This is a complex area; this article deals with the basics of RSUs.
RSUs are used by many US companies as long-term rewards linked to the share price of the company for employees.
There are two stages:
- Grant of Option: Usually, no income tax liability arises at this stage.
- Vesting of option: at this stage as employee actually receives shares at below market price, it is taxed as earnings* [Chargeable amount = MV of shares – consideration given, if any].
*taxes payable income tax and national insurance both employee and employer.
Usually, payroll department of the employer deals with the income tax via payroll. So, no further action required in SA return.
Capital Gains Tax
When shares acquired under RSU scheme are sold. Gains need to be computed and disclosed in SA return. Acquisition cost will be the MV of shares when RSU vested.
Further readings:
1. HMRC Manual ERSM20192 – 20194
2. Tolley Annual Income tax also has a good example in 70.17
Bonus
1. Some companies give cash bonus based on the share price, these are not RSUs they will be dealt via PAYE as normal bonus.
2. There are tax-advantaged employee share options as well like EMI, SAYE and CSOP we will cover them some other time.
Glossary
Grant Date – The date of agreement when employer promises to give shares in the future.
Vesting Date – The date on which employee becomes entitled to acquire shares after the fulfilment of pre-decided terms and conditions.
Exercise Date – The date on which the employee buys shares using the options.
Exercise Price – The price at which the employee gets the shares, usually lower than market value.
Roy Accountants 