The taxation of a gain realised on the exercise, assignment or release of share options has moved from an individual self-assessment system to a PAYE real-time payroll withholding system. This treatment will apply to gains realised on or after 1 January 2024. Employers will be responsible for collecting income tax, USC and PRSI from employees on share option income gains and remitting those taxes to Revenue as part of the payroll process.
Any gains realised before 31 December 2023 will remain taxable under self-assessment and the employee will be required to submit a Form RTSO1 along with payment of the relevant taxes within 30 days of exercise.
Employer considerations for implementing this change
This is a significant change for employers who, to date, may not have needed to record and collate data for tracking share option gains. Employers should begin making the necessary preparations now given the tight timing requirements for the payroll function. Employers may wish to consider the following:
- Review existing share option related data retention and collation methods – will the current system provide sufficient information to enable the employer to operate taxes on share option gains?
- Key stakeholders should be identified and the process flow should be mapped so that information is provided in a timely manner to enable PAYE reporting.
- Existing employee communication on how and when to report share option related taxes will require revision to capture these new rules – it may also be timely to promote share option tax awareness amongst employees through presentations and workshops.
- A review of the current share option scheme may be required to ensure alignment to Irish legislation and Revenue guidance along with reviewing scheme rules to facilitate flexibility for the employer to cover tax liabilities arising e.g. embedding ‘sell to cover’ capabilities within the scheme rules.
- Where employers intend to provide a ‘sell to cover’ option i.e. the sale of sufficient shares to cover taxes arising, consideration will need to be given on how this will be communicated to share option holders and how such a process will operate in practice.
- Calculating tax liabilities on share option gains for globally mobile employees will require careful consideration as gains attributable to Irish duties during the vesting period may be within scope of PAYE reporting even where the employee is not resident in Ireland at the exercise date.
- In the event an employee has insufficient funds in a pay cycle to cover the share option taxes due, the employer will remain liable to pay the full amount of relevant taxes due to Revenue with the collection of underpaid taxes being a matter between the employer and employee – a charge to BIK could arise on the repayment of taxes in certain circumstances.
- Where taxes arise on share option gains for former employees, consideration will be required of how such pay and reporting mechanism will operate via the PAYE payroll function – particularly as there may be no income source from which to withhold taxes.
Employer Annual Share Reporting
Current employer annual share reporting requirements remain whereby employers are obliged to submit a Form RSS1 in any year in which an option is granted, exercised, transferred, assigned or released. A Form RSS1 should be completed and submitted online via Revenue Online Service (ROS) on or before 31 March following the end of the relevant tax year.
How Grant Thornton can help
At Grant Thornton, our specialist Employer Solutions team have extensive experience in providing advices on share scheme related rewards. If you would like to discuss the upcoming changes to share option reporting requirements, please contact our team, Jane Quirke, Michelle Dunne or Clare Fitzgerald.