Benefit In Kind on ESPPs

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piercewhelan

Guest
Hi,
I have a query in relation to BIK on ESPPs. My company and the Revenue seem to be of different opinions on this.
I am in the lucky position of receiving ESPPs, i.e. shares bought at a favourable rate (85%) twice a year. Because of this the company submited a BIK return for me (and all employees), which was then used to calculate my credits for the following year. I know that this has now changed with the new treatment of these shares.
My question, in relation the tax return for 2003, is whether I should use the actual BIK received in 2003, or the BIK for 2002, which the company would have submitted for 2003.
The company is of the 2nd opinion, that I am paying for 2003 BIK in 2004 through reduced tax credits. Up to now I have completed paper tax returns and have marked in "As per company submission" in the BIK section and leave revenue look it up, which would be in line with the companies thinking.
However, now I am completing an on-line ROS return and I have to give actual figures. I rang Revenue and they said I must put in the actual BIK for 2003, but the person I spoke to didnt seem too clued in on it.
I am wondering, whether a long the way I will skip a year of (or am I paying on the double?), going from paying a year-in lieu to paying current year BIK.

Any insight/suggestions would be helpfull.

Pierce
 
> My question, in relation the tax return for 2003, is whether I should use the actual BIK received in 2003, or the BIK for 2002, which the company would have submitted for 2003.

I would have assumed that the BIK income tax and PRSI liabilities for shares purchased as a discount to the market value in a particular tax year would be due for that year - e.g. for shares purchased in 2003 the 2003 return should cover these. If BIK for 2002 has not yet been declared/paid then you should probably declare these separately or else write to Revenue separately about these.

Can't answer your ROS question I'm afraid.
 
I believe you need to file seperate submissions for 2002 and 2003. Thats been my experience on ROS to date.
 
As Capall mentions in this topic:



you probably should seek independent, professional advice on your tax affairs particularly given the amounts of money/tax that seem to be involved.
 
Can I add to this question? I am also in receipt of the same ESPP. So as an example:

Start price during ESPP period = 30 dollars
End price during ESPP period = 70 dollars
Purchase price to me = 30 dollars (lower of the 2) - 15%

HOWEVER, my BIK is based on end price (as in market price on day they were bought) - what I paid for them - HUGE BIK!!

Is this correct? I am hoping someone will say NO and say I should be useing the 30 dollar figure???????????

Thanks

Cop
 
The BIK income tax liability is calculated on the difference between the discounted price that you pay for them and the market value on the day that they vest. In this case (assuming high rate taxpayer) that would be 42% x number of shares x (US$70 - US$25.5). Sorry that's not the answer that you were hoping for. No PRSI is chargeable. You must file and pay this on a self assessed basis (i.e. the employer should not deduct tax via payroll) within a month. Note that the employer is obliged to notify Revenue about the scheme and participants so they will know even if you don't declare. See this thread for more on this. When you sell the shares then any gain above the US$70 price is assessable for CGT. If you exercise and sell on the same day to secure the 15% gross gain attributable to the discounted price then only BIK income tax applies (i.e. no CGT). CGT is only an issue if you exercise and hold and sell later on. Note that even though the BIK income tax is payable immediately it still leaves you with a c. 8.7% gross gain which isn't bad for a 6 month (I presume) guaranteed return.
 
Thanks Clubman - clear explanation and yes, while it kills me to hand over the money, the return is still way above anything else around!

Cop
 
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