Members will be aware that Finance Act 2011 made a number of changes to the tax treatment of employee share-based remuneration which took effect from 1 January 2011. The practical operation of the changes required clarification from Revenue. Following discussions between Revenue, the Dept. of Social Protection and practitioners’ bodies, which included Chartered Accountants Ireland; transitional arrangements have been confirmed by Revenue which will afford employers a grace period to put appropriate structures in place to deal with the recent changes to the tax treatment of employee share-based remuneration. Revenue has also confirmed that USC on gains arising from the exercise of share options should be remitted with the form RTSO1.

Transitional Arrangements

Revenue and the Dept. of Social Protection will not, as a transitional arrangement, seek to impose interest and penalties where any liabilities to income tax, USC and PRSI, as appropriate, are settled before the P30 filing date for June i.e. 14 July 2011 or 23 July 2011 for ROS filers. The special transitional arrangements confirmed by Revenue will apply to; income tax, USC and PRSI on share awards, to USC and PRSI on the exercise of SAYE share options and appropriations of shares in approved profits sharing schemes, and to PRSI on the exercise of non-SAYE share options.

Share Options and Collection of USC

USC, along with Income tax, on gains arising from the exercise of share options, should be paid within 30 days of the exercise of an option and be remitted with the form RTSO1. USC payable on gains made since 1 January 2011 should now be brought up to date by employees who have exercised options in this period.

Charge to PRSI

In a published statement on the Department of Finance website, the Minister for Finance clarified that the charge to PRSI (both employer and employee) will not apply where the share based remuneration was the subject of a written agreement, entered into between the employer and the employee before 1 January 2011. The PRSI charge will however, apply to share based remuneration where the agreement entered into on or after 1 January 2011. The legislative changes required to underpin this clarification will be made in the next Social Welfare Bill.

However, distinct to the special rules regarding the application of PRSI, members should note that regardless of when agreements were entered into, all share-based remuneration is chargeable to USC from 1 January 2011.

Practical Issues

There are a number of outstanding practical issues for our members in implementing the changes introduced to the tax treatment of share-based remuneration in Finance Act 2011. Chartered Accountants Ireland, through the TALC forum, will continue discussions with Revenue on these issues and we understand that subsequent eBrief(s) will issue from Revenue.

Revenue eBrief No. 17/11 which sets out the above transitional arrangements and confirms the USC collection mechanism in respect of share options is reproduced on here.