PAYE on restricted share options

PAYE on restricted share options

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Restricted share options are exercised and sold by employees. The company arrange this, and a cheque for the proceeds, less 51% (deemed to be quivalent of PAYE & NI due) is sent to the employee. The payroll department are informed  of the details (sometimes considerably later)  and the gain is put through payroll, and PAYE & NI deducted and paid over to HMRC. I have read in HMRC guidance that any outstanding PAYE should be recovered from the employee within 90 days, or the payment made by the employer will be treated as additional remuneration subject again to PAYE & NI. The payroll manager believes that this 90 day rule also applies to the time the company has to put the gain through payroll eg if shares exercised in April, then the latest they can be included in payroll calculatons would be June, with the tax & NI paid in July. I can't find anything in HMRC publications to back this up. Can anyone confirm that this is the case, and point me in the right direction to find official evidence I can include in our procedure manual?

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By hertsaccountant
03rd Sep 2012 16:53

the 90 day rule that you mention about the recovery of cash by the employer is correct and the attached link confirms this. http://www.hmrc.gov.uk/paye/payroll/special-pay/non-cash.htm

As regards the payment of PAYE I process these transactions for many of my clients and we process through the payroll in the month of the transaction. Like any other PAYE income tax is due at the time the cash is made available to the employee. So if options were sold in April then we would include them in the April payroll. There may well be a 90 day window but I cannot find the confirmation for this.

In summary your client should have a very good system of reporting these options and it should not take long for information to move to the payroll department.

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