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US stock options

US stock options

When this issue first arose I thought i knew the answer but after speaking to HMRC i'm now more confused than before!

My client works for the UK subsidiary of a US company. As part of his package, he receives US stock options exercisable at certain time for an agreed price. In 20011/12 he exercised some of his USstock options and immediately sold the shares on the US stock market for a gain.

His employer has confirmed that no tax (either UK or US) was withheld on the cash proceeds he received.

I now need to put he details on his 2011/12 tax return.

i was expecting that PAYE should have been operated by his UK employer and NICs should have been payable. I rang HMRC but they tell me NICs aren't payable and i should put the details on the foreign  income pages not the Additional Info where i was expecting to report it.

Could anyone confirm the position for me?

many thanks


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17th Jan 2013 13:57

Deemed employment income?

On the face of it, the options are from employment in the UK and the shares are readily convertible assets received under an unapproved scheme, so PAYE and Class 1 NIC should have been accounted for by the employer.  If so, the gain is deemed employment income and you report it on page Ai2 of the SA101.  It's unlikely to be foreign income if it is derived from the UK duties of a UK employment.

It sounds like your client may also have a deemed benefit under s222 ITEPA because he didn't hand over the PAYE to the employer within 90 days.  This is a benefit reportable on the P11D for the year in which the option was exercised, but the employer presumably didn't put it on there either if the gain was not put through payroll?

Have you checked with the employer that the share option was not awarded under a UK option scheme that qualified under UK rules despite providing US shares?  It's not impossible that there was a UK approved scheme that was structured so as to provide benefits as similar as possible to the US parent's US stock option plan.  If so, you might need to think about CGT instead. 


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to mabzden
17th Jan 2013 14:16

thank you - can i follow up with another question?

thank you David

the Option Agreement provided to me is entitled 'Nonqualified Stock Option Agreement' and was in the name of the US parent company. However my client receives a salary from the UK company. 

its not on the P11D either. Does that leave the problem with my client or with his employer do you think?


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18th Jan 2013 16:29


It doesn't look like a UK approved plan, so the employer should be making a disclosure and late PAYE/NI payment to HMRC.  The PAYE obligation rests with the company, but your client probably doesn't want to fall out with the employer.  He needs to talk to the HR department and work out how they are going to rectify matters. 

The deemed income needs to be shown on his return, however they deal with the tax and NI. There may have to be some discussion about who pays the tax on the s222 benefit, but your client will have to bear the tax, one way or the other.

Thanks (1)
to David Heaton
08th May 2017 17:00

Hi David,
I am in same situation except the employer has deducted tax and NI upon sale of options. Now if I have taken early retirement, employer has offered to continue vesting options until 2019 (3 years).
If I sell any options now, what will the tax and NIC be and how will it be handled since now I am unemployed. - amrik

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