Share-Based Remuneration - Finance Act 2011 Changes

1. Introduction

The Budget and Finance Act 2011 made several changes to share-based remuneration, in particular charging certain gains made by employees to universal social charge (USC) and to PRSI. These changes also impact on employers who are to be responsible for deduction and payment of most of the relevant charges.

2. Department of Finance statement on PRSI

The Department of Finance published a statement on its website (www.finance.gov.ie ) on 14 March 2011 in relation to the 'grandfathering' of the new PRSI provisions. This states that the charge to PRSI (both employer and employee) will not apply where share-based remuneration was the subject of a written agreement entered into between the employer and the employee before 1 January 2011. The new PRSI charges will, however, apply to share-based remuneration given under agreements entered into on or after 1 January 2011. The statement also states that the legislative changes required to underpin this clarification will be made in the next Social Welfare Bill. Accordingly, any PRSI already deducted by employers which falls within the terms of this arrangement may be recouped by adjustment to payroll in the current tax year. When making such adjustments, employers should avoid reducing pay to less than €38 in any PRSI week so that employee contribution records are not adversely affected by the adjustments.

3. Transitional arrangements for USC and PAYE

Regardless of when agreements were entered into, share-based remuneration (including share options) remains chargeable to USC from 1 January 2011. Likewise, the collection of income tax on share awards is brought into the PAYE system for the tax year 2011. Revenue and the Department of Social Protection recognise that some employers may need time to put appropriate structures in place and to adapt their payroll systems to these developments. They will not, therefore, as a transitional arrangement, seek to impose interest and penalties where any outstanding liabilities are settled before the P30 filing date for June, i.e.14 July 2011 or 23 July for ROS filers. This treatment 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 profit sharing schemes, and to PRSI on the exercise of non-SAYE share options.

Any amounts paid before these dates will not be refunded. Interest on late payment will be calculated from the actual due dates and not from the extended deadline where outstanding liabilities are not settled by that extended deadline.

4. USC and share option gains (RTSO)

Income tax on gains arising from the exercise of share options, known as 'relevant tax on share options' (RTSO) continues to be payable within 30 days of the exercise of an option and continues to remain outside of the PAYE collection system. Instead, the employee is responsible for payment of this tax, which should be paid when filing the Form RTSO1 (PDF, 50 KB) with the Collector-General. USC on such gains should also 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.

5. Further briefing on share-based remuneration

The subject of this eBrief - allowing employers additional time to comply with their obligations - was considered to be the issue causing most concern to employers and in respect of which clarification was urgently sought. A further eBrief relating to other aspects of the taxation and PRSI treatment of share-based remuneration will issue shortly.