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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I am due to receive a cash pay out in lieu of an award of

Resolved Question:

I am due to receive a cash pay out in lieu of an award of shares. What tax should I be paying on this tax award?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Could you please supply me with a little more detail please? From whom and why are shares being awarded?

Customer: replied 1 year ago.
Hi KeithShares are being awarded from my employer as part of their Long Term Incentive Plan to retain employees. They have an option to award shares or cash and they have announced they will be awarding cash. Tha payment will be made at the end of the month however I am worried I will lose a lot via tax whereas if I had sold the shares I would be much better off. The cash award is £9800
Expert:  bigduckontax replied 1 year ago.

You may well be right as it is normal for such share issues to be disposed of on day of vesting thus there is no capital gain and hence no Capital Gains Tax (CGT) liability.

As a result of the LTIP distribution in cash you will be liable to Income Tax (IT) on the amount received at you marginal rate of tax and in addition employees' Natuionl Insurance (NI) contributions will be levied also. You could mitigate the IT charges by making contributions to a pension scheme providing you do not breach the annual contribution limit, including employer's contributions, of 40K

I am so sorry to have to rain on your parade.

Customer: replied 1 year ago.
I had disappointly expected this may be the case. Therefore I must accept this payment will be made as a cash bonus and deductions payable in my PAYE salary as 'normal'?
Expert:  bigduckontax replied 1 year ago.

Indeed! To furthermore annoy you the PAYE system will asume that you will receive this bonus monthly in the future and over tax you for the rest of the year although as time progresses these deduction will steadity reduce and you should be tax neutral by the end on the tax year. If not you can use your P60 to get the figures and ask your tax office for a refund of overpaid tax.

Customer: replied 1 year ago.
Thanks Keith. Is there anything I can do to prevent paying too much tax in the first instance, before they assume this and deduct the tax every month?
Expert:  bigduckontax replied 1 year ago.

Unfortunately, not a thing; the PAYE system is designed for the vast majority of workers who receive the same basic plus additions like overtime or piece work payments which ripple along quite happily within the system. What PAYE does not absorb easily is large emoluments received in one account period.

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Customer: replied 1 year ago.
Thanks for your help
Expert:  bigduckontax replied 1 year ago.

Delighted to have been of assistance.

Thank you for your support.