RSUs, UK income tax and US withholding

pjread

Hi,

Firstly can someone sense-check and confirm my understanding is right with regards withholding on option/RSU exercise - that the total withheld is offset against UK income tax (& NI).  The RSUs are USD denominated, company US listed but employed in UK.

I've realised last year on RSU exercise withholding was 47%, but the values that made it to my UK PAYE payslip represent 42% (split 40% income tax/2% NI), and 100% of the value of the shares.  So to my mind, the 'extra' 5% should be recognised as UK tax paid?

Believe I only have until Jan to get this sorted, and suspect it'll recur this year - assuming I'm not wrong, and there isn't some strange rule to explain why withholding would be higher, can someone suggest where I should put this "extra" tax paid on my self assessment to make sure it's included?

Thanks

Dead_keen

I think it would be worth double checking your payslip again as the 5% was probably paid to you in cash through payroll. 

If the tax withheld through PAYE was then that is the only amount that is tax for self-assessment purposes.  There is no place to put the 5% as it is not tax.

What normally happens is that this extra is paid by the employer in cash.  You say that 100% was put on payslip and then 40% and 2% was deducted.  You also got the net shares (so 53%) and this is presumably shown somewhere on the payslip too.  That then leaves the 5% and if there is no mention of that separately it has presumbly increased the net pay.  If it hasn't then your employer would seem to owe you the 5%.   

EdSwippet

Agree with Dead_keen. If you check your payslips carefully you'll probably find the missing 5% paid out somewhere.

The problem is that an employer has to auto-sell part of an option or RSU tranche to at least cover tax and NI at (say) 40% + 2%, but they cannot sell or give you a fractional share. So they have to round up to a whole number of shares, effectively over-withholding. The excess should come back as some adjustment item in a later payroll run.

In extreme cases, this leads to zero stock being delivered. For example -- and I have lived this -- two shares vesting in a small RSU with tax+NI withholding set to 52%(*), means you receive most of the value of one share as cash, and no actual shares at all.


 (*) My employer made covering employer NI a condition of employees participating in the share scheme. Employers are allowed to do this, but not all do.

pjread

Yeah - to clarify; full value on PAYE payslip as non-payable value, then 40% and 2% showing respectively as 'credits' in the deduction section as "RSU tax/NI paid".  So zero impact (literally) on net pay. 

I suppose I need to go back and 'debate' with work then if I can't just self declare this somewhere.  I could understand if it was related to employer NI, but I think that'd be more than the 5% difference - so suspect they withheld assuming I'd pay 45% then for some odd reason put 40% through PAYE...

Dead_keen

Are you sure that 45% was not actually put through PAYE.  The cummulative system of PAYE may mean that 45% has been applied in one month even if you expect to be a 40% taxpayer by the end of the tax year.

pjread

Not impossible I'm missing something, hence asking here

But yes, I'm now sure after staring at the numbers for so long.  Took me a while to realise since the shares are in USD and the PAYE in GBP and I was overcomplicating the forex part in my head, but ignoring currency conversion and just looking at the relative percentages it seems clear. 

Shame I can't just correct in my tax return but I suppose I need to go talk to work, presumably just human error (happens to us all, but hopefully not a nightmare to resolve)