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RSU Tax UK and Self-Assessment: A Tech Employee's Guide

Restricted Stock Units (RSUs) have become a popular type of remuneration, particularly in technology businesses. They act as an incentive, aligning workers' interests with those of the firm by including shares in the pay package.

Arjun Kumar
Arjun Kumar
Founder
Jun 29, 2024
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Restricted Stock Units (RSUs) have become a popular type of remuneration, particularly in technology businesses. They act as an incentive, aligning workers' interests with those of the firm by including shares in the pay package.

However, although RSUs may be a profitable component of your remuneration, they may have significant tax implications, especially in the United Kingdom. This tutorial seeks to help IT workers understand RSU tax UK and the self-assessment procedure.

What is an RSU?

Restricted Stock Units are company shares that workers get as part of their remuneration package. Unlike stock options, which allow workers to buy company stock at a fixed price, RSUs are granted outright but with limitations. These limits often include a vesting period, which is the amount of time an employee must wait before gaining full ownership of their shares.

Vesting Period

The vesting time is an essential component of RSUs. It might be time-based, performance-based, or a mix of the two. For example, a typical time-based vesting plan may issue 25% of the RSUs each year for four years.

Taxation of RSUs in the UK

In the UK, RSUs are taxed at two points:

At Vesting: When the RSUs are vested, and the employee gets the shares.

At Sale: When an employee sells their shares.

Tax at Vesting

When RSUs vest, they become income and are liable to Income Tax and National Insurance Contributions (NICs). The amount subject to tax is the market value of the shares at the time they vest. This is classified as employment income and taxed appropriately.

Example:

Assume you get 1,000 RSUs, and the market value at the time of vesting is £50 per share. The taxable amount is £50,000 (1,000 RSUs multiplied by £50). This payment will be subject to Income Tax and National Insurance Contributions.

Tax on Sale

When you sell the shares, you may be liable to Capital Gains Tax (CGT) on any gain in value after the vesting date. The gain is computed by subtracting the selling price from the market value at the time of vesting.

Example:

Continuing with the preceding example, if you sell the shares for £70 a share, the profit is £20,000 (1,000 shares x (£70 - £50)). This sum is subject to the CGT.

Tax Rates

Here are the different tax taxes you must know:

Income Tax

Income from RSUs is taxed at your marginal tax rate, which may be:

  • 20% for basic-rate taxpayers.
  • 40% for higher-rate taxpayers.
  • 45% for additional-rate taxpayers.

National Insurance Contributions (NIC)

The NICs have different rates, such as:

  • 8% on the income between Primary and Upper Earning Limit
  • 2% on the income over the Upper Earning Limit

Capital Gains Tax

The capital gains tax rates are:

  • 10% for basic-rate taxpayers.
  • 20% for higher and additional-rate taxpayers.

In addition, there is an annual CGT allowance (£3,000 for the 2024/25 tax year) that may be used to offset profits.

What is Self-Assessment?

HM Revenue and Customs (HMRC) employs self-assessment to collect income tax. Taxpayers with complicated tax affairs, including those who get income from RSUs, must file a self-assessment tax return each year.

Registering for Self-Assessment for RSU Tax UK

If you need to declare RSU income, you must sign up for self-assessment with HMRC. This can be completed online if you have a tax account with HMRC. You can register here. Ensure you register by October 5th, following the end of the tax year in which you received the RSUs.

If you are outside the UK, you need to print and post an SA1 form to HMRC. You can find the form and further instructions here.

Completing the Tax Return

Here are the essential pages of tax return form:

Employment Pages

Income from vested RSUs should be shown in the employment part of your tax return. Your employer should give a P60 or comparable paperwork indicating the taxable amount and any tax previously paid via PAYE (Pay As You Earn).

Capital Gains Pages

If you sell your RSU shares, you must declare the capital gain in the Capital Gains section of your tax return. You will need to compute the gain as previously indicated and apply any CGT allowance.

Note: This part will not apply to you if you are not living in the UK and are non-resident for UK tax purposes.

Residency Pages

If you are not living in the UK but earned RSUs while you were in the UK, the RSUs will continue to be taxable in the UK as they relate to UK workdays. In this case, you must file the SA109 Residency pages of the tax return to declare your non-residency status to HMRC.

Deadlines

October 31st: For paper tax returns.

January 31st: Submit online tax returns and pay any outstanding taxes.

Paying Your Tax

If your extra tax payable is less than £3,000 and you file your return online before December 30th, HMRC may change your tax code to collect the tax via PAYE. Otherwise, you must pay the tax by January 31st, after the end of the tax year.

Common Pitfalls and How to Avoid Them

Double taxation

If you work for a global corporation and get RSUs while working overseas, you may think you are being taxed twice. The UK has double tax treaties with a lot of countries which will avoid this from happening. Generally, it will be taxed first where the work has taken place. Do consult an expat tax advisor for more details.

Ignoring NICs

NICs on RSU income can be significant. Ensure you understand how NICs apply to your RSUs and plan accordingly.

Currency fluctuations

If your RSUs are denominated in a foreign currency, exchange rate variations may influence the value of your shares as well as the amount of tax owed. Check currency rates and think about utilising forward contracts or other hedging measures.

Bottom Line

RSUs may be essential to your pay plan, but they have significant tax ramifications. Understanding how RSUs are taxed in the UK, maintaining proper records, and strategically planning your transactions will help you efficiently manage your tax bill. Remember to register for self-assessment, record any applicable income and profits, and pay all required taxes on time. Seeking expert guidance might also help, especially if your case is complicated. If you are looking for assistance, contact Taxd. We have the right experience and can help you understand the intricacies.

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