Timing is everything - Share option schemes and PAYE
In certain circumstances a PAYE liability can arise on the exercise of share options in a company. The initial liability falls on the employing company, but there is a fixed period from the date on which the payment is deemed to have been made, within which the employee can make good the tax due. If this is not done then the tax is effectively treated as a benefit in kind and assessed to income tax.
A recent case of the Special Commissioners (Chilcott and Others v. Revenue & Customs Commissioners SPC727) related to a case where, rather than reimbursing the company, the individuals declared the options on their returns and paid the tax. HMRC then sought to repay that tax and assess them instead on the benefit in kind of the company payment.
The Special Commissioner did find for the Revenue but expressed concern about the legislation in that, in his opinion:
1. The liability could be an additional imposition on an employee who reimbursed the employer after the 30 day period had expired. In those circumstances the overall tax burden could be as high as 56%. That appeared to put employees who chose not to reimburse their employer in a better overall position, which made no sense.
2. The legislation takes no account of the length of time between the expiry of the 30 day period and the date on which reimbursement occurred. The tax charges are exactly the same if an employee is a day late as opposed to a year late.
Despite the sympathy and concern, one has to say the taxpayer still lost. The facts of this case pre-dated a change in the legislation and the period for making good was extended to 90 days. It was clearly recognised that 30 days was too short, but too late to help Mr Chilcott and colleagues.
Date: 2nd March, 2009
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