Taxation of UK employee in US phantom equity

How will payments from a US phantom equity incentive plan be taxed for UK employee & resident?

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UK employee is employed by UK subsidiary of US parent company.

UK employee has been granted phantom interest in the US parent company.

How should payments/income from this scheme be treated by HMRC? What effective date will be used to determine applicable tax?

Replies (6)

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By Tax Dragon
02nd Aug 2021 14:54

I'm curious. Is that all the information there is, there's more but you don't have it, or there's more and you do have it but you thought that was all that would be needed to analyse the tax position?

If that's all there is, then you won't get a better guess than: money received under the scheme is liable to PAYE and NIC when received. If there's more (whether or not you have it), it might be different.

Thanks (1)
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By Wanderer
02nd Aug 2021 15:04

Member since March 2014 and this is the first question & no contributions either? The end of the anonymous function in action!

As TD implies, could you possibly give less information?

Anyways HMRC’s view is that these are just arrangements for the payment of cash bonuses, so agree with TD's conclusion.

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By sebrose
02nd Aug 2021 17:07

I have the full plan and grant documentation which runs to a dozen pages of US accounting terminology.

Happy to share the documents in whole or part, but didn't want to overload AccountingWeb. As noted, it has taken me seven years to work up the courage to ask a question :)

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Replying to sebrose:
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By Tax Dragon
02nd Aug 2021 17:18

Does the documentation provide any reason to suppose the answer is anything other than PAYE and NIC on receipt of money? Does the employer suggest the answer is anything else? (Since PAYE and NIC are initially matters for the employer, I wouldn't worry about other tax issues without cause. Do you have cause?)

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Replying to sebrose:
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By Wanderer
02nd Aug 2021 18:07

Okay, well, well done for coming back. Here's some links to HMRC's manuals if you need to justify your position:-
https://www.gov.uk/hmrc-internal-manuals/employment-related-securities/e...
https://www.gov.uk/hmrc-internal-manuals/employment-related-securities/e...
https://www.gov.uk/hmrc-internal-manuals/employment-related-securities/e...
Bottom line, unless the documentation you have leads to any different conclusion, the employee isn't really acquiring anything in the form of shares, options etc. and they are just a fancy way to calculate a cash payment and therefore subject to PAYE.

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By Paul D Utherone
03rd Aug 2021 11:36

I should have thought if it's a phantom scheme linked to share price movement, but otherwise there being no actual issue of shares, then it is just salary taxed when paid

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