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02 October 2000
A United Kingdom employee (paying tax at higher rate) was awarded share options when the United States parent company (quoted) set up its United Kingdom operation during 1999. This is an unapproved scheme for United Kingdom tax purposes. Some shares were exercised in February 2000. The shares cost nothing, but were worth £100,000 at date of exercise. Therefore tax of 40 per cent is payable.
A United Kingdom employee (paying tax at higher rate) was awarded share options when the United States parent company (quoted) set up its United Kingdom operation during 1999. This is an unapproved scheme for United Kingdom tax purposes. Some shares were exercised in February 2000. The shares cost nothing, but were worth £100,000 at date of exercise. Therefore tax of 40 per cent is payable.
The employer did not deduct the tax due on exercise of the options, of £40,000, from the employee's net pay in February 2000 (under the change in legislation effective 6 April 1999 putting the onus on the employer to pay the tax due through pay-as-you-earn) nor subsequently. The United States stock option agreement did allow for deduction of withholding taxes. The employee sold the shares and received the full £100,000. The employer did not pay over the tax under pay-as-you-earn. In fact it is only now becoming aware of this requirement.
Should the employee put the gain on his tax return, and pay the tax at 40 per cent of £100,000, or should the employer have paid it — or have they both got to pay it? The fact that it was not reimbursed to the employer by the employee within 30 days (February 2000) seems to mean that the tax itself became a taxable benefit on which the employer should pay tax. Nothing was shown on form P11D in respect of this benefit. Presumably interest is also payable by the employer, and a penalty for an incorrect form P11D?
So must the employer pay the 40 per cent tax, and tax on the 40 per cent (56 per cent tax)? Does the employee have to pay the tax as well, i.e. 40 per cent, or under section 144A only 40 per cent of 40 per cent, i.e. 16 per cent, or both amounts (40 per cent + 16 per cent) as well?
(Query T15,699) Confused.
The employer did not deduct the tax due on exercise of the options, of £40,000, from the employee's net pay in February 2000 (under the change in legislation effective 6 April 1999 putting the onus on the employer to pay the tax due through pay-as-you-earn) nor subsequently. The United States stock option agreement did allow for deduction of withholding taxes. The employee sold the shares and received the full £100,000. The employer did not pay over the tax under pay-as-you-earn. In fact it is only now becoming aware of this requirement.
Should the employee put the gain on his tax return, and pay the tax at 40 per cent of £100,000, or should the employer have paid it — or have they both got to pay it? The fact that it was not reimbursed to the employer by the employee within 30 days (February 2000) seems to mean that the tax itself became a taxable benefit on which the employer should pay tax. Nothing was shown on form P11D in respect of this benefit. Presumably interest is also payable by the employer, and a penalty for an incorrect form P11D?
So must the employer pay the 40 per cent tax, and tax on the 40 per cent (56 per cent tax)? Does the employee have to pay the tax as well, i.e. 40 per cent, or under section 144A only 40 per cent of 40 per cent, i.e. 16 per cent, or both amounts (40 per cent + 16 per cent) as well?
(Query T15,699) Confused.
