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Finance Bill shifts responsibility for share options tax payment to employers

By October 20, 2023No Comments

IPSA seeks longer lead time for introduction of new measure

The Government has announced legislation that will make employers responsible for ensuring the payment of taxes due on the exercise of share options awarded to their employees.

The significant new measure, published in the Finance Bill yesterday, pushes the burden of collecting income tax, USC, and employee PRSI onto company payroll. Previously, the individual had to pay the taxes personally and file a self-assessment tax return.

The change is due to come into effect on 1st January 2024, however, IPSA will seek a longer lead time for its introduction from the Department of Finance in order to allow employers to make the necessary adjustments to their processes and procedures.

The Finance Bill states: “The taxation of a gain realised on the exercise, assignment, or release of a right to acquire shares or other assets is moved from self-assessment to the Pay As You Earn (PAYE) system. This treatment will apply to gains realised on or after 1 January 2024. As a result, the employer will be responsible for accounting for the income tax, Universal Social Charge, and employee’s PRSI to the Revenue Commissioners as part of their payroll process. Gains realised on or before 31 December 2023 will remain taxable under self-assessment.”

IPSA Chair Marie Flynn believes the change is likely to be broadly welcomed by many employers and those working in the share scheme sector – but that it presents challenges for some companies in certain scenarios and would have benefitted from a consultation period before introduction.

“In some ways this is a welcome development because individuals in receipt of share options will no longer be left to sort out paying tax and filing returns on their own – something that has always been a bit of a burden,” Ms Flynn said.

“However, the timeframe of only two months for employers to prepare for this new process is very tight, especially for larger companies with frequent grants and exercises of share options. The change in responsibility for collecting and paying taxes will also create areas of complexity and companies will therefore need clarity from Revenue on these before this new measure comes into effect.”

One area of complexity which requires clarity is where the exercise of share options takes place when there is no liquidity event. In such an instance clarity is required as to whether the employer would need to collect the tax via payroll and recoup this from the employee.

There also could be situations where the exercise of shares options occurs after an employee has left the employment and the employer needs to recoup tax from the employee.

Companies will have to ensure that they have their payroll ready for this change. Engagement will be required with either internal payroll teams or external payroll providers (if that function is outsourced) to navigate the logistics of this change and ensure compliance.

Ms Flynn added: “Even though welcome, IPSA will engage with the Government to determine whether a longer lead-in time could be facilitated. The start date is less than 10 weeks away and may not be adequate notice for employers to make the necessary adjustments to their processes and procedures.”