ARTICLE · 24 JULY 2013

Employers With Share Option Schemes Take Note…

McDermott Will & Emery

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A recent decision of the United Kingdom’s First Tier Tribunal has provided a timely reminder of the importance for employers of notifying their employees of the requirement to promptly reimburse the employer for income tax payments made on his or her behalf following the exercise of an option under a share option scheme.

United KingdomTax

Richard Cook

A recent decision of the United Kingdom's First Tier (Tax) Tribunal has provided a timely reminder of the importance for employers of notifying their employees of the requirement to promptly reimburse the employer for income tax payments made on his or her behalf following the exercise of an option under a share option scheme.

The Background

Income tax is due on a chargeable event in relation to a share option. An example of such an event is when an employee exercises his or her share options, i.e. the date on which he or she acquires the beneficial ownership of the shares.

The employer is obliged to account to Her Majesty's Revenue and Customs ("HMRC"), via the usual pay as you earn ("PAYE") route, for the income tax and national insurance contributions ("NICs") due at that date. The employee must reimburse the employer in full within 90 days for the income tax accounted to HMRC, otherwise he or she becomes liable for a penal tax charge payable to HMRC.

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