Hi all,
Client's payslip lists the following:
- Employer's NIC re share options (employee paying on behalf of employer)
- Net Value Traded Shares
- Notional Shares
Notional Shares is excluded from net cash calculation. P60 is calculated based on basic income less employer's NIC for share options plus notional shares - as you expect.
My question: What is "Net value traded shares"?
Their payroll team says it is "not a cash amount and has been worded slightly incorrectly" (yet it was included in net cash calculation...), that "it is processed to ensure that when the system calculates the taxes (Tax & NI) due, there is no impact to the employees NET salary. If this amount was not included at the time of processing the NET salary would be reduced by tax value". What? Of course the employee's net cash will be lower - they have to pay tax on the huge amount of shares they just received, which they could sell if they want... The client isn't aware if his employer has sold his shares at the date they were exercised. As far as he knew, he still had them to sell (may be wrong). My guess was that the employer sold the shares on the date of exercise, but if they did they the "Net Value Traded Shares" would be close to the market value of the shares so now I'm out of guesses...maybe they only sold some shares? I've gone back for him to ask his payroll how they calculated it.
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Any subsequent sale of the shares would not appear on the payslip since it is not subject to income tax. It is the exercise of the options which is appearing on the payslip. Also the employer would not sell the shares, it would be the employee.
Sorry I can't help on that extra line, I assume it is an adjustment so only the tax on the RSUs is deducted rather than the RSUs. Is the net pay what you were expecting or something else?
Any subsequent sale of the shares would not appear on the payslip since it is not subject to income tax. It is the exercise of the options which is appearing on the payslip. Also the employer would not sell the shares, it would be the employee.
I assumed that there was probably a flag that asked the client "do you want to auto-sell on exercise of shares" or something like that in the options provider.
Sorry I can't help on that extra line, I assume it is an adjustment so only the tax on the RSUs is deducted rather than the RSUs. Is the net pay what you were expecting or something else?
The RSU's are added as the "Notional stock" and aren't paid as cash in the net cash calculation. Therefore the Income Tax and EE NIC's should be calculated correctly. I just don't understand what the Net Traded Value would be :(
In my experience when options are exercised it is common practice to sell sufficient shares to cover the tax created by exercising the options. (Hate that sentence but can't think of different way to say it.)
The net proceeds are added in to payslip as non taxable amount and the end result should therefore result, if they got the numbers right, in a net pay of the normal amount.
Ah, that would explain it then - as I expected, the company have sold some of his shares and have added the cash as non-taxable on his payslip . I will get them to confirm.
It does match the PAYE + NIC Er + NIC Ee taxes on the options so makes sense, thank you!