in this scenario as I had already paid US taxes on the amount when vested (hence the sold of shares) - and now I am being taxed a t a higher rate (lost my tax free allowances) due to the vested share amount having been bundled in with my base pay (which alone does not push me into the "loss of tax free allowance realms").

Any guidance here appreciated

btcp

I am not sure why you think you are double taxed. You pay tax once, when your RSU vest. The amount vested is added to you annual income, which decreases your personal allowance. I know it’s hard to think it’s fair if you don’t sell your stocks right away, as you dint see the money. But in reality it is additional income sitting on your stocks account. If you decide to sell you will not pay tax again. You will pay capital gain (or loss) tax depending on the price you are selling at.

Keep_pedalling

Did you mean US taxes and NI? The US does not have NI so I think you will find they were sold to pay your UK taxes not US.

EdSwippet

gshare wrote: »

Part of the vesting meant at least half of those shares were sold off to cover US taxes {sic} and NI contributions (2%) and Employer NI (13.8%).

I suspect that this is where the confusion is creeping in. Your employer will have auto-sold around half of these shares to cover your UK PAYE tax and UK NI (both employee and employer, and yes, having to pay both personally is unpleasant).

You have no US tax liability on this RSU income. And you paid no US tax withholding (unless something went wrong at the broker with your W-8BEN, but you should be able to check with your broker to ensure that did not happen).

gshare wrote: »

I cannot help but thinking that I am being "Double-Taxed" in this scenario as I had already paid US taxes on the amount when vested ...

As above. No US tax paid here.

gshare wrote: »

... and now I am being taxed a t a higher rate (lost my tax free allowances) due to the vested share amount having been bundled in with my base pay (which alone does not push me into the "loss of tax free allowance realms").

This tax free allowance taper tax rate, at 60%, is scandalous. Unfortunately it is now too late for you to mitigate it, because the tax year in question has ended. In future though, maybe consider making additional pension contributions (if not already maxed out to the annual allowance). Pension contributions in the tax free allowance taper zone equate to tax relief at 60%. More still if they can be made by salary (or bonus) sacrifice.

gshare

Thank you for all the replies - so if the shares are sold to cover UK PAYE at Vest time - how come in my P60 is this figure bundled in with my base pay to then attribute tot he UK PAYE that I owe for the year? It seems as though I am being taxed UK PAYE on the same thing twice as I had already paid UK PAYE at vest but now during self-assessment this is happening again. Thanks again in advance - this is all very confusing to me

Keep_pedalling

gshare wrote: »

Thank you for all the replies - so if the shares are sold to cover UK PAYE at Vest time - how come in my P60 is this figure bundled in with my base pay to then attribute tot he UK PAYE that I owe for the year? It seems as though I am being taxed UK PAYE on the same thing twice as I had already paid UK PAYE at vest but now during self-assessment this is happening again. Thanks again in advance - this is all very confusing to me

You will not be paying it twice, self assessment includes all income whether it has already been taxed or not. The tax you have already paid is included in the final calculation, so If all your income has been via PAYE and everything has been payed correctly then you will end up with a bill of £0.

In practice you are likely to find that there has been a small under or over payment.

EdSwippet

gshare wrote: »

... so if the shares are sold to cover UK PAYE at Vest time - how come in my P60 is this figure bundled in with my base pay to then attribute tot he UK PAYE that I owe for the year?

Because it is treated as ordinary salary. You should also see (most of) the value of the shares sold for tax withholding 'bundled in' to the Tax Deducted part of your P60.

As an over-simplified example, suppose 100 RSU shares vested, at £30 each. That is an effective £3,000 of extra PAYE income. Your employer might auto-sell 55% to cover tax and NI -- employers usually overestimate the amount required. So you receive 45 shares in your brokerage account, which you can then sell or keep as desired. At the end of the year, your P60 will show £3,000 of additional PAYE income, but also £1,650 of additional tax deducted. Putting these numbers into your self-assessment will get you to the correct tax paid for the year. No double-tax.

In practice it's a bit more complex. NI comes out of the withholding, so you will see a bit less than £1,650 added to your P60 tax deducted number. And employers will often correct the 55% (or whatever) withholding down to your actual tax rate as controlled by your tax code on their next payroll run, so that you (maybe) get a closer match to tax deducted across the year and tax actually due. This usually shows up as some form of extra cash in the next payslip, because the 55% (or whatever) they use is generally above what your tax code would say you should be paying. Even so, at the end of the year the P60 should hold numbers that make self-assessment come out correctly.

The connection between RSUs vesting, payslips, and the ultimate P60 is certainly hard to follow, particularly given that these will show GBP but your shares are valued in USD. Don't be afraid to ask your employer to explain how they got the numbers you are seeing. They are usually right, but it's not unknown for employer payroll departments to make mistakes.

Finally, if this income has pushed you from 40% into the effective 60% bracket above £100k, then looking at the numbers alone it is easy to see how one might conclude that this looks like double-tax, because self-assessment shows that you suddenly and rather unexpectedly owe 20% or so of this RSU vesting. This occurs because your tax code is based on your salary being about the same as last year, but this time it wasn't.

This 60% tax rate is heinous. Unfortunately, it is also real. It's a good idea to do what you can to avoid it. As already mentioned, additional pension contributions is one of the few easy but effective ways. Too late to do that now, unfortunately.

gshare

Thank you Keep Pedalling - I have ended up with a tax underpaid bill of £4200 for the 2018-2108 year based on my self assessment as my payroll had not informed HMRC to adjust my tax code based on the vested share value at the time of vest. It all makes sense now thank you. Had not realised that the calculation takes into account tax already paid at vest time.

gshare

Thanks again EdSwippet for the detailed breakdown. Really appreciate this yours and others responses have made this all the more clear to me and for that I thank you all.