Revenue to chase down unpaid tax on share option scheme awards

Revenue is threatening in-depth audits of employees who are not properly declaring their tax liability for share options after detecting significant non-compliance in respect of company schemes.

ax officials are planning to write to 1,200 employers in the coming weeks outlining their concerns and asking them to circulate an informational note to share recipients.

A Revenue spokesperson said the communication is “focussed on advising employees of their tax obligations and ensuring that they don’t leave themselves open to unexpected tax liabilities and the possibility of interest and penalties”.

Revenue told a June 14 meeting of the Tax Administration Liaison Committee (Talc) audit subcommittee that its data showed problems with both capital gains tax (CGT) filings and so-called “relevant tax on share options” – the income tax and USC due on share awards.

The Institute of Chartered Accountants, which participates in Talc via the Consultative Committee of Accountancy Bodies-Ireland, told its members that “a key message coming from Revenue is that it intends to proceed with Level 2 interventions where there is non-compliance by participants of employee share schemes”.

A Level 2 compliance intervention by Revenue involves either a risk review or a full audit of a person’s tax affairs.

A taxpayer notified of a Level 2 intervention cannot avail of self-correction procedures or make an unprompted qualifying disclosure, according to Revenue’s code of practice.

However, someone subject to a Level 2 intervention can still mitigate penalties and avoid publication as a defaulter if they make a prompted qualifying disclosure and cooperate fully with the intervention.

Except for certain Revenue-approved share-based remuneration schemes, when an employer gives employees shares free of charge or at a discounted prices, it counts as taxable benefit. That means the employee must pay income tax, USC and PRSI on shares or options in their company’s scheme.

Typically, the company awarding the shares makes the necessary deductions and pays the tax directly to the Collector-General. When options are exercised or shares are sold, employees may also be liable for tax on the capital gain, as well.

Revenue also advised the Talc audit subcommittee that many PAYE taxpayers may be entitled to unclaimed refunds going back to three years and officials will be contacting them in the next few weeks to adviseof preliminary PAYE and USC positions.

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