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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4351
Experience:  FCCA FCMA CGMA ACIS
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I received shares from my employer and they deducted paye and

Customer Question

I received shares from my employer and they deducted paye and nic. HMRC have told me to declare the share value as earnings on my self assessment which calculates a paye liability. Is this correct?
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.
Under what conditions did you receive shares from your employer? Please advise so I can progress your question further.
Customer: replied 3 years ago.

It was not an approved HMRC share scheme. The shares were issued 3 years prior to the pay out based on company performance. We had an option to take the cash value or shares based on the vesting price of £6.60 per share. I took the shares. The amount of shares I received was after PAYE and NIC deductions.

Expert:  bigduckontax replied 3 years ago.
Here is the advice of Taylor Wessing on the subject of unapproved share option schemes:
'On exercise of the option, income tax will be charged on the difference between the market value of the shares at the date of exercise of the option and the option exercise price.
For example, if an employee is granted an option over 5,000 shares and the option exercise price is £2 and the option is exercised when the shares have a market value of £5, the taxable option gain will be (£5 x 5,000) - (£2 x 5,000) = £15,000.
Unless withholding obligations apply, the income tax is payable by the employee through their self assessment tax return for the relevant tax year.'
Your employer's action in deducting Income Tax and NI is perfectly correct and would be aggregated into and reflected in the P60 they would issue at the end of every tax year. You merely need to enter this data in the employment income and tax deducted in your annual self assessment tax return. This will, in fact, relieve you of considerable hassle had it been paid gross as you would have had to make a separate declaration and been faced with a lump sum of tax and NI underpaid at the year end.
I do hope I have helped you in this matter.
Customer: replied 3 years ago.

I think this is how you would work out capital gains tax. My employer has taxed me on the whole benefit which is the share quantity * the share price. They issued them to me at the vesting price so there is no difference between the share value.

Expert:  bigduckontax replied 3 years ago.

That is the bog standard position with unapproved share options. When exercised and sold at once, which is the norm, there is no gain to be taxed so in Capital Gains Tax terms the answer is the proverbial lemon.